Q2 2021 Parkland Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to Parkland Corporation 2021, Q2 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 this call you require immediate assistance. Please press star zero for the operator this call is being recorded on.
On Friday August 6th 2021.
I'd now like to turn the conference over to Brad Monaco Director capital markets for Parkland. Please go ahead.
Thank you.
With me today on the call are Bob Espey, President and CEO, Marcel Tennyson, Chief Financial Officer, and Donna <unk> President of parkland in Canada.
This call is webcast and I encourage listeners to follow along with the supporting slides will go through our prepared remarks, then open it up for questions from the investment community.
Please limit yourself to 1 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 question.
During our call today, we may make forward looking statements related to expected future performance. These statements are based on current views and assumptions and are subject to uncertainties, which are difficult to predict.
These uncertainties include but are not limited to expected operating results and industry conditions among other factors.
Factors applicable to our business for set out on our annual information form and management's discussion and analysis.
We will also be discussing non-GAAP measures, which do not have any standardized meaning 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 statement.
Dollar amounts discussed in today's call are expressed in Canadian dollars unless otherwise.
I'll now turn the call over to Bob.
Great. Thanks, Brad and good morning, everybody and welcome. We appreciate you taking the time to join US today average.
Like to welcome Donna to today's call to discuss our strong on the run convenience store performance and provide some insights into our recently announced ultra fast Charger network in British Columbia, which we expect to be ready for summer driving season in 2022.
Picture on todays cover slide showcases our proprietary on the run convenience store brand, which features heavily in our performance year to date and our growth trajectory.
On the run or Marcia Express as it's known in Quebec, underpins, our strategy of creating food and convenience destinations and is key in helping our customers make the most of every stock.
Our network development team.
Built a lot of momentum through the first half of 2021, they completed phase 4 of our expansion plan and added 60, new on the run retail stores. We currently have over 330 on the run convenience stores in the Canadian market and in the second half on half of the year, we will enter phase 5 of our expansion plans, which.
Includes an advanced dealer offering as we move towards our target of 1000 on the run Murphy Express in the Canadian market, we will leverage the unique characteristic of our network to develop large and express format convenience stores to meet the diverse needs of our customers.
Or on the run convenience brand is highly scalable and provides the convenience growth platform across our entire portfolio, having bought the license for on the run in the U S. We have already opened our first location and are positioned to rapidly expand this throughout both our company owned and dealer network, we see big opportunity to continue.
You too.
The expansion of our food and convenience business and look forward to sharing more at Investor day on November 16th.
We've delivered robust first half of 2021 performance and continue to advance our proven strategy through consistent operational execution organic growth financial discipline and accretive acquisition.
I am very proud of our teams who continue to deliver exemplary customer service and grow our market share.
We have seized the opportunity through COVID-19 to fine tune, our operations streamline our cost structure increase efficiency and win new business.
Gives us tremendous upside potential as markets continue to recover.
Combination of Green shoots of macro economic recovery across our business strong marketing results since and.
Safe and reliable operations at the Burnaby refinery helped deliver a 69% increase in year over year adjusted EBITDA.
We remain focused on our long term growth strategy and are very confident in our trajectory our ambition for $2 billion of run rate EBITDA by the end of 2025 is firmly on track we have a proven track record of disciplined value creation built on a foundation of continuous organic growth within.
Very acquisitive since the end of 2020 with a constant stream of highly accretive and complementary deals since our Q3.2020 results, we have announced or closed 12 transactions across Canada, the U S and our international operations.
<unk> the acquisitions have totaled approximately $800 million Canadian dollars. They are immediately accretive to cash flow per share and expect it to be approximately 8% accretive on a post synergy basis, we continue to advance our co processing innovation at the Burnaby refinery maintaining the previous quarter.
As co processing record of 25 million liters. This is amazing Canada success story that are that we are very proud of in addition, we announced plans to launch the largest ultra fast electric vehicle charging network in British Columbia by site Count, which is a natural extension of our energy.
<unk> activity.
We've been highly disciplined in launching this business in a market with the most promising emerging demand profile, we see opportunity.
To be our customers' energy partner of choice and to make our convenience retail business a compelling destination for charging Donna will speak more about this shortly.
Parkland has a very exciting future and you can count on us to remain focused on maintaining our financial strength and delivering sustainable long term growth on a per share basis.
I'd now like to pass over to Marcel to discuss second quarter results.
Thank you Bob and good morning, everyone and thank you for joining the call I know that we are competing with the Olympics. This morning. So I do appreciate that everyone who has dialed in.
So when you turn to slide 4 and a summary of our financial results. So we delivered a quarter 2 adjusted EBITDA of $322 million, which is up nearly 70% compared to Q2 of last year.
Covid continues to impact the broader economy, each area of our business delivered underlying growth compared to last year, driven by compelling customer office margin strength and acquisition on marketing businesses have continued to grow through a challenging operating environment.
It's worth to note debt relative to 2019 year to date, the adjusted EBITDA in our combined marketing business is up 12%.
In supply we are markedly up from 2020 as the prior year included a scheduled turnaround, which impacted both quarter, 1 and quarter 2.
Including 25 million liters of bio feedstock co processing, we delivered a composite refinery utilization of 97% in the quarter and the refinery continues to be a cash generator.
In quarter, 2 we have started to see the early signs of the post COVID-19 recovery, resulting in higher fuel demands.
I would like to direct your attention to the chart on the right side of the slide wherever we've overlaid 2019, 2020, and 2021 retail volumes in the retail business in Canada and abroad.
2 things that I would like to point out on this chart. So number 1 we are seeing positive trends in the broader economy relative to 2020 with volumes up more than 15% handle for 2020 levels. However, while recovery has been strong. It is still bumpy as you can see in April of this year, which featured some COVID-19 related locked.
Sounds in a number of Canadian provinces.
But important to point out as well as debt is locked down at a much smaller impact than the lockdowns in the same period in 2020.
When we were in our first kind of wave of Covid related lockdowns.
The second takeaway is really that there is a lot more upsides to go into recovery. So although the gap is narrowing we still have a way to go before returning to 2019 levels on the volume side and to put it in context total retail volumes in the quarter were approximately 15% behind 2019, but we have been improving each.
Months and so for example in July we are within 10% of the 2019 demand levels and.
And across our portfolio in the U S and India International business, we see a similar pattern. The U S is a few months ahead of Canada and the international markets are generally a little bit behind Canadian recovery.
And so against this backdrop for your for being able to grow the profitability of our marketing business through a sustainable cost reductions and robust unit margins and we are well positioned to take advantage of.
<unk>.
When volumes return after after.
Covid ends.
Moving to slide 5 the segmented overview I'll start with Canada, where we've delivered 181 million of adjusted EBITDA in quarter 2.
$8 million higher than the prior year, driven by improving volumes already talked about its continued healthy retail margins C store growth and strong commercial performance.
Same store sales growth, excluding cigarettes was 8.6% driven by strength in major categories, including the central store beverages triple dose and car wash. Unfortunately. This also resulted in an improvement in gross margin as our data and analytics capability has improved in store margins and rehab.
<unk> gained materially in this regard and dawn I will touch on debt a little bit later.
The International segment delivered $66 million of adjusted EBITDA, which is up 12 million relative to prior year. This performance was driven by a strong base business and per unit margins and continue to benefit from sustainable cost control initiatives.
In addition, our teams continue to optimize margins in our wholesale supply business.
On a macro level the Caribbean region continues to see varying impacts from Covid. For example, the Dominican Republic is open for business game and is currently in Lockdown and other markets such as Barbados and St. Kitts are reentering some form of lockdown at the moment. So against this backdrop, we continued to see strength in our business and in the markets that reopens.
We delivered meaningful volume and convenience store growth demonstrating the quality and appeal of our offer.
Our business is well positioned to benefit from our regional recovery and we do see green shoots in New Jersey are industry with all countries working hard to open for the late fall to recession. So just to provide some additional color our sales general indicate strong crew ship bookings towards the end of the year for the jet as well Jeff is still down.
At about 30% to 35% of 2019 levels airline nominations are beginning to pick up which provides optimism and upside potential for late 2021 and beyond.
Shifting to the U S. We delivered 31 million of adjusted EBITDA in Q2 net was up 10% from 2020.
Continued to deliver growth in our U S business through a combination of acquisitions organic growth and synergy capture.
We are pleased to welcome to convert ambitious team to parkland, that's happened in quarter, 2 which adds a fourth regional operating center into Pacific Northwest and provides a new platform for growth for parkland in the U S and as I alluded to in the previous slides. The U S is recovering well from COVID-19 with retail volumes approaching 2019.
Levels and strong convenience.
So margins as well.
Seth pockets of our U S business have yet to fully recover, particularly our marine business in Florida.
However, the team in Florida have done a great job in offsetting just halfway through continued diversification of the business and so theres upsides in the recovery.
As you likely know from the broader macroeconomic data cost inflation is real and the U S and we see wages for drivers and store personnel go up however.
We are managing to really pass these costs.
On too dark too into the prices on into the markets and recover that additional cost as well.
Like all day every as you know business, we've done a great job in the U S offsetting COVID-19 impacts through operational execution and underlying organic growth, while positioning ourselves for additional upside as the markets fully recover.
Our supply business delivered excellent second quarter results with $154 million of adjusted EBITDA, that's up $119 million compared to quarter 2 of last year. As I noted earlier that include a day scheduled turnaround at the Burnaby refinery.
Finally, you really had a great quarter as did our integrated logistics business, which benefited from a diverse product portfolio and strengthen the propane markets to compensate for utilization at Burnaby about 97%. This included 7.700 barrels a day or 25 million liters of buyer feedstock co processing this matched our previous call.
This record and keeps us firmly on track with $100 million liter full year target for 2021 and co processing continues to help us meet our carbon compliance requirements in BC retail will discuss in a little bit more detail on the moment.
Adjusted EBITDA expense was $30 million debt was up $12 million relative to quarter 2 of 2020, reflecting variable cost connected to volume recovery and reduced benefit from COVID-19 related wage assistance programs.
Yeah.
Turning to slide 6 where I'll provide some additional color on the Burnaby refinery dynamics, considering very strong result, and giving the rising compliance costs in the BC market.
So first on the left side of the offset of the pages are standard kind of indicative for Burnaby crack spread for indicator, which is normalized against the trailing 3 year average at any time and we've highlighted a few areas since 2018, which drove up which drove upward volatility and how we then reverts back to me for instance, you may.
Recall that in quarter 2 of 2019 debt was characterized by some unplanned outages along the west coast in the U S, which increased local crack spreads and resulted in very strong supply results for us.
Our Burnaby refinery operations have proven to be extremely consistent and resilient with volatility tending to deliver upsides. The name of the game on the West Coast continues to be reliability, which our facility has proven to be reliable.
D. C is a unique market and 1 of the recent trends. We have witnessed is the rising cost of compliance in the province in the provinces, increasing low carbon fuel requirements or L. CFR.
Which are some of the most stringent regulations in North America.
You can see on debt left side that the indicative crack spreads are already starts increasing and part of that increase is a result of rising rising refined product prices, which reflect the rising cost of the low carbon fuel compliance.
The full cost of compliance is not reflected in the simple 5311 crack spreads which considers crude as the only input.
This impact is impacting most refineries in North America. However, we have a unique advantage at Burnaby refinery through our co processing initiatives, which helps us to be bce's low carbon fuel requirements. The chart on the right helps to depict our co processing advantage for us.
Every liter of gasoline and diesel sold in the BC market needs to comply with BCC L. CFR and most economic and what everyone does first is to blend ethanol and biodiesel into the gasoline and diesel streams. This form of plant planting his technical limits and the resulting mix is still not compliance.
What comes next Israel Burnaby team creates additional value to meet the low carbon fuel requirements H D. R D or renewable diesel is typically blended into the diesel stream to bring down the overall carbon intensity your fuel.
Hei D is relatively expensive at nearly 3 times the price of diesel at the moment.
And so we're co process it comes into play and why it's important to US you said, it's about 2 thirds the cost of purchasing H D. R. D and offsets the majority of HDR D otherwise required and by continuing to optimize this activity. We aim to replace as much <unk> as possible capturing additional margin as we go.
So compliance costs will continue to increase over time it'd be relief, we are differentiated in the BC market oil and we're gonna be is a strategic assets within our portfolio, which offers a robust margins and an economic advantage in meeting the BC low carbon fuel requirements.
Turning now to slide 7 and there's a lot on this but I'm going to talk about the recent acquisitions as Bob already mentioned in his opening remarks you for.
Ounce to close 12 transactions since reporting our Q3.2020 results in November.
<unk> to approximately $800 million of Canadian.
Acquisitions taken together and that would be equivalent of our fourth largest acquisition. If we look at it that way.
Our corporate development and asset teams have done a fantastic job seeking out businesses that complement our strategy and add value for our shareholders.
After accounting for equity issued under our dividend reinvestment plan at the market program and a small amount of N to take back the transactions are immediately accretive to distributable cash flow per share and approximately 8% accretive after reflecting synergies and other enhancement initiatives are.
Our acquisitions have been directly aligns with our stated growth strategy, Yes, you could see on the slides that provide integration and organic growth opportunities and strengthen our supply advantage at highly attractive returns.
Enabling this activity is the strength of our balance sheet. During 2021, we witnessed interest rates that have reached multiple multi decades low and we've taken advantage of this opportunity to capture the financial benefits of the low interest rate environment by redeeming over $1.4 billion of bonds and issued nearly $2.2 billion of new bonds.
Lower interest rates and extended maturities additional miles for use to help fund a series of acquisitions on transactions and reduce the amount of draw on our credit facility.
At the end of March of 2021, we amended our syndicated credit facility to extend the available facility and extend the maturity date. The result is that parkland now does not have any bonds or its credit facility maturing until 2026 in.
In addition, we have kept our total funded debt to credit facility EBITDA leverage ratio within our desired range below 3 and a half times and in line with the previous quarter, while funding our growth program.
We believe for debt we are in excellent financial condition to reach our ambition for 2 billion adjusted EBITDA run rate by 2025.
So with that let me pass it on to donor to speak about our organic growth in EV charging rollout NBC.
Thanks, Michelle and thank you Bob for inviting me to join todays call. Good morning, everyone before jumping into our recent announcement regarding our ultra fast charging network in British Columbia, I would like to spend a few minutes reiterating some of the organic growth success, we have had within the Canadian business and build on the commentary Marcel provided.
In the previous slides.
The robust performance of our C store initiatives has granted convenience gross profit and demonstrates our commitment to creating food and convenience destinations for our customers. As you will hear later, we believe this will underpin a compelling offer for EV charging customers.
In the second quarter, we delivered strong same store sales growth of 8.6%, excluding the impact of cigarettes and negative 3.2%, including cigarettes, just as a reminder, cigarette sorry low margin business for us and in Q2.2020 cigarette sales were higher due to closures of <unk>.
Competing sales channels due to COVID-19.
I am very fortunate to be running a strong and resilient Canadian business and to have a team always focused on making it better we are becoming increasingly sophisticated retailers. When it comes to data and analytics. We developed for these capabilities through Covid and have enhanced our category management process price more effectively.
<unk> and optimize the makeup of our merchandise offering this is paying off as evidenced by the approximate 25% increase in convenience store gross profit relative to last year.
Alongside our compelling customer value proposition. We believe these capabilities can drive robust organic growth in our convenience store business. In addition, we will continue to progress the customer offering initiatives, which have underpinned our success through 2021, including our Canadian on the brand expansion.
And partnerships with locally relevant high quality fresh food offerings, we expect to accelerate the rollout of undergrad and both our company owned and dealer relocations retail locations targeting another 60 Canadian on the Rins sites in the next 6 months after opening our second chip for those locations.
In Ontario, we plan for 2 more Ontario site and to Western Canada sites by the end of the year.
Taking a step back and looking at our convenience store performance over the last 2 years, we have followed up a great 2020 with an even better 2021, we are immensely proud of high single digit growth excluding cigarettes for 2 years running.
Focused on our customers. We believe we have the right formula that Leverages, our enterprise capabilities and generates a superior value proposition.
Turning to slide 9 it is my pleasure to talk about the latest focused investment we have announced as part of our approach to energy transition.
Building on our co processing activities at the Burnaby refinery our decision to launch British Columbia's largest network of ultrafast EV Chargers is an exciting and natural next step for our business we.
We have been disciplined about where we position our charging network and thoughtful about our customer proposition. Let me take a couple of minutes to share. How we think about this at a macro level North American EV penetration is in its early phases adoption looks different and is moving at a different pace and different.
We see emerging EV adoption, when we look at new vehicle sales, particularly in BC, which leads the way across Canada with 9% of new sales in 2020 attributed to Evs for context. The Canadian average was only 3.5% with E vs, making up less than 1% of the total free.
Right.
This market fundamental was the main reason, we selected D C for our ultra fast charging network. In addition, we have many other competitive advantages in the profit, including an extensive high quality Chevron retail network featuring on the run convenience stores and triple as restaurants, which we believe are a great fit for charging.
<unk>.
We put our customers' needs and convenience first when designing our charging network by embracing 3 core principles.
First our Chargers will be located where our customers need us at 25 locations extending from BC to Calgary.
And around major cities and towns and on major highways, helping reduce EV owner ranging for IV second we will ensure our customers have quality site amenities EV charging customers have unique needs often requiring more than a 20 minute stop our existing retail footprint NBC is well suited to this.
Dwell time as our customers can shop in our on the run convenience store.
Exclusive and delicious triple as restaurants, which cover all day parts and be productive with our complimentary Wi Fi.
Third we are delivering maximum customer efficiency as our ultra ultra fast Chargers will be compatible with most evs and deliver an 80% charge in around 20 minutes.
We are on track to open our charging network by the summer driving season of 2022 by leveraging our digital and analytics capabilities, we will learn about customer behaviors and preferences, such as charging frequency in times that CT and <unk> visit trends interaction with our loyalty program and <unk>.
Differences between the various geographies this will help us refine our model and customer offer meaning that where we see emerging demand we will be well positioned to scale further I will now pass it back to Bob to wrap things up.
Great. Thanks, Donna that was great overview and it sets the tone for what we expect will be a strong second half of the year for parkland.
Their opinion by the resilience of our portfolio, our strong base business ongoing economic recovery and contribution from acquisitions gives us confidence to raise our full year adjusted EBITDA guidance to 1.25 billion plus or -5%.
Due to anticipated timing of capital spend including some COVID-19 related delays. We've also reduced our 2021 expected capital expenditures by a combined 50 million to $3.50 to 500 million to wrap things up before we invite your questions.
To summarize by saying that I'm extremely proud of the team for delivering another strong quarter and for a great half for.
For a great first half for the year.
First we delivered strong operational performance and continued to see recovery across our portfolio adjusted EBITDA of $322 million reinforces our updated full year 2021 guidance and we maintain high conviction in a strong second half.
Next progress on key organic growth initiatives and a pipeline of accretive acquisition opportunities have us firmly on track with our ambition for $2 billion of run rate adjusted EBITDA by the end of 2025, a growth program is firmly on track. Finally, we continue to approach the energy transition in a day.
<unk> way with focused investments to bring us up the learning curve and position our business for long term success, while generating superior returns for shareholders.
Back stopped by our financial strength, we have tremendous momentum heading to the second quarter of the year. Thanks to the entire parkland team for all their efforts to deliver a great second quarter.
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 1 on your Touchtone phone, you'll hear 3 till them prompt acknowledging your request on your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by <unk>.
A speaker phone please lift your handset before pressing any keys 1 moment for your first question.
Your first question comes from Ben Isaacson with Scotiabank. Please go ahead.
Thank you very much on good morning, and congrats on the beat and raise just.
Just a bit of a long winded question here when I look back over the past 4 or 5 years and if we get 2020 because of Covid.
It looks like Q2 fuel volume in Canada is consistently flat are about equal with Q1, usually around 242.5 billion liters now we've just seen $2.1 billion liters 2 quarters in a row I'm a little surprised by that I would have thought in a recovering environment, we would've seen some.
For the progress in Q2 over Q1. So my question is based on that data is it fair to say that the recovery is over in Canada, and if so is it a 12% to 15% decline in volume that's the new normal for Canadian fuel volume.
And then I'll have I'll ask my second question out there.
Okay, great. Thanks, Thanks, Ben and look I appreciate the question I think.
A couple of things to keep in mind first of all markets have been locked down both in Q1, and Q2 and and so the current volume that you saw in Q2 is not representative of full recovered volume.
I would say.
We have seen an offset in the margin environment for that but volume still are light compared to 2019, and we expect to see more recovery here as markets have opened up and restrictions have have come off.
Great. Thank you and then my follow up question is.
You said in your release that you have spent $800 million over the past 8 or 9 months to what you think will be an 8% accretion on a post synergy basis. When you look back over the past.
5.710 years is that 8% accretion roughly in line is it improving is it.
Getting worse is that something that we should be modeling going forward when we think about.
How you spend capital to get to your $2 billion run rate by the end of 2025.
The the.
Well where were occurring.
The business that were currently purchasing in the synergies that we're getting are consistent with the previous years.
And so that accretion has certainly representative of the.
The type of M&A that will do and have been doing here over the past several years.
That's great. Thanks, so much.
Your next question comes from David Newman with Desjardin. Please go ahead.
Good morning, Great Great result.
Thanks, David.
First question I guess for for Donna So.
Dani you've got a target of a sort of 60.
OTR or for the next 6 months and ambitious.
On target. So maybe you can talk about the cadence of the rollout of the OTR is over the next 12 to 24 months.
And how the EV chargers might fit into that in terms of when you are developing or converting a site how the.
How the OTR EV charges might fit into that in terms of your footprint.
Hi, David and thanks for your question.
So we're really excited about the results that we're seeing from our OTR conversions and so as noted we'll be accelerating and doing another 60 sites before the end of the year. We then are looking to kind of ramp it up and continued continue to dial up really over the next 12 months to 24 months with the intent of completing for a COO.
Company network the conversions that we have planned for our company sites. Further we have added a new dealer on the run off for a program that we will be rolling out here shortly in the aggregate of both of those programs. We believe will help us get to the 1000 site targets by 2020.
In response to your go ahead go ahead, John sorry.
You had asked a second question about the EV.
E V Chargers and how that plays in.
I think.
As I noted on.
On my comments will be watching what happens with EV penetration across the markets and we believe that our sites and our on the run off for and the number in the range of sites that we have we will be well positioned for us to advance EV charging when we feel the time is right and the penetration.
Justifies it and so we feel that its a natural link.
Makes infinite sense on my second question is just.
8 point.
6% ex cigarettes is a is a pretty pretty solid number and obviously the offer in the back cordis is resonating with consumers, but as you're looking for sort of data analytics as to what is driving that and the conversion of front court the backcourt.
And in your Arsenal of things like journey, obviously triple those things lay out what what appears to be really resonating with consumers and what I'm really driving at here is now we've moved into sort of morphed into a hybrid world.
How can you make the C store that much more relevant in kind of in a hybrid world going forward people working from home from the office and kind of a mix.
So the beauty of our model and our small store format is that we are able to be extremely agile and flexible as we see the trends moving so what we have observed in the last few quarters is there a bit of a shift I would say back to kind of normal C store.
Good. So for example, I've beverage offers whether it was packaged beverage hot beverage frozen beverages, we delivered quite strong results further the center of store categories things like Candy and snacks, our automotive fluid in health and beauty all of the standard categories in the center of the store.
Just seen some really robust and good good growth part of that comes from what consumers are looking for and then also for our execution around being in stock having the right products in the right positions so that our customers can access them.
Excellent. Thanks, so much folks great real great results overall.
Your next question comes from Peter Sklar with BMO capital markets. Please go ahead.
Hi, This is chang filling in for Peter.
My first question is can you give us some more details about the on demand rollout in the U S.
How are you upgrading the stores for the on day, 1 standard how many how does the stores differ from the Canadian on the run stores on kind of what is the timeline going forward.
Yeah, Hi, and welcome.
A good question, we are pushing the on the run rollout in the U S. We now have 2 sites that are open.
The the look and feel from a branding perspective is consistent with the Canadian business. Although there is not a small little maple leaf on the logo.
And.
But our sites in the U S are different I mean, they tend to be larger.
Theres a consistent.
Beer and liquor offer that we don't have in most markets in Canada.
And and then also most sites have food directly incorporated into the site. So so a bit of a different offer down there, but consistent with the look and feel we're also in the process of rolling out our.
The loyalty program in the U S and again, making it very consistent with.
What we have in Canada.
Bob you mentioned that you're incorporating food inside the store. So it's not like a <unk> attached to the C store sounds like Youre going to have a real food program.
We do have a food program.
In the U S and we'll continue to roll that out as we roll out our.
Beyond the run brand and look we have that in many of our existing sites that we've purchased in that market.
So this is kind of like a reverse synergy that you've adopted from somebody on previous acquisitions that just like the commissary model or like.
Hi.
It's it's done through a supplier.
Okay understood.
My second question is in terms of the M&A landscape. Obviously, you guys have been doing a lot in the U S and the international segment.
Can you guys give us like kind of some color on the runway on those 2 geographies obviously in the U S. It's very fragmented. So can you just give us.
More ideas on that.
No for sure and consistent to what we telegraphed in the past I mean in the U S is our highest growth business and will continue to be so and it's largely M&A driven and the type of.
Transactions, you'll see are very consistent with what we've done.
As you've indicated it's a very fragmented market and we always pride ourselves on having a very deep and broad pipeline of opportunities.
We do see opportunities in in the international business, both within our current operating areas and also in adjacent markets and we will continue to pursue those.
I would say the frequency in and.
Of those trends or the opportunity set is less than we would see in the U S.
We also did announce a transaction in Canada. So we've always talked about where we do have opportunities and have white space in our network. We will acquire and you know, we're really fortunate to acquire a crab yay.
In Quebec, which.
Fills out our business quite nicely there.
Okay, great. Thank you.
Your next question comes from Neil Mehta with Goldman Sachs. Please go ahead.
Hey, good morning, Bob and team debt that the first question just on on the EBITDA guidance raise for 'twenty 'twenty..1 can you talk about the components that went into it and how much of it was driven by.
By the fuel side of it relative to <unk>.
Supply side of it.
Yes. So the raises is on the back of good performance year to date and also.
We continue to see the business perform perform well and expect it to do cell into the back half of the year, we've seen consistent and good performance across our business and expect to see that here.
Into the back half you know the 1 thing that I would remind you is that we will be having a turnaround.
In Q4 in our refinery and the facility will be down for a 3 to 4 weeks during that period.
Thanks, Bob and the follow up is just on fuel margins in general in a rising crude price environment often.
Thank you.
Fuel margins getting REIT fuel retail margins getting squeezed.
<unk> been able to hold them in a little bit better than I think what the market would have anticipated you wanted to just talk about how you see.
Fuel margins playing out from here in an environment, where a firm crude price is the state.
Yeah.
Again, I always I'm very careful to predict fuel margins because the markets are.
We are in a competitive market.
I would say and and Donna can can pick up on this certainly in our Canadian business. We have done a lot of work on the digital side and on the.
Developing.
Our pricing algorithms that we believe have helped in and provided a sustainable difference.
That being said I can't predict the margin environment going forward. The U S. It's been a bit tougher from a margin perspective, no. We did see a bit of a pinch on the way up but that's a leveled off now and our Caribbean business is healthy and quite consistently where the you know the dynamics in those.
Markets are quite different a lot of the markets are have legislated margins and so we don't see the same volatility in the marketing business that we would typically see in other jurisdictions.
Don It is do you want to comment on some of the work we've been doing.
Canada sure. So I think you know us.
Bob noted margins move with the market dynamics, and we aim to remain competitive with the.
Best offerings for our customers, we have invested quite materially in data analytics and in our team's capability to optimize volume margin dynamics and we believe that this will help us really in any any market location or condition and I think we've seen seeing the results from that and so we're.
Pleased with the tools and the skills that we've developed.
Nicely done thank you.
Your next question comes from Kevin Chiang with CIBC. Please go ahead.
Thanks for thanks for taking my questions everybody.
Maybe if I could just turn to the cash conversion.
And if I look at and then I appreciate all the moving parts of the end markets.
Your service, but if I just take a high level look at your cash flow from operations before changes in working capital.
You're trending at least for the first half of this year at almost 100%.
And pre pandemic you're consistently.
Sub 70% and so as.
As we think through the recovery just just wondering.
Do you expect a step up in cash flow conversion here on cash flow conversion to.
To remain high or anything you'd point us to that would suggest maybe some slippage as the recovery takes hold.
Yeah, why don't I just.
Provide a couple of comments and I'll pass it over to Marcel.
Then the cash flow that we saw in the TTM has been quite strong and you know again.
Again, there and what it does is it shows again the underlying resilience as a business, but also the flexibility that we've had to manage our cash flow through the volatility that we've seen over the last 12 months when it turn it over to Marcel and he can comment more specifically on the trends.
Yeah. So.
Great question, Kevin So we continue to focus on the cash flow from operation.
Margins already commented margins are strong for us are picking up so we see debt.
So when you look on our cash flow from operation I will just point out debt. We have made some presentation changes as well in this quarter, where the interest cost on leases have moved to financing. So I just want to pointed out as you do your quarter over quarter comparison, but other than that.
I would tell you we continue to see you know kind of robust cash generation out of our business and of course, the more retailer we become the highest cash conversion will be you know right in our business.
That's very helpful color.
Maybe my second question when I think back to.
I guess your last Investor day.
Called out the $2 billion on EBITDA opportunity.
You laid out a pipeline.
I guess opportunities you saw you could execute against on the M&A front, just wondering as you sit here today, just given I guess this transition this energy transition and I guess, the accelerated growth on evs or at least expected accelerated growth in EPS.
How does that pipeline look now versus versus what you saw on maybe August 2 to 3 years ago. When you initially for the 2 billion EBITDA target out there.
Has that expanded on more people looking to sell their business because I don't want to put the capital and as we think about this energy transition.
No I would say.
Are you on when we look at businesses that we acquire and the pipeline of opportunity.
I would say, it's consistently certainly for owner managed businesses related to succession.
And and you know on people wanting to monetize their business, we're not seeing the pace accelerates at this point.
Think what parkland spin they enable to do particularly in the U S. As we've grown our presence is just the opportunity set has grown significantly.
And as we've continued to add rocks, which we're now up to for.
Each of those comes with.
And the opportunity set that wouldn't have been.
Prevalent prior to that so.
And then the other area that we do see opportunity is from larger companies and doing carve outs. Great example, although small is the aviation business we bought in in.
From Puerto Rico from total so both those we do see activity in both those areas and continue to pursue those and again I'll reinforce that the bulk of these transactions are done on an exclusive basis.
Alright thats it.
That's great color. Thanks for thanks for taking my questions here and have a good weekend everybody.
Your next question comes from John Real with J P. Morgan. Please go ahead.
Hey, guys. Good morning, Thanks for taking my question.
So on the refinery economics co processing versus buying in east <unk>.
2 thirds cost savings you called out.
Somewhat dependent I would assume on the cost of the feedstocks. So.
So could you talk about your feedstock cost and how they're trending.
These new facilities that are scheduled to come up on California compete for and potentially put up these feedstocks.
Yeah.
Yes.
Good question and again, 1 of the keys is flexibility from a feedstock perspective.
And.
It's something that our team continues to work on and we do have good access to 2 feedstocks that are.
We think Canada, but I'll pass it onto Marcel to talk specifically about some of the economics, we see.
Yeah. So what we've typically seen Jonas debt when you know when the compliance costs are going up so for instance, the rings in the U S. Go up that's typically correlates well with how H D. D. S pricing so debt generally pulls it up and then Bob for you also see is that the feedstocks that we are relying on like canola oil tallow oil. So typically go up.
But that the relative.
The relative spread if you wish between the most expensive compliance pathway and the co processing debt that stays constant so theres always going to be an advantage there.
Bob already made the comment on diversifying.
The feedstock the feedstock itself. So at the moment, we do canola and tallow, primarily theres a number of out of feedstocks that we are looking at and testing debt.
Better.
Lower carbon intensity or even better as a co processed feedstock as well and so we're looking at all of those but I would kind of think of these compliance cost us when they go up for they all go up but the relative advantage of co processing kind of remains within that range debt free if actually talked about.
Okay, great. Thank you that's really helpful on.
Number of questions on M&A.
M&A this morning.
Maybe you take 1 from a slightly different angle.
$800 million announced in November.
And keep rolling in at a pretty rapid pace and so.
Just trying to get a sense of your overall corporate resources.
Is this type of pace sustainable or perhaps even could be accelerated from here. When you look out over the next several years.
Or as you're moving.
Integration and synergy capture fees on these.
Will there be kind of a natural slowdown in activity level.
Yeah, It's a it's a good question so.
As you're aware, we do have our own M&A team within parkland and that team has lots of experience and has done many reps. So.
The other thing is a lot of the smaller ones.
Or are there.
They're.
They're easier to do so they don't require as much.
Efforts on the front end in terms of so so no no issues on capacity, we can certainly handle the pipeline and continue to grow with the pace that we are.
That we've been doing I would say your question about integration as is important as well in <unk>.
Of the beauty of parkland is our regional structure and that each regional has.
Resources within it to do things like integrate businesses.
And in the U S where again we've.
<unk> been doing the bulk of our acquisitions you know the other thing is we do have a common.
I T and operating system.
Within each region and that makes these integrations.
Quick and.
They can be done fairly rapidly and efficiently. We also have a designated people within each business unit to do the integrations and make sure that we can put them on our platform.
As as we do them so again.
And again certainly in the U S. A we felt a lot of this over the last debt.
3 years the team there is really.
<unk> learned how to do these and keeps getting better and certainly don't see any constraints there on the resource side to be able to continue the pace that we're at and accelerated.
Great. Thank you.
Your next question comes from Vishal <unk> with National Bank. Please go ahead.
Hi, Thanks for taking my question.
I'm going back for the refinery is there a target comp composite utilization rate that management's pursuing for <unk>.
2021 and longer term.
And I, just don't want to solely rely on co packing for compliance or will there always be <unk> in the mix or is it more about the flexibility on pursuing based on prices from the market.
Yeah. Good good good question and let me just comment on the latter question and then I can hand, it over to Dirk here, who can talk about our utilization.
The.
In terms of.
Our our path to compliance so the 1 thing we continue to invest in our co processing capability, so our throughput.
Of the renewable feedstocks will continue to grow and that is the most cost effective compliance pathway for us.
So expect to see that growth and certainly some of the capital that we've put in this year is is focused on.
On growing that and getting to roughly 10% of the throughput of the refinery converted over to renewable inputs. So.
So that that's our primary path to compliance and it is very economical compared to the more expensive alternative of importing renewable diesel how that affects utilization.
Perhaps you can comment on that.
Sure and thanks, Bob and good.
Good morning, Vishal. So if we look at just on a crude throughput on normal operating normal operating operations.
We've typically been running at sort of that 91% to 93% utilization rate.
If we get up to 10% of co processing through there that would be additive to it.
The thing to think about is that we're always trying to optimize our economics to.
To the extent that we can debottleneck.
Get ourselves, 100% reliant on the co processing, so that we do not need to buy any further <unk> again, we will be looking to optimize so the co processing would be additive to that so you'd be just adding on the throughput of the HRD.
If you think about where we're at.
Displacing about 2 thirds of the need for HDR D. You could add another given the current crude throughput you'd be adding about another third.
To the.
Throughput of co processing she'd be adding about another 800 barrels a day.
So just think of it in those kind of terms.
Additive to the crude throughput.
Okay on style color on Glenn maybe just changing topics here last quarter and even in the prepared remarks management.
Talking about cash.
The tightened from Labor day.
These inflationary pressures on the commodity to accommodate this.
As pressures I'm wondering if you can give us an update just on the on the cadence of those pressure sequentially or are they abating or are they continuing to magnify.
Well it depends on the jurisdiction so as we talked about in the AR.
In our initial comments, we do see some pressure in the U S.
We have.
For the most part been able to pass those costs through.
They are both in our distribution business.
Where access to drivers has been tight and also in our convenience business.
But.
So far we've been able to.
Effectively absorb and pass those through.
Okay. Thanks for the color I appreciate it.
Okay.
Your next question comes from Michael Van <unk> with TD. Please go ahead.
Hi, good morning.
The circle back with Donna.
And stores same store sales because the 2 year note.
Non cigarette number.
Of around 15% I guess it is quite impressive.
I'm sure that the products that were being sold at a categories that are doing well.
Last year.
Probably more along the lines of the fill in shopping taking over from grocery and another areas.
Whereas this year, we're seeing a rebound in the car wash.
And at foodservice, but I'm curious as to how.
How well you did in those categories debt debt picked up last year during the pandemic and if you've been able to hold onto a lot of that business.
Thanks for your question I would say.
Some of the differences we've seen if you look at categories like packaged beverages or perhaps lead the chips or the snacks is that last year, we were seeing a bigger increase in take come type packages as people were using our convenience stores more for kind of grocery fill in and then also some of the the grocery categories and what we've seen.
Seen this year is a bit of a shift back to the single serve.
Type of products and so.
Really the that would be an example of the types of trends that we're seeing I mean, certainly some of the the categories last year that when Covid first hit and we weren't really sure what to expect and we shut down like a coffee service for example, because of the importance of safety to our consumers that certainly come back night.
As we've reopened for business and so it kind of varies across the different categories each have a bit of their own story.
Okay. Thank you and then I.
I guess for Bob.
Pretty much every quarter. It seems like you point out strong performance in your integrated logistics business.
Was hoping you could give us some more detail.
On this and I guess give us some ideas what elbow river is doing.
Well and the benefits you're extracting from the hears from trading office.
Yeah.
Both are.
Both our rail on.
Our rail business, which elbow runs.
Has has held in quite well.
Compared to 2019 worse, we're down in that segment, but.
I would say the beauty of that business is the fact that we're in multiple commodities and.
We've seen robust demand in the refined products and in the.
On the.
Crude business has started to come back that was off.
L. P. Gs have been Hum consistent I would say year over year.
In terms of the R. R.
Marketing business that we've set up in Houston.
It continues to grow.
It continues to support both of our.
On.
Our U S business and our <unk>.
Caribbean business and certainly in the.
In the solid results you can see the strength of our supply and wholesale.
In that business and that's been a key contributor to.
2 the results in that business and in the U S. Again, as we continue to get more volume and and participate in more markets on a wholesale basis that office continues to add a lot of value. So seeing seeing good growth in the underlying cash flow out of.
The Houston office, and I would say our rail business run by elbow has is holding in there and certainly expect to start to see that grow here as all of these commodities come back on a consistent fashion.
Alright, Thank you Bob covers.
Got it every day.
Your next question comes from Derek <unk> with Canaccord. Please go ahead.
Yeah, Hi, guys just.
Just 1 for me just on journey.
Give us an update on how the journey going in terms of for.
<unk> penetration of journey users and do they tend to have a higher average transaction action size or higher C store conversion rate.
Yeah. Thanks, Derik. Thanks for the question I'll turn it over to Donna.
Yes. Thanks, Derik. So we are very very pleased with the performance of journey, especially this year as the business is coming back we're now well over 2 million members. We recently launched our biggest ever marketing campaign, and we are out talking to customers about the journey program and a pretty material.
Real way across TV radio and digital.
Think you know as we look at the actual performance of.
How journey members shopped in our stores and fuel up we are certainly seeing.
Better basket size, if you will higher Philips and an increased baskets for my journey members. Instead, the loyalty program I would say is working as intended.
Okay, great. Thank you.
Your next question comes from Steve Hansen with Raymond James. Please go ahead.
Yeah, Hi, guys. Just 2 quick ones I know, we're running long just quickly on the recharge for recertification program.
Quickly I might've missed it do you have a total cost estimate for the program rollout.
And just as a related question, how do you expect to charge for a 20 minute charge up.
And just I guess as a related point again is how do you drive.
Loyalty through the journey program are you planning to offer some sort of discounted offer equivalent for your <unk> program you have on the fuel side.
Yes.
Hi, Steve It's Bob let me start it off and they can.
I hand, it off to Don here.
You know that the rough cost of that is roughly $10 million.
And.
They.
Part of the the purpose of standing this up is to learn and to develop our customer value proposition, we certainly intend to integrate it into the journey program.
And certainly see it as an opportunity to have a customer on our site for 20 to 30 minutes, while they get a while they they recharge their vehicles, so you'll see lots of opportunity here and the purpose of.
The the network NBC is to a tap into growing demand, but also to develop this proposition.
And make sure it resonates with the consumer on it did you want to add.
I mean, I think you covered it quite well.
As we're getting ready to standard that there will be a number of variables that will be contemplating including how to charge you know what that structure looks like how will incent for journey members to come visit our sites and so I think more to come in that space and then we also will have the ability to test and learn as we go.
And see what what resonate yeah, I mean, you know as we've looked at the market and then the consumer need and we're trying to address 2 things 1 is ranging xiety, which.
Again, because because we have a comprehensive network in.
In B C. We can offer the consumer a charge point every 100 to 150 kilometers along major roads and then the second thing is time to charge.
And again with the ultrafast Chargers, we can get a depending on the size of the battery, but a typical battery will charge, 80% within 20 minutes, which again, we see as another advantage in that.
That's helpful and just 1 last 1 if I may is just I noticed the red carpet Carwash I believe it was tuck in subsequent for the quarter I think it was a dozen scandal on site.
Roughly.
<unk> is unique but still complementary purchased but just curious how you view that sort of standalone carwash opportunity in the U S. I know other parties in the public arena are chasing that market down as well as the competitive how does it fit with your margin profile et cetera.
Yeah, it's interesting I mean, it's the the the name of the business is a bit deceiving. It is first and foremost our convenience network with a good carwash offer so it's not a separate carwash offer it is.
It's a great retail network with great convenience stores are in it.
Okay very helpful. Thank you.
Your next question comes from Elias <unk> with Industrial Alliance. Please go ahead.
Good morning, and thanks for taking my question.
I wanted to focus a bit on the renewable side of the business at <unk>.
Here's that there had been some appetite.
For renewable entities and I was wondering.
Is there a possibility for carving out some parkland assets.
Into our renewables entity is that something on the table or it just doesn't fit.
That's a good question.
Oh yeah.
Yeah, No. It's a great question a life that's not on the table for now we think that's the businesses in the renewable space, which is of course, a broad category, but when we talk about for instance, the EV charging or bio processing that there was a complementary.
Adjusted to our existing business. So we will look at it true that lens.
Yes.
Okay. Thanks, all right those were the 2 assets.
What's kind of thinking.
And if I listen to the call and you've seen some recent market movements. That's it for me thanks very much.
Great. Thank you.
Your final question comes from David Newman with Desjardin. Please go ahead.
Sorry, guys just a very quick follow up I know, it's late in the call but.
If I'm thinking about your your Youre, certainly integrated into supply division and how it might be able to leverage a situation. When you look at the potential for an Enbridge line 5 shut down.
Would imagine your supply division could benefit from that in terms of movement on product to eastern Canada any any thoughts on that as you see that if that if that does get shut down.
Yeah. It's a good question I mean, we're working with the industry to make sure that we.
We can continue to supply our customers in this critical market.
First and foremost, making sure that that line stays open.
In the unlikely event that there is a disruption there.
Would say you've hit it on the head or our logistics and the ability to move product around.
And also working with our major supplier partners gives us confidence that we will continue to be able to supply the market with minimal impact to our customers.
Excellent Thanks, Bob.
There are no further questions at this time. Please proceed.
Great well. Thank you really appreciate everybody's participation today and look forward to having a to.
To catching up again soon and 1 on wish everybody a great rest of the summer so take care bye.
Yes.
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.