Q4 2021 Parkland Corp Earnings Call
Good morning, My name is Sylvia and I will be your conference operator today at this time I would like to welcome everyone to parkland 2021, Q4 results Analyst Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press Star then number two thank you and.
And I would like to turn the conference over to Valerie Roberts director of Investor Relations for Parkland. Please go ahead.
Thank you operator with me today on the call are Bob Espey, President and CEO , and Marshall <unk> Chief Financial Officer.
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 as necessary and if you have other questions reenter the queue.
We would ask analysts to follow up directly with the Investor Relations team afterwards for any detailed modeling 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 industry conditions. Among other factors risk factors applicable to our business are set out in our annual information form and managed.
Once discussion and analysis.
We will also be discussing non-GAAP and other financial measures, which do not have any standardized meanings prescribed by EIOPA for us. These measures are identified and defined in parkland continuous disclosure documents, which are available on our website or on SEDAR.
Please refer to these documents as they identify factors, which may cause actual results to differ materially from any forward looking statements.
Dollar amounts discussed in today's call are expressed in Canadian dollars, unless otherwise noted I will now turn the call over to Bob.
Great. Thanks, Phil and good morning, everyone. I appreciate you joining us to discuss what we believe our excellent fourth quarter results to close out.
An incredible year for parkland before we jump in I want to take a moment to highlight the image you see on the cover slide it showcases the winning entry of an electrical autonomy design competition, we sponsored to envision the electric charging destination of the future.
Our goal in sponsoring this competition was to invite architects and designers from around the world to put the needs of EV customers first and then entirely re imagine their charging experience modular in design and constructed using environmentally friendly materials. This winning design can be scaled large or small.
It will feature amenities, we know EV customers will value as they recharge such as our on the run convenience stores high quality dining relaxation and outdoor spaces.
The result is the destination that customers can enjoy.
Which will set a new standard for electric vehicle charging and customer experience. We are committed to building. This innovative concept as an extension of our electrical vehicle ultrafast charging.
Network in British Columbia.
As followers of parkland, you know that our purpose is to power journeys and energize communities. This means providing our customers and communities with the fuels convenience items in food they need today.
And to remain one step ahead of their needs of Tomorrow. We are very good at this well.
<unk> currently represents around 1% of total vehicles in Canada, and the U S. We believe that in some markets, particularly British Columbia meeting the needs of EV drivers presents an opportunity that is highly additive to our business.
Commitment to build <unk> largest ultra fast charging network and build the electric charging destination of the future are just two examples of how we are seizing opportunities to serve our customers' needs in new and accretive ways.
Moving to slide three.
I am very proud of the parkland team, who delivered an incredible year and accelerated the execution of our strategy their accomplishments.
Let us up for continued growth and value creation safety and community our core values of parkland and through 2021. Our teams delivered excellent safety performance also in the year some of our communities face natural resort natural disasters.
Parkland has a long track record being a trusted community partner and accompany our customers can count on we demonstrated this in 2021 and I'm immensely proud of the way our team stepped up.
Our international team supported communities in St. Vincent following a major volcanic eruption in British Columbia, we ensured our customers and communities had reliable access to fuels food and convenience items they depend on throughout a major flood event.
As you may recall, the BC floods sled to the shutdown of the Trans mountain pipeline and required us to pause processing operations at our Burnaby refinery.
While our 2021 adjusted EBITDA was consistent with our guidance the BC floods cost us around $35 million and stopped us from delivering a record of almost $1 $3 billion of adjusted EBITDA for the year.
Driven by the quality of our offer brands and proven ability to meet our customers' evolving needs. Our core marketing segments. Just kept growing in 2021. They delivered record performance with combined annual adjusted EBITDA up 12% year over year in 2021, we announced.
Record acquisitions and welcomed more than 500, new employees to parkland, the pace and value of these transactions.
Actions represents the execution of two years of acquisitions and one as always.
We were disciplined selected companies at attractive values and with synergy potential to put this into context. The companies. We bought since the third quarter of 2020 will contribute around $200 million of adjusted EBITDA in 2022.
Following synergy capture we expect they will contribute $280 million by 2024, we track our synergies closely and we will share our progress as we call sustainability.
Sustainability is deeply embedded across our business, we published our sustainability report in November which outlined our drive to zero goals and enterprise wide sustainability strategy. This included ambitious greenhouse gas emission reduction targets. If you haven't read it I encourage you to do so we.
Also made great strides, helping our customers lower their environmental impact we set another record in 2021 co processing 86 million liters of bio feedstocks. This had the equivalent environmental impact of removing 70000 vehicles from the road.
We would have co pros to 100 million leaders without the impact of the PC floods.
Our renewable fuels have one eighth of the carbon intensity of conventional fuels and can be used in existing vehicles without modification. They represent one of the most immediate and cost effective ways for customers to lower environmental impact of their transportation, we continue to see customers.
Looking for additional ways to lower the environment mental impact of their operations. We are meeting this emerging need through our growing voluntary carbon offset business. This is a great example of how our existing expertise provides a springboard to capture new opportunities and play a leadership.
And then in the energy transition.
Lastly, as I look back at 2021, I am proud of the way, we took advantage of favorable market conditions to strengthen our financial flexibility, we refinanced $1 8 billion of debt at lower interest rates and now have no bond maturities until 2026.
Our accomplishments have set the stage for 2022 and provide us with confidence to increase guidance as well as the annual dividend to $1 30 per share. This is a five 3% increase starting in the second quarter, we will switch to a quarter quarterly payments.
Schedule.
This year will be exciting for parkland, having accelerated execution of our strategy. We are focused on integrating the companies, we acquired on capturing synergies and deleveraging by slowing down acquisitions I'll now pass it over to Marcel to discuss our results in more detail.
Hey, Bob and good morning, everyone.
2021 was a remarkable year and I Echo your comp.
Gratulation through the parkland team, so turning to slide four and our segmented results.
We generated a total adjusted EBITDA of $260 million for the quarter at $1 $6 billion for the year, our core marketing sectors, which are Canada U S and international delivered record annual performance and we continue to see the impacts of lingering COVID-19 restrictions in quarter. Four we also see some.
Lines are ongoing recovery and are confident there is more upside to come.
I'll start with our Canadian segment, which delivered adjusted EBITDA of $117 million. This is up almost 5% from quarter, four and 2020, reflecting robust fuel and convenience store margins. Excluding cigarettes company C store same store sales growth was four 7%. This highlights the continued strength of.
Our brands and convenience offering.
Our journey rewards loyalty program continues to resonate strongly and we now have around $2 9 million members. We also continue to expand our own the run brands, adding more than 100 stores and this brings our total.
So around 375 stores and puts us well on our way towards our thousand store target by the end of 2025.
In the fourth quarter, we saw volumes across all provinces in Canada take a slight step back compared to quarter. Three we have to be you are just through the end of the summer driving season, plus the impacts of chrome restrictions the Atlantic provinces, British Columbia, and Quebec are back to within 5% of pre COVID-19 volumes, while Ontario and prayers.
We have some catch up to do in our own 10% off.
This gives us confidence that there is further upside as restrictions ease and we sold it in quarter one.
Subsequent to the fourth quarter, we closed a correctly in M&A or acquisitions. These advance our strategy to further develop our platform diversify our revenue stream and strengthen our customer offer.
Our international segment delivered an adjusted EBITDA of $78 million. This is up over 8% from quarter four training <unk>, reflecting our strong base and resource business.
Through the quarter, we continued to grow wholesale volumes with increased drilling activities in Suriname, and Guyana, we continued to see green shoots in the tourism industry, particularly in markets such as the Dominican Republic, Bahamas and St Maarten.
Like Canada receive future upside as to Covid recovery takes hold across the region.
Our USA segment delivered an adjusted EBITDA of $41 million. This is up 400% from quarter, four and 2020, reflecting the impact of acquisitions synergy capture and organic growth initiatives.
Access fully closed the acquisitions of <unk> in southern Florida, and lynching, Idaho in December and will benefit from those businesses in our 2020 results more broadly U S. Economic activity has returned to pre COVID-19 levels and increasing unit margins are offsetting higher labor and installation costs.
We are seeing an uptick in cruise ship bookings, which benefits, our Florida business and expect tourism will return throughout 2020 as travel restrictions are lifted further.
Supply delivered an adjusted EBITDA of $58 million down 28% from quarter four in 2020, the BC lots had a negative one time impact of $35 million I'm incredibly proud like drop off how we have continued to supply our customers. During this period and it demonstrates the strength of our supply infrastructure and <unk>.
Capabilities.
No turnaround was also completed on time and on budget in October .
Looking to 2020, we expect strong operational performance from the refinery as we do not have any planned turnarounds for the year. Our next major turnaround as planned for 2023.
Corporate cost of $34 million were up slightly year over year, reflecting reduced benefits from the COVID-19 related wage assistant programs and a partial return to pre COVID-19 activity levels, our annual run rate remains at between $150 and $120 million.
We delivered net earnings of $23 million for the quarter and $97 million for the year and when we adjust for items that we do not believe are reflective of our underlying operations, such as non cash gains and losses and refinancing and integration costs. Our adjusted earnings were $55 million for the quarter at $372 million for the year.
All of these are substantial increases over the previous year.
Turning to slide five as you recall in 2020, we shared our ambition to double the business from around $1 billion to $2 billion of run rate adjusted EBITDA by the end of 2025.
The acquisitions that we did since quarter three 2022 year's enrollments. Both described it we are well on track to achieve this ambition we have for you.
Confident in our 2020 delivery and with our latest acquisitions, we increased guidance from $1 45 billion to $1 5 billion plus or minus 5%.
As you can see from the chart, our core marketing businesses have grown consistently year over year, driven by our organic and inorganic growth initiatives.
It also shows the increasing contribution of our marketing business from around 45% in 2018% to 65% in 2020 wrong and we expect this percentage to grow going forward.
While periodic turnarounds and margin environment and the margin environment creates short term volatility our supply segment contributes materially to the results and underpins our core marketing business and as a reminder, we sell around 85% of the production volume from Burnham B to our own customers in British Columbia, and Burnaby makes up less than <unk>.
15% of our total volume impact.
In parkland.
Finally, as we look at our capital plans for the year, we expect to come in at the lower end of our initial guidance due to prioritization of projects and some supply chain related issues leading to deferral.
Turning now to slide six since the third quarter of 2020, we have done 17 acquisitions for around $1 8 billion in aggregates. This accelerated pace of acquisitions was opportunistic partly driven by anticipated changes in U S tax laws.
Each transaction, we did was on strategy in both the development diversification themes.
We have also executed at attractive values and created many opportunities for synergies and growth in the future.
Do you expect it to EBITDA contributions from these acquisitions in 2022 is around $200 million and after delivering synergies and implementing our integration plans. We expect that this will grow to $280 million in 2024.
This reflects an aggregate post synergies first purchase multiple of around six four times and taking into account some high value real estate that was part of our Q3 Obs acquisition. This multiple was even lower and well within our historical range and you've had a busy year of acquisitions accelerated the delivery of our strategy has created value for it.
The company.
Turning to slide seven.
And our capital allocation framework, you will be familiar with this as we have discussed that several times previously most recently at our Investor day.
Our goal is to drive sustainable growth in shareholder value and in order of priority. We do this by allocating capital to grow the business manage our leverage and then returned money to our shareholders.
As I've mentioned last year, we have done two years of acquisitions and one and we've had a few small deals to complete here in the next few weeks and therefore in 2020, our focus will shift to integration and delivering synergies and returns from these acquisitions we.
We are committed to bring down our leverage to normal levels and as you know our business has a high cash conversion and we generate significant amounts of distributable cash flow.
As we slowed down our pace of acquisitions, we expect to reduce leverage to come down at a rate of around half a turn a year, we have front loaded our acquisitions and continued continue to be well on track to deliver our strategy and $2 billion of EBITDA by 2025.
Parkland has a 10 year track record of annual dividend increases and we are confident in our business and our ability to generate cash and we had therefore pleased to announce an increase of our annual dividends by five 3% to $1 30 per share per year.
We've also decided that starting from the second quarter, we will change to a quarterly dividend payment in line with industry practice.
Finally, let me mention soul and the put call option.
As you know, we currently own 75% of Seoul, and we like this business and we have a good relationship with our partner.
With the completion of the 2021 accounts, we have an option to buy the remaining 25% in our pockets have an option to sell.
They're 25%, but we don't have an obligation to buy we continue to assess our next steps here and we will disclose our decision at the appropriate time.
Although I'd like to turn the call back over to Bob for final remarks, great. Thanks Marcel.
That was a good overview of the strength of our business. The way, we think about capital allocation and our commitment to shareholder returns turning to slide eight.
Having accelerated the execution of our acquisition strategy through 2021, we entered 2022 with a great deal of momentum and high confidence in our ability to advance our organic growth strategy.
As Marcel said, we are focused on integrating the companies, we have acquired on capturing synergies and deleveraging by significantly slowing down acquisitions.
There's a lot to be excited about in 2022, we have a long runway of accretive organic growth opportunities, which will strengthen our customer propositions and expand the ways. We help our customers lower their environmental impact in 2022, we will continue to develop our existing business by further strengthening our retail our supply and retail.
<unk> across all geographies and when new accounts to grow our customer base and market share. We will continue to expand our on the run convenience store stores across Canada and the US This will include the launch of our Canadian Standalone stores, which will feature a strong food.
Underpinned by Eminems proven capabilities, we are advancing our customer experience concept for these stores and the aim to open our first in the fall in 2022.
We will also be an exciting year for our loyalty program. We will begin cross promotional activity with Eminems active loyalty members setting us on a path to create one of Canada's premier loyalty platforms in the near term. Our goal is to create a digital platform that seamlessly rewards our customers for their refuel.
Ling recharging convenience and quality food purchases longer term, we envision that digital ecosystem.
Enhances and connects or customers.
<unk> experience, we continue to make good progress on our decarbonization strategy.
You will remember from Investor day that we expect it will contribute approximately $150 million of incremental EBITDA 2025, we.
We see tremendous we see the tremendous rule renewable fuels play in reducing the carbon intensity of our customers' transportation. We will continue to grow our co processing activity and expect co processing volumes will increase by 30% from last year.
We are also expanding our bio feedstocks to include tall oil. This is a low cost waste product from local British Columbia paper Mills.
In a world first we have already successfully tested this feedstock secured the supply chain and expect to begin processing in the first half year.
You can also expect to see significant growth in our carbon offset business for some customers offsetting the environmental impact of their operations by investing and impactful environmental projects is attractive.
We'll continue to build our capacity in this area and we are planning to offer the service to our commercial customers.
Through 2022 as we continue.
To help our customers lower their environmental impact you can expect continued growth in our renewable business. We anticipate this will deliver over $50 million of financial benefit in the year.
Lastly, we expect to open Bce's largest ultra fast EV charging network in the summer or 25 locations.
The network will connect Vancouver Island to Calgary helped.
Helping remove ranging saidi and provide customers with an unrivaled level of amenities.
Like we've previously said the increase dwell time of EV customers creates opportunity for park plant to meet their convenience and food needs.
We have an exciting year ahead of us we remain focused on providing our customers and communities with fuels convenience items in food they need and to remain one step ahead of their needs of Tomorrow I will now turn the call back to the moderator for questions.
Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a sweet home prompt acknowledging your request and if you wish to withdraw your question simply press Star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing any keys.
Please go ahead and press Star one now if you have a question.
And your first question will be from David Newman Vishal. Please go ahead.
Good morning, all very solid results congratulations.
Hi, David how are you doing Bob.
Yes.
Alright go ahead.
Very good very good I hear it's your last call today. So you got two questions.
Yes.
Thanks, Bob it's an absolute pleasure working with you and the team and I won't be very far away. All of this has been another season of continuing to push the startup.
Thank you.
My first question is just on the on the surge in refined fuel prices that we're seeing on the back of the conflict, especially the pumps have you seen any deep stimulation of demand.
For fuel or the back court offerings, coupled with I guess, the lingering stages on the crime.
And is that just being offset by the reopening.
Look it in the markets that we're in.
As I like to say people need to drive to live and as a result.
Demand tends to be in elastic to price.
And as <unk> also said with reopening we are seeing that volumes continue to climb.
And certainly above.
2020 and.
And 'twenty, one as well so we're quite optimistic here that volumes will continue to track well.
Going forward through the year.
Okay and I guess the second question is on the back of that is.
With the increase in food prices and just inflation in general and now that you're about to embark on Standalone C stores have you seen any trend toward fewer purchases or a shift down in price point to maybe your private label offerings, 59th Street and cargo.
And maybe you can just remind us how many skus you have and what percentage of basket it might might constitute.
Yeah.
So also harder for my very lot now for sure Yeah, No. That's a good question.
Certainly I think that constitutes four questions David.
Look <unk>.
Inflation, I mean, I think the economy seeing inflation in general across pretty much everything.
And.
Certainly that's not great for the consumer.
That being said, we are able to manage inflation without it impacting our business.
We are fortunate that we do have a very well developed private label brands as you know over the last several years, we've built it out and I don't have the exact number of skus, but we can follow up with that.
But we felt it out to be.
A nice base within our convenience stores, we continue to grow it and it is a more economic alternative for the consumer.
No again, it's hard to in the short term look at.
We're seeing a significant uplift due to inflation or just to the due to the fact that we continue to develop and rollout products that consumers really enjoy and continue to buy.
Excellent Thanks, Bob and like I said, its been absolute pleasure and I will be pushing that story from my new seating institutional sales. Thank you. Thank you very much. Thanks, David really appreciate your support.
Thank you next question will be from Ben Isaacson Scotiabank. Please go ahead.
Thank you very much and good morning, and congrats on the quarter the dividend bump.
Increased your guidance.
Two macro questions.
When we look at Canada fuel volume it looks like you did about 10 billion liters in 18.
And again in 19 that dropped to eight seven in 2020 was Coalbed came back a little bit to two nine in 2021, So we were still.
About $1 billion shy of where you were before Covid can you talk about how much do you think that will come back do you think.
Youll see a run rate of kind of closer to 90 fiber do you expect to get back to that 10 billion, neither hi, Barry.
Hi.
Yeah, We don't guide on our specific volumes, but I would say the trends are positive for volume to continue to increase and I'd say, that's driven by three factors one is.
The continued.
Reopening and demands coming back, particularly on the commuting traffic that had been taken out of the market for the last couple of years.
The second thing is.
Our marketing initiatives and the organic growth that that drives you don't particularly the link to journey.
Has been there.
Unofficial and then the.
The third thing is our organic growth capital that we've continued to invest in the base business.
We add new sites, new dealers, they continue to add incremental volume so.
Expect it to continue to trend up but again, we don't forecast, where it's going to be.
That's fair. Thank you and then maybe just an extension to David's question. So with oil in the 100 to $110 area can you talk about what the puts and takes are.
You did talk about demand already but.
Is it possible that some will switch into diesel are there higher logistics costs for yourselves.
Is there a lag towards margins can you just highlight what we should be thinking about with the <unk>.
Oil price movements.
Yeah.
Why don't I take the first part of that and Marcel can talk about the impacts on the balance sheet.
So.
Look again.
In Canada, we're in the markets that we're in in Canada, The U S and throughout our international business generally there are not good substitutes for consumers. So.
When people need to drive to live.
Whether that's to work to take the kids to.
School or sporting events. These things will continue to happen.
And it's always hard to predict whether they will.
Adjust their behavior.
The.
In terms of we often get asset on the way up to margins get compressed.
It varies by market I would say predominantly markets are quite responsive in dynamic and the increases get passed through fairly quickly. So.
That's not and again as I've often said.
Our margins do fluctuate around but certainly theyre very ratable on a quarterly or annual basis. So it's not something that we get concerned about.
And then.
Again, we continue to see good growth across all of our fuel commodities and our convenience business. So.
Again.
What it does show is the strength of our customer value proposition and we can continue to win.
In any environment.
Yeah, Let me just answered it Ben.
Of course prices are moving up but they're also quite volatile and we see some different shifts in trade patterns at the moment for adverse events in the world unfolds. So I think it will take a little bit of time to establish to establish kind of what the new enormous and the direction. We do see in our international markets some parties no longer being able.
To trade or trade flows go in different directions.
Essentially it's actually implemented so I would mentioned that.
And we'll have to see how that unfolds in the next little while on the balance sheet. So I think working capital implications. So in 2021 we increased our working capital by $340 million.
It was partly driven by increased activity in acquisitions as we have done and then also.
Partly driven by an increase in commodity prices that we already sold during the year.
Of course, we're monitoring this closely and managing that.
With higher prices, we generally focus on our receivable balances and to ensure that the customers that we do give credit to that they can actually parcel higher cost of DAP customers or otherwise set we see an increased risk on that side. So it's all very active and being actively actively monitor from orange.
Thanks, so much and congrats again.
Yes.
Thanks Ben.
And your next question will be from Kevin Chiang CIBC. Please go ahead.
Hi.
Thanks for taking my question.
I apologize for that.
A link to this one so if I look at the 500 million people.
Our meeting between what you're guiding to this year.
And your your mid decade targets.
Well, yes.
Trying to get a sense.
Yes.
What you can do internally versus what you hope to go out and buy and it seems like if I take that $500 million I think you called out about 80 million of synergies from deals that you've done that would be that would help there.
Well the salt.
Thank you will you will exercise at some point, so that's a $100 million.
Organic growth within your base business.
<unk> rose low single digit that could be another almost all get a 50 million it sounds like the decarbonization could be an incremental 100, when we look at all these things up.
It seem like there is a large pre synergy <unk>.
Oh on announced M&A is that the way to think about this that you kind of have a.
70, 80, 90% of the stuff you need to get to 2 billion without.
Without another major deal.
Paul.
So.
As we did announce today or indicate that we.
We grew.
We did twice the amount of M&A, then we had sort of put in are our plan in one year. So we are slowing down right now and that the purpose of that has the number.
First and foremost it's too.
To to integrate effectively we've well last year, we welcomed roughly 500, new people to parkland.
We need some time to let everybody.
Settle in.
And also some time for the.
The act was our integrations to catch up with the acquisitions. So that's the first and foremost priority and make sure that we get the value we talked about the additional $80 million.
In terms of our priority is to de lever, we've always guided that we would push to get our leverage ratio below three and certainly as.
That's one of our priorities here once we get below that will be in a good position to push growth again, both organically and M&A and again, we're always careful on the M&A side to make sure that we find good value that's accretive and that we can.
Get some upside in the acquisitions that we do execute against.
Okay.
That's helpful and then maybe.
Maybe a derivative of David's question earlier.
Just with higher fuel prices just broader inflation are you seeing any impact on.
The basket size or consumer behavior within your core offering is that is that flowing through at all.
So as we indicated we do see good same store sales growth.
So we do continue to see consumers rely on the convenience segment for their convenience items and haven't seen a dramatic change in that.
Going into this quarter.
Okay. That's helpful. Congrats on a good quarter there.
Everybody.
Great. Thanks, Kevin.
Your next question will be from Michael Van <unk> at TD Securities. Please go ahead.
Thank you and good morning.
You did mention that the.
The Canadian business was about 5% to 10% off pre pandemic.
Marvell still I'm wondering where the other parts of the business.
Currently set particularly in the U S and international.
Tourism.
Tourism impact.
We can start with that.
Yes.
Good morning, Michael.
Let me start with the U S. So the U S again, we got there.
Their volumes have recovered to a 2019 levels and on top of that we've acquired a lot of business. So it's always hard to parse out exactly where the base volume was versus the acquired.
But we're quite bullish on our U S business and the growth that we can achieve in that market on the international side.
Things things have certainly come back quite nicely there are certain markets that are still reopening.
But I would say some of the core items Marine and Jets, we are seeing come back quite nicely right now.
Jet would not be back to 2019 levels, but if you recall, we have added some new locations into our Caribbean business.
And that has allowed us to increase that volume.
Inorganically, but again expect a tailwind there as things continue to open.
Throughout the year.
Okay, perfect and then on the C store traffic.
I'm just wondering how the actual.
Sure.
As decorating versus pre pandemic and if it's having any impact on how you are thinking about setting up the stores in the future whether it's the day part or the product mix or whatnot.
Yeah. Good question and as you recall in our Investor Day, we talked about our next evolution in our convenience concept.
And our push to have.
A more relevant food offer and you know and I would say that's the biggest change that we've seen through the pandemic where the.
The consumer is.
As common as looking for two items that there was a shift one is just common food items, which.
Start to constitute itself in larger and larger.
Yeah.
Sizes and then the second thing is the food offer the fresh food offer and with them in EMS in the team that joined US Andy and his team from M. In EMS, we have a world class capability.
In.
In food and convenience food and we're able to now execute on the strategy, which we laid out which was three components. One is a good frozen food offer which <unk> will bring.
Second thing is fresh from frozen and then the third thing is to continue to develop our are prepared fresh at the store offers so so as we look forward those are the areas that we're focusing on we do think through the pandemic and with consumers.
Changing their buying behavior that that will continue to make that strategy successful here going forward.
And just to clarify is the morning day part coming back as the volumes come back.
I can get specific data on that I mean, my understanding is as we rollout new concepts that we're getting good good uplift, but we'll.
Circle back on that specifically and just as a comment Michael on the fuel side that hasnt completely recover Jeff. So when we look at the fuel volumes into metro areas, we still see people working from home at least in the fourth quarter.
I think as we go now to the to the first quarter and received restrictions lifted.
I would expect that the morning part in the morning commuters will return more so than we have seen over the last year.
Thank you very much.
Next question will be from Neilmed at Goldman Sachs. Please go ahead.
Hi, Good morning. This is carly on for Neil Thanks for taking the questions today I wanted to start out on the $2 billion 2025, EBITDA target, we had historically been thinking about that as a full year number is that the right way to think about it it seems like in the release it was framed tomorrow exit rate for the full year number so any clarification.
There would be helpful.
Yeah. Good question Carter, we have always guided this to be the run rate.
In 2025, so that will be towards the towards the end of the year.
Yes.
Got it okay, great. Thank you.
And then the follow up with Jeff around.
Around leverage you've talked about keeping leverage levels below three five times kind of range. So can you just talk about how youre thinking about the bridge from where you ended 2021 here to get to those target levels and perhaps.
Maybe you consider monetizing front that would be at a real estate in order to get there.
So again, we do have.
The business naturally de levers at about half a turn a year.
And our aim is to.
As we've indicated slowdown on M&A.
Allow ourselves to.
To reduce our leverage.
We don't need to monetize any <unk>.
Significant assets to achieve that now that being said, we always look at our asset base in them.
Our.
Trimming less productive assets or assets, where we can get a better return out of the portfolio and it's something we do on an ongoing basis and we'll continue to do but again the business will naturally de lever at a roughly half a turn a year.
I appreciate that thank you.
Next question will be from Derik de Lee of Canaccord. Please go ahead.
Yes, hi, good morning, I, just wanted to follow up on the comment about acquisitions the pace of acquisitions slowing this year I think at the Investor Day, you commented that in Florida.
It is an area, where you expect to see meaningful growth in this.
<unk> so.
What is the plan in Florida.
Opportunistic acquisition understanding you're still jump on it but is the plan to sort of slow the pace across the board in the near term.
You know look we've grown dramatically in Florida, we've been able to purchase some some really strong assets in the markets and the team. There is currently focused on integrating those.
And that is our priority right now is to integrate.
And as I said previously to to allow the business to de lever, which does it about half a turn a year.
Sure.
Okay, and then in the NDA, you mentioned, new digital digital analytics capabilities, a few times I think mainly as it relates to the C store in Canada can you just comment on what these are and some of the early learnings you've gained from these.
Yeah, So derik as you know we've rolled out.
R R.
Ernie program, and we continue to evolve that and.
Next steps on that are as we've talked about.
Okay.
Rolling that out to the Eminem loyalty plan.
Other things are reducing the friction in the experience trying to get payments and location integrated in.
And then.
We continue to evolve the connection with the convenience store and making sure that that.
We continue to evolve what the consumer can benefit from within the convenience store and then the final item is integrating our <unk> network into the the.
The digital platform. So that's again consumers have a seamless experience independent of the type of vehicle. They drive so we're quite excited about that.
Now the other thing that our digital platform allows us to do is get a lot of great insights into our business. The team continues to develop not only for our consumer business, but for our <unk> business.
We continue to to develop the functionality and the ability to connect directly with our customers.
Yeah, and maybe to just add we've talked about this before kind of digital pricing capability, which we which we rolled out.
2020, and we've seen continued benefits from in terms of <unk>.
Real time pricing.
No relevance for the markets in which we in which we operate and we see that what we see that continuing to see opportunities to expand the scope of that work too.
Yeah.
Great. Thank you very much.
Next question will be from Steve Hansen at Raymond James. Please go ahead.
Oh, yes, good morning, everyone.
Just a quick question on the Husky acquisition.
Realize it's still in process, but I was just hoping you could speak to your plans for the 156 locations that relates to investment to OTR upgrades.
I suppose the Eminem food introduction et cetera, and just as a second part.
That integration with a good number of stations out west relates to the refinery.
I'm, just trying to get sense for incremental volume coverage youre going to have off the refinery.
What's ultimately leftover thanks.
Yeah.
Good morning, Steve and thanks for the question.
We're quite excited about the acquisition of the Hess Husky branded business and really see a good opportunity there to apply our brands into that network and expect to get significant lift out of our brands.
So that will start to happen in the back half of the year as presuming that we close.
As indicated mid year on that transaction and you know.
We believe and certainly within our own network, we've seen really great lift despite rebranding to on the run.
Again, we believe that coupled with our journey loyalty program will produce some really good lift and also with our offer.
As well so so again, we see significant upside in in that in terms of the volume I mean look we expect that these sites will perform well with parkland brands.
As we've indicated our brands in each region, our top we have top quartile consumer brands from volume per site perspective and expect that.
Those brands will bring some additional volume specifically as relates to.
The Burnaby refinery I mean, our team has done a great job over since.
Since we took possession of the refinery of continuing to grow our market share in the market both organically and now through acquisition and that certainly helps.
Cement volume locally in the market.
It's Dirk here I just wanted to add one more thing.
The acquisition of Husky should take us from about 85% of our volume going into our system to around 90%, yes. That's a good D C in the PC market.
Very helpful guys and just one follow up just to drill down one level. Further if you have you had a chance to identify how many of those sites will get beyond their own brand at this point I'm just curious if that changes the broader strategy of the acquisition was announced of course post Investor day. So just curious if it if it accelerates or create incremental opportunity.
For the brand beyond the original plan.
Yes look I don't have the exact number but certainly.
Our team our Canadian team.
Looks at it from a network planning perspective, and they do.
There are always evolving the network and again as we continue to dig into the sites there are opportunities where we can use.
The organic growth capital that we would have identified previously without husky, but re vectoring that in to this business too to redevelop it.
Look as we once the business closes I think we'll be in a good position to provide a more fulsome update on.
How we how we see that business tracking and what some of the plans are.
Very good thank you.
Your next question will be from Vishal Sheila.
<unk> Bank. Please go ahead.
Hi, Thanks for taking my questions I was hoping you could comment on <unk> positioning in the energy index, given numerous changes that you've implemented and the roadmap to diversify the business does it still makes sense in your view to be indeed energy index.
Given that PKI doesn't necessarily have to talk to the underlying oil commodity.
That's a very good question I'll turn that over to Marcel Yes. Thank you Richard Good morning, and thanks for the question.
Yes, I know.
<unk> the same thing in much of our share price movement, which we have seen throughout last year and also this year of course relates to debt that's our view.
We don't control the index, and which we use a standard enforced us that's.
We of course don't believe we belong in that index at least not in the way.
We're currently are there.
Well in that in our disclosures, we try to we tried to emphasize that we've done some of that during this quarter and in quarter. One we will continue to kind of shine a light on the on the core business is that that we that we believe define partner.
Okay.
And just changing topics here.
A little bit more detailed question, particularly.
Particularly on the fuel and petroleum gross margin.
In the international business.
It deteriorated a bit more than anticipated.
Previous understanding was that there was a large portion of that business that was critical and perhaps legislated margins. So just hoping you can give us any perspective on that decline in should we anticipate that to go back to kind of the run rate that we saw.
Through the through the year for 2021.
Yeah, Vishal, that's a great question.
Through the pandemic our team there has done an excellent job of growing the business organically.
And it's really a mix.
Impact that youre seeing so they grew the wholesale business and quite frankly gained lot of market share in that.
<unk> and <unk>.
As a result, though our wholesale business is lower margin.
The margins in the other segments have stayed consistent with what they would have been previously again, it's the mix shifted.
We saw some aviation volume coming back that's generally lower margin as well and maybe just to add to what Bob said. The reason we acquired as wholesale margin, it's really optimizing the supply chain, where you already have vessels going from the Gulf Coast. Two locations were in so if we can add volume.
To get to fill up the ships that will just optimize those routes and so that's why it's an attractive business for us from a mainframe.
Okay. Thank you for taking my questions.
Next question will be from Peter Sklar BMO capital markets. Please go ahead.
Yes, good morning.
Bob could you explain.
Exactly what is the voluntary carbon offset business.
How that works and what kind of economics is it generating now for parkland.
What are your expectations there.
Yeah. So so the carbon offset market has two components. The first is theres a regulated component.
And those are in markets like in British Columbia, and also in California, where we do participate in those markets and then the second thing is a voluntary market. So this is ware.
A matters look for projects that they can offset their emissions.
And from from projects that are.
Our.
Leading to a reduction in cotwo emissions.
A great example would be.
In this case for example would be a methane capture project on the landfill and.
This and it has it it.
It helps not only assist the emitter.
And they have to pay to abate their carbon but it also helps the developer of the project and the voluntary market in our <unk>.
Our belief is going to be critical to enabling decarbonization, particularly in poorer countries where.
Governments don't have the balance sheets to fund the transition the voluntary market as an enabler for that.
And we've participated in that so our team based here in Calgary.
<unk> has really grown a bit a nice business organically.
And has become.
A major.
A major.
We've been able to put buyers and sellers together and help people develop some of these projects so that.
With the capital from the voluntary offset market and then selling those into two.
Two of meters that have a regulatory requirement to to reduce so so we like to see that.
That's a very fast growing part of our business, we haven't parsed. It out specifically, so I can't comment on that but I did talk about that next year, we expect the renewables business and our carbon offset business to contribute roughly $50 million to park plant. So it.
Does show.
How big that business is getting and we will start to report on that song.
We will update it on a quarterly basis, and then annually youll start to see the growth that we're expecting to achieve and it ties right back into our Investor day, and our commitment to add $150 million of Decarbonize EBITA by mid decade.
But I'm still not sure like are you structuring. These deals are you deploying capital in these deals and capturing the offsets and then selling them.
Mainly we're an intermediary so we bring buyers and sellers together to enable the projects, we're not putting capital into specific projects. At this point, we do have an inventory of carbon offsets and the regulated market that we use.
But you know.
That would be.
That would be really the only capital. That's that's invested in this business I don't know Mark do you want it.
Yes, that's correct. It is a very high return business.
Okay, and then the second area I wanted to discuss like you've really gone out of your way to discuss this new messaging.
On this call regarding the you know slowed slowdown in M&A.
You want to build your balance sheet and.
Allow some time for integration.
Like.
When did the company come to this decision is this something you saw coming and.
Like what motivated this change in law.
I think your debt to EBITDA is three three times, so so youre going to de lever within a year to where you want to be which is under three times. So what's really going on here.
Yeah, Let me, let me kick off so look we've always guided that.
Getting towards three and a half we will signal to the market that will de lever, which we are doing.
As you said, we've grown a lot here in the last 18 months, we've acquired a lot of business.
And.
We really do want to make sure that we focus on integrating them effectively and make sure that we get the value out of those those are those deals. So so that's first and foremost.
The second thing I do want to reinforce this does not this our commitment to get to 2000 $25 billion to $2 billion by 2025 is still there and very achievable and again.
In essence, we pulled forward a lot of our growth through the extensive M&A we've done over the last 18 months, so comfortable with where we're at it does make sense to pause right now and allow now the business and the balance sheet to recover.
So no change of strategy clearly, but.
Talks about this and I think as Bob described.
Once we get through that so think of that.
12 months of kind of pausing for us before we picked up again, so it's not a change of the strength of the strategy I think to your question why is it.
I'll bring you back to our capital allocation framework, which we talked about so we do think that by investing in our business, we create sustainable shareholder value and we'll continue of course to look at that at this time refocus on the balance sheet and whilst we've got also into.
Normal leverage rates receipt.
We see the opportunities for additional shareholder distributions once we get there.
So what are you going to do with like really great opportunities arise.
In the U S, which is an area really focus for growth.
We've been buying great companies at low multiples.
Are you just going to let them go and say, we'll be back in 12 months I just don't understand.
Look our pipeline still remains robust we do have.
Productive conversations with vendors and again, the fact that.
A large number I mean, the majority of our deals are proprietary to parkland does give us some leeway here too.
To manage that and make sure that we don't Miss any compelling opportunities.
Okay. Thank you for your comments this morning.
Next question will be from Carla Casella of Jpmorgan. Please go ahead.
Hi.
Have you ever broken out how much of your business.
Later to tourism.
Great.
I didn't I didn't hear that.
I'm wondering if you've ever broken out how much of your business is related to tourism.
Look we haven't broken out specifically.
Other than the.
International business I would say, we're not levered to tourism at all.
The.
In a material way and then in the international business look we've often talked about there being sort of three markets seen within our international business. Those that are very linked to tourism.
<unk> are driven by natural resources and then there's a group of markets that really don't have a tourism more natural resource impact that are.
Are driven by their local economies. So when you look at that.
While we do have some exposure.
We've certainly been able to mitigate that.
And I would say on an overall basis that park land the direct drive into tourism.
Is there, but it's not.
No not a material part of the business.
Okay, and then could you give us as far as the economics of new stores and how they differ whether.
Different by format kind of or maybe a benchmark at a high and a low cost.
For the stores and payback period.
Yeah.
So if we look at.
Our new.
A new to market site. So when we look at our business we've got three.
Three ways that we deploy capital within the retail business. So one is that we're refreshing and redeveloped.
To an existing structure the second would be what we call a knocked down and rebuilt so where we have.
Our site with proven traffic patterns, but we see an opportunity to improve.
Improve the.
To improve the productivity of the site with a new new building New look and then the third is.
It would be a new to industry sites.
And our capital fluctuates between all three of those I would say.
<unk>.
From a.
Payback periods.
The.
When we put capital into an existing site do a refresh that's fairly quick I mean, you're talking sort of two to three years that you get the capital back out on.
On a knock down and rebuild where you have proven traffic patterns and proven customer behavior. They tend to return quicker.
And.
One of the things that and then on.
New.
New to industry, you would take a little longer because it generally takes some time to build volume and.
Customer traffic into the site.
Lee for those sites.
Youre looking in the five to yeah.
Five to seven year payback, depending on where it is and how big it is but just just as an indication anecdotally we would invest in.
A large formats.
With fresh foods site with a car wash roughly $5 million and would expect that in year, three that sites generating somewhere between five and $700000 annually.
Okay, great. Thank you so much.
Thank you next question will be from Matthew Weekes IAA capital. Please go ahead.
Good morning, Thanks for taking my question just looking at slide six of the <unk>.
Presentation, and the acquisitions done over the past year and a half.
$1 8 billion for $200 million of EBITDA, So about nine times pre synergy multiple on that I'm. Just wondering if you can comment on sort of what's driving that multiple acquisitions like <unk>.
Eminem transacting at premium multiples in general is parkman sort of buying more owned owned sites real estate.
These acquisitions just to do more of a size and being platform type acquisitions quality and as Parkman does start to acquire more.
After a bit of deleveraging here, how do you expect.
That's the sort of influence on acquisitions going forward.
Yeah. Thanks for the question Matthew.
We don't specifically have targets around.
And and lease sites it depends on the opportunity.
We do we're not scared to own property and always think it is a good.
Backstop for for the asset longer term.
Yes, I know and we have generally seen I'd say.
The multiples for acquisitions haven't really rollout, but when you have a particularly heavy retail mixed <unk> acquisition risk quite a little real estates. Then of course, you had the multiples are a bit higher Eminem, which was in a different segment altogether. It was of course a bit darrin.
That gets offset by the opportunity for synergies and growth and some of those spaces, which we've highlighted so.
As we said before on the post <unk>.
Synergy basis.
When you look at the numbers.
Just under seven there and then once you take the real estate into account, which was a material portion of it talks about it when we announced <unk> it drops a bit further across even this whole mix, but we also continue to see businesses that we buy if they have a good mix and there are smaller businesses.
In the.
Idaho, and Utah, where we have done some acquisitions very much at that lower end of the spectrum, where we buy and I think that will continue to be to be like that.
Okay. Thanks for the commentary on that and then just one more question I know you commented a little bit on an earlier, but I'm. Just wondering if you could provide some commentary on on broad trends youre seeing and you talked about expectations for growing the carbon offsets business. How are you seeing demand trend in that business from from your commercial customers.
And demand in the carbon market offset market in general going forward here.
Yes, I mean, it's growing at a very rapid rates, we continue to.
Grow at a at a higher rate I would say and to your point I mean, we do it does fit very well with our strategy to help our customers Decarbonize and a great example is we have large industrial customers that now have.
Carbon reduction targets and they are coming to us to get.
Whether that's renewables or to help them with.
Through offsets were really able to offer them a suite.
AV solutions to reduce their carbon footprint so.
Expect that to continue to grow at a very high rate here going forward.
Okay. Thank you I appreciate the commentary that's it for me I'll turn it back.
Great. Thank you.
Thank you ladies and gentlemen, this does conclude the question and answer period as well as your conference call for today.
Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines enjoy your weekend.
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