Q2 2023 Parkland Corporation 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 the parkland Q2 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 and if you would like to withdraw your question. Please press star two thank you and I would like to turn the conference over to salary Roberts Director Investor Relations for Parkland. Please go ahead.
Thank you operator with me today on the call are Bob Espey, President and CEO , Marshall Tunison, Chief Financial Officer, and Pierre Mangan, President Parkland International.
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 any 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.
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 management's discussion and analysis.
We will also be discussing non-GAAP and other financial measures, but do not have any standardized meanings prescribed by I for us. These measures are identified and defined in <unk> 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. Thank you Bill and good morning, everyone. We appreciate you joining us today I would like to start by congratulating the parkland team on a record quarter for both adjusted EBITDA and safety.
This disciplined focus on customer service and consistent execution have been incredible.
You can see the impact of their hard work and dedication in our Q2 results. We have significantly advanced every part of our strategy and I am delighted with our progress the team's accomplishments are building tremendous momentum across the business, we will touch on some examples.
I also want to recognize the contribution of Jim panel lettuce, who at the end of last week announced his retirement from our board and as chair.
Jim guided the company through tremendous growth and oversaw the evolution from a small regional player to an international organization I would personally like to thank Jim for his mentorship guidance and support during my tenure as CEO .
Want to congratulate and welcome Stephen Richardson to his new role as chair as well as welcome Nora Duke to the board.
As you'll see in our results we are starting to see momentum in our U S business. Following the reset as a team they delivered a strong Q2, the fundamentals of our USA business are excellent and I have confidence, we will continue to capture synergies and deliver consistent results.
It's clear to me the parkland has hit its stride. This gives me great confidence that we can achieve our goals and aspirations.
As followers of parkland.
You've watched our company grow over many years.
You know that we have expanded into new geographies and markets growing our brands and capabilities and now serve more customers and communities parkland and our team playing a central role in our customers' lives, reflecting this we have refreshed the parkland brand, which you will see throughout today's presentation with that lets me.
Move to slide three.
This slide highlights the priorities, we set out at the start of the year. These include capturing synergies and cost efficiencies driving organic growth and optimizing our portfolio.
We are making progress across each and on today's call I want to show you what we've achieved.
Teams across parkland or capturing synergies in Canada, we are harnessing our supply advantage and generating attractive margins from our eastern Canadian terminals.
We've also rebranded more than 60 husky retail sites and have seen an over 30% volume uplift in our Ontario, and B C locations.
In the USA, our team delivered a great quarter and continues to integrate the businesses. We have acquired we are confident that the team will realize our planned investment case and deliver the synergies are investors are accustomed to we have now simplified the structure and right size the team in each of our operating segments and corporate functions when combined.
With natural attrition approximately 250 positions have been eliminated.
In addition.
We are capturing further cost efficiencies by optimizing third party spend and enhancing our internal processes and systems, we expect to save $35 million of M. G&A This year and our track to achieving our run rate savings of around $100 million. Our goal is to harness the benefits of scale and capture even greater value.
From our continued growth shifting gears, we expect to deliver 3% to 5% organic growth per year in our retail and commercial lines of business by generating growth capital returns in the mid teens. For example, our international business continues to drive organic growth by leveraging the strengths of our supply advantage. This helped increase.
Q2 volumes by more than 20% compared to the prior year.
On your park land ownership, we have added tremendous value to our international segment with over 90% of our growth coming from synergies and organic growth peer will talk more about this you've heard us say before that to win in the convenient space you must have a strong food offer this underpinned our purchase of Eminem food market.
Using eminems expertise and following extensive customer research we have deployed.
Our proprietary food brands called bites on the run.
Comprised of 30 menu items. This restaurant quality offer made its debut in our new stand alone on the run location of Montreal.
It's early days for this concept and over the next six months, we will learn a great deal about the customer experience.
If you visit Montreal I encourage you to stop in and enjoy some of this delicious food.
Lastly, we are making significant progress optimizing our portfolio by divesting noncore assets I want to highlight three important numbers.
First we expect to generate up to $500 million of proceeds without compromising our 2 billion. Adjusted EBITDA ambition second we are actively marketing more than $300 million of assets that are held for sale on the balance sheet. This is up $44 million from the prior quarter.
Third we sold our reached agreements to sell assets totaling around $100 million with minimal impact to our EBITDA as I said in my opening remarks parkland has hit its stride and the team is delivering on their commitments to create value with that I'll pass it over to Marcel and move to slide four.
Thank you Bob and good morning, everyone.
Parkland delivered an adjusted EBITDA of $470 million in the quarter.
This is up 4% from last year.
During the first half of 2023, we delivered $865 million of adjusted EBITDA is up almost $30 million from last year. Despite the approximate 100 million dollar impact from the refinery turnaround in the first quarter.
These numbers show the growth of our marketing business driven by prudent acquisitions effective integration successful organic initiatives and strengthening our supply advantage.
I will now provide color on each segment in Q2, our Canada segment delivered adjusted EBITDA of $150 million, which is down 14% from the prior year.
The decrease was primarily driven by fewer unit margins, which have normalized following record highs last year.
Our strong kpis reflect underlying performance, we delivered 9% growth in company owned same store fuel volumes and so additional volume growth from prior year acquisitions.
We also delivered food and company same store sales growth, excluding cigarettes of over 3%.
This is up from negative 0.6% in Q2 last year.
Convenience alone was up over 5%, reflecting the impact of strong central store and beverage deals increased traffic and pricing strategies that enhance margin.
The impact of cigarettes sales has started to normalize our international segment delivered adjusted EBITDA of $168 million in Q2.
This is up 93% from last year.
Key contributors to this growth include the consolidation of the remaining 25% in Seoul.
Higher volumes in our retail and contracted commercial businesses organic growth in our aviation business and contributions from our Jamaica acquisition.
Our international segment has delivered exceptional performance through the first half of the year, which included a nonrecurring foreign exchange gain of $26 million in the quarter driven by its strong cash flow generation.
We feel positive about the growth trajectory of our international segments, but I will remind you that Q3 is seasonally softer in this region. Our USA segment delivered adjusted EBITDA of $74 million, which is up 45% year over year. This was driven by robust fuel unit margins and favorable.
What conditions.
We also benefited from a delayed start of the agricultural season as a result of better weather in Q1 proactive category management in our C stores underpins food and company same store sales growth excluding cigarettes, a four 9%.
Our refinery segment delivered adjusted EBITDA of $109 million, we delivered composite utilization of 91% following the safe completion of our scheduled maintenance turnaround in April .
During the quarter, we saw crack spreads come down from the historical highs of Q2 last year.
Strong segment performance resulted in Q2 cash flows of $521 million, that's nearly $3 per share on a trailing 12 month basis, we generated approximately $11 of cash flow per share in the quarter cash flow from operations fully funded our capital program interest and dividends.
And we made repayments under our credit facility of $232 million, we are on track to lower our leverage ratio to three turns by the end of the year.
So overall, a great second quarter, four parkman, which sets us up well for the rest of the year.
And with that I'll pass it to Pierre to discuss how we have grown the international business.
Thanks, Marcel and good morning, everyone, let's move to slide five.
As we celebrate four and a half years since the purchase of our 75% interest in Sol. It is worth taking a moment to look back on the performance of the division and how it has evolved since closing our incredible team has increased annual volumes by 50% from approximately 5 billion to seven 5 billion.
Leaders, we have nearly doubled adjusted EBITDA, we have improved our operating efficiency.
And we have delivered excellent safety performance.
For those unfamiliar with the region. It is much more than tourism and the sum of its parts. The markets. We operate in have diverse economies. The region has a growing population of over 43 million people and.
An annual GDP growth, averaging 3% to 5% per annum since 2018, when we break down the composition of our results retail contributes approximately half of our adjusted EBITDA.
It is ratable and we are positioned to continue growing it on the strength of our leading brands that includes Saul Esso shell mobile and Texaco.
Our leading market share as we are the first or second largest player in most markets our.
Our quality food offer that resonates with local customers are.
Our leading loyalty capabilities that we're expanding.
Our exceptional team that is laser focused on customers and continuously improving the offer a robust commercial and wholesale businesses make up the remaining half of our results. Our commercial segment has strong customer value propositions and focused sales professionals.
We serve the aviation power generation oil and gas mining hospitality construction and manufacturing industries.
And we meet their fuel LPG lubricant and solar power needs.
Our wholesale business, which is typically delivered by ship or from our intermediate storage positions.
Is focused on larger regional customers, including governments refiners and other independent fuel distributors.
These businesses are all supported by our supply advantage, which is built on our leading logistics expertise.
Strategic storage local import infrastructure and shipping assets.
These allow us to source competitively priced products and distribute them safely to our diverse customers.
Moving to slide six.
Our dedicated team has unlocked significant value and nearly doubled annual adjusted EBITDA over the past four and a half years.
While we have successfully completed bolt on acquisitions and partnerships the bulk of our growth approximately 90% has come from capturing synergies within the salt business and driving organic growth.
The combination of our brands people customer value propositions supply advantage and sales culture have driven robust volume growth and solidified our competitive advantage.
Combined with disciplined cost management. These activities have lowered our operating ratio by 10% and materially improved our ROIC and cash flow conversion.
Going forward, we see a runway of growth opportunities in existing and adjacent markets.
Later this year, we will leverage the customer experience and analytics expertise developed in Canada to rollout journey rewards in Puerto Rico.
This will support our recently rebranded 177 mobile retail sites and further enhance our customer experience in the market.
I am very proud of the team's delivery and excited about the future.
I'd now like to pass it back to Bob for his final comments.
Thanks, Pierre the team has delivered impressive growth in our international segment, which illustrates our ability to acquire quality businesses integrate them and capture supply synergies and deliver organic growth. It is a perfect example of our strategy in action successful companies execute a clearly articulated strategy.
That's exactly what we've been doing as I reflect on Parklands accomplishments in the first half of this year I attribute them to our relentless focus on customers and disciplined operational execution.
The momentum we are building underpins our confidence in our 2025 ambitions, which are too.
$2 billion of adjusted EBITDA without further acquisitions.
In dollars and 50 cents of cash flow per share and returns on invested capital of over 11% and lowering leverage to the low end of our two to three turns target.
We entered the year with a clear focus on growing the business organically integrating the great companies, we have bought and capturing supply synergies and cost efficiencies.
And each aspect we are doing what we said, we would do and I feel confident in our trajectory.
In our Canadian segment, you can see the impact of our investment in organic initiatives and our ability to launch compelling customer proposition to drive growth.
On the run and journey are great. Examples that increase same store sales and volume growth fuel margins are set by the market. However, our supply advantages gives us that extra edge relative to our competitors. The U S segment delivered a great quarter and are now repositioned and on track to deliver the synergies from the great business.
Since we acquired our.
Our international segment has had an excellent start to the year and by focusing on the needs of their customers. The team has delivered two very strong quarters Ira.
Our refinery has also had a strong year, having successfully completed the scheduled turnaround there focused on safe and consistent operational execution.
All of these operational indicators give me high confidence in our trajectory we are trending at the higher end of our 2023 guidance turning to slide eight winning at parkland is a team sport. Our accomplishments are made possible by our talented team one of the most enjoyable parts of my role as CEO is visiting and speaking with members of our.
Our team in all areas of the business.
I spoke with retailers and customers and our recently rebranded husky sites, whose customers are responding very strongly to our on the run stores and the selection of the quality products that we offer.
Visited our Eminem food market team and saw firsthand the level of expertise that has been invested in our new bites on the run food offer.
I want to compliment the team who went from concept to launch in 12 months.
I watched our commercial teams on Vancouver Island reroute their deliveries to ensure customers who were stranded by wildfires received essential fuels they needed.
Our U S team has been reset around our lines of business to better meet the needs of our customers. In addition to improve safety reduce costs capture synergies and deliver more consistent operational performance. The team has repositioned this business for future success, our international team.
<unk> to demonstrate that the parkland advantage works in new markets underpinned by supply advantage, we have leading brands leading market share a quality customer proposition and are expanding our journey loyalty program. We have a great team and I would like to thank them for their commitment to safely servicing our customers.
The parkland team likes to win and it gives me tremendous confidence in the future with that we'll turn it back to the operator 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 three time prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if Youre using a speakerphone you will need to lift the handset before pricing any keys.
Please go ahead and press Star one now if you have any questions.
And your first question will be from Ben Isaacson of Scotia Bank. Please go ahead.
Good morning, everyone and congrats on the quarter.
Just one question for me, it's an annoying sell side question.
So we're about 16 months away from your 2025 ambition of $2 billion.
It seems to me at least pretty clear that youre going to hit that target. So as you work on your three to five year plan, how should we start to think about growth beyond the $2 billion and really I want to break down maybe into three questions.
I think in your Q1 deck you showed that you've achieved around 35% EBITDA growth annually. Since 2016. So can you just give us some kind of goalpost around that should we expect that to continue higher lower you also earlier in the call talked about 3% to 5% organic growth is that something you think that is achievable beyond.
25 ambition and then finally on that piece.
When we look back at your buckets.
<unk> been working on to get to the $2 billion Decarbonize develop and diversify how do those but how do you think about those buckets going beyond 25 are there new ones that we should look for or are they going to be weighted differently.
If you could just give some color on your three to five year plan. Thank you.
Hey, Ben Thanks for the question.
I think bill said Youre only allowed one question.
But happy to answer about <unk>.
Next.
Look first and foremost I'm really confidence in the team's ability to deliver the $2 billion in our deleveraging target our cash flow charter and our ROIC target I think that's our first and foremost priority.
Look the team's working really hard and we're seeing great great great.
Great results along that line in terms of what's next.
When we do think of the business, we think of it in three areas in the way that we tend to grow. So the first is growing the business organically, which you highlighted.
And that continued push.
To get more out of our assets, both through organic growth capital and marketing programs and then ultimately through.
Efficiency and productivity improvements and there's just.
Along to do less there that never gets shorter.
The second thing is and I think hidden in your question is are we going to continue to acquire and look I think we've always demonstrated we are a disciplined acquirer.
We've been able to find good value and when we do find good value.
We add that to the parkland team and then we push on our supply and.
This quarter, you certainly saw it in various parts of the business but.
Specifically in the international business, where we'll be able to take in assets apply our supply.
Capabilities to that and generate immense value so.
And that together, we would expect that at a minimum we would grow at 3% to 5%, but if there is value in the marketplace and we can add value to assets will we will buy and continue our growth trajectory.
Trajectory.
And just on the buckets.
Yes look our push and Youre seeing it in the results is to grow our diversify through our retail proposition, which is really leaning on our skill set that we have which is running great retail businesses and we continue to do that you saw that again in the quarter where our.
Gross profit from our.
Our non fuel business had some some good growth.
And again very very proud of what <unk> done there when it comes to the journey program around the Bryan.
We're now launching.
Fresh food offer bites on the run which were market. We also have a standalone offers so lots of.
Tailwind on organic growth in that segment.
On the.
The base business, so we call it our base.
Fuel business, which again we were.
We're proud to continue to invest in and certainly.
We see the energy that we provide is necessary for communities to move.
And we'll continue to invest in that again, if we can find good value on the.
M&A side and then the final piece is the D carb side.
We've got some great examples of good progress that we've made there whether that's our.
Our co processing at Burnaby.
Also our our carbon offset business, it's growing at a nice rate here and some of the work that we've done in international on solar.
We're seeing.
So really good progress in that area and expect that to continue to grow.
At a nice rate here.
Great. Thanks, so much appreciate it.
Thank you next question will be from Kevin Chiang CIBC. Please go ahead.
Thanks for taking my question and I Echo the congratulations on the good Q to Q2 there.
Just one clarification clarification question and then.
I'll get to my my other question on the on the restructuring Bob You mentioned $100 million run rate did you set up.
A timeframe as to when you would achieve that is that something we should expect.
I guess in 2024 or will that take a little bit a little bit longer.
And then just my I guess my bigger question is.
The U S Division saw a significant improvement in EBITDA and I know you talked about favorable macro conditions.
Conditions that helped drive that but you've also had some org change there.
Our new leadership team has been put in place just wondering if that re org contributed to two the earnings performance and maybe how much of the outperformance in Q2 could be structural here just based on that org change. Thank you.
Okay, Yeah, great. Thanks, Thanks, Kevin.
Let me, let me start with the U S.
Look we're really pleased with the performance of that business I know, we've had some volatility in that segment and we have.
Undertaken some changes so I do want to thank and congratulate the team there for their continued focus and leadership. There now the team is spending a lot of time.
Putting the basics in place in that business and we're starting to see that drive thru.
We've also reduced our exposure to the wholesale business and you see that in the results and hence.
We are seeing a more ratable business there was the impact of the onetime FX gain but when you carve that out.
Youre kind of seeing where that business can perform on a ratable basis.
Okay, and then just on the $100 million run rate.
Cost savings just timeline for that.
I'll, let Marshall talk to that yes. So so Kevin we should be in 2024, you should be largely coming through the numbers I think it's a combination of head count, which we have implemented as Bob said the majority of that already and so it's just kind of running into next year for a full year.
And then looking a little that's third party cost savings as well just leveraging the scale of parkland, we've acquired portfolios.
Suppliers of different things to our business and we see that opportunity Dara as well to grinding to get them to deliver on that as part of the $100 million.
And so in 2024, you should see the majority of that have come through.
Full maturity in 2025.
That's perfect. Thank you. Thank you very much.
Thank you next question will be from Steve Hansen at Raymond James. Please go ahead.
Hey, guys. Good morning, Ron Thanks for the time.
Might be a little bit early to ask but I'd just be curious, hoping you could comment on the performance of your standalone on the run stores thus far.
I know, it's still early again, but you've got a handful in place that are up and running now any comments you could offer around the directional push towards this strategy with a long term vision might hold would be would be helpful. Given the performance thus far thanks.
Thanks, Steve and thanks for the question and I understand that you've actually personally visited one of our Standalone site. So we do appreciate that.
Look I would say early indications are very positive certainly on the in the one NBC. So the one that you would have visited what we're seeing is some interesting trends. So first tracking well above our initial business plan, but the mix is a little different than we would've anticipated. So we're seeing.
More of the high margin center of store drive the performance and we're seeing less reliance on tobacco and lottery, which is a good thing.
In fact.
The tobaccos tracking at about a quarter to a third of sales and typically we would see that in the 50%. So.
Yet sales are up.
About plan and again, it's driven mainly by center of store. The other thing is we do have an expanded eminem offer at the site and we're seeing good uptake of that so the frozen food part of that is doing well and the.
The trip lows on site there is gaining momentum so look.
What we're seeing is we're seeing sort of a similar pattern in the new Montreal site, which is now three weeks in market. So it's hard to really.
Get trends, but again same sort of thing where we're seeing their center of store or.
Our alcohol sales they are doing well and also seeing Eminem frozen. It's also where we launched our first bites on the run. So look we're quite encouraged by that will be in market with.
Three more sites this year, which will allow us to again continue to confirm and also play with the concept of bit but.
When you stand back and look at.
Urban convenience, which is what we're targeting there I mean, it's a big opportunity within Canada, and when we look at that those urban markets I mean, you've got Vancouver, Toronto, Montreal, the bake urban centers.
And then the secondary markets are the smaller urban centers like Ottawa.
Calgary Edmonton and you can see a scenario there where there's a couple of hundred store opportunity over time in that in that Standalone segment.
Okay.
That's great color. Thanks.
And just one last one on the International segment, you described how well it's grown over the past several years and touched on some of the diversity of the market opportunities. There if youre looking at the organic growth opportunities in terms of the top sort of priorities is there anything that stands out.
On a go forward basis, whether it's again, the hospitality or the industrial sector oil and gas like where would the priorities lie for organic growth the group right now.
And we're fortunate that appears actually in Calgary sitting here. So he's here for a couple of weeks from came in so I'll, let you talk to them. Thanks, Bob Good morning, Steve.
We're most excited about the retail opportunity, it's about half of our business and we see a real opportunity to take concepts systems.
Programs from the Canadian business, which is more mature.
And we've started testing them successfully in our larger markets and we will continue to do that.
And so that should be one of our engines are organic growth here for the next few years.
Yeah.
Appreciate the color guys. Thanks.
Thank you next question will be from John Royall at J P. Morgan. Please go ahead.
Hi, good morning, Thanks for taking my question.
So just on the the guidance now guiding to the top end of the range can you can you give us some color on the drivers versus your prior expectations and is at a better margin environment for refining or faster than expected work on some of your initiatives or maybe a combination.
Yes.
Yeah, Let me let me take that question, Jonathan just to talk about it. So I think when we originally set our target as I said our guidance at the start of the year. We obviously also have to go to Q1, where we had our refinery turnaround for gesture.
Is it big events are coming out of that.
Kind of on plan B.
The budget as well and I think that gave us confidence just generally in the range. That's one I think some of our cost saving initiatives are now coming through so that gives us strong support.
And confidence in the number the international segment has been doing very well so far this year. So we see that essent could indicate afford it there's some offsets which we talked about a bit earlier so while in the Canadian segment, we see the underlying business performance being strong margins have kind of normalized a bit.
And so that's a big factor overall in how we look at the second half of the year, but if you look at where we are year to date.
And we look into the second half of the year.
Were confident that we'd be at that higher end of the of the off the range.
Great. Thanks, Marcel and then just a follow up with the divestments you've announced.
Maybe you can characterize for us why they werent fit within your portfolio and then what.
What kind of visibility do you have right now to the further divestments to get to the 500 million target and just as a point of clarification you have a I think you said three times leverage by the end of the year does that include the entire 500 million target.
I'll, let let's break that into two pieces John I can talk about the specific divestments Marcel can can add to that in terms of what we've achieved so we talked about 100 million their prime primarily retail and surplus land. So.
And again.
I commend the team on the deals that <unk> been able to do.
And also the impact to EBITDA is really minimal.
And so look this is a good.
ROIC impact to the business.
I'll, let Marshall talk about subsequent where else we're targeting and then ultimately timing.
Yes, maybe just a bit color on those retail divestments right. So are we talking about high value sites. That's as real estate are more valuable than to continue to run them as retail sides, but in most cases, we have been able to kind of lease the sites back for a period of time, while land developers think about what they do so we kind of got our cash and you've got to eat it too.
So we kind of ran with that so that's kind of the first bit that bulk talks about and will continue if more into pipeline to continue dose as well we've talked previously about commercial parts of our commercial business in Canada.
No longer a good fit overall with the strategy and while there is a bit of EBITDA impacts of that business.
There is enough offset within that so that's for that overall to be neutral.
And we talked about some infrastructure assets previously as well and those conversations are kind of.
Progressing and well underway.
Overall, you will see it is on the balance sheet, we now hold $300 million of assets for sale, which means they are actively being progressed and we expect those to complete within the next year.
And then the 500 billion, which is our overall numbers kind of what we expect to deliver by 2025. So you will see some of that as I said, the 300 million within the next year. So some this year and then some into into next year.
Well, let's say the remainder kind of running into 'twenty, four and 'twenty five.
Alright, Thank you leverage.
So overall in leverage therefore, we have included some of it.
In the leverage numbers for but for this year, it's kind of mostly be impacted people really talked about for the transactions if you're.
Completing them.
Youre waiting to get some of the casual cylinder in the bank.
Steve.
Okay.
Okay. Thank you.
Thank you next question will be from Luke Hannan of Canaccord Genuity. Please go ahead.
Yes. Thanks, Good morning, I wanted to ask a quick question on the Canada segment as mentioned in the MD&A that there was some actions that you took to optimize retail pricing I'm. Just curious is that because of ongoing inflation is that data and analytics that you're responding to competitors in the environment was a tailwind in the quarter I guess.
Im curious to know if you see more opportunity to be able to expand that going forward.
Yes, let me just make a comment so maybe firstly all of the above in terms of the drivers for that right. So I think <unk> previously talked about our analytic capability, which leads to a much more dynamic pricing.
Let's say than we than traditionally kind of as is being done and I think it's a great capability for us to kind of optimize that side by side and making the margin we have seen pressure of inflation, both on kind of a minimum wages.
As well as just logistics cost and drive across et cetera, and that's kind of what everybody in the industry has seen so that's kind of structurally providing support for that price, but if you compare it to relatively to last year in the same period last year Q2, we saw a lot of market volatility that was driven by the Ukraine War.
So prices were going all over that led to some higher than normal unit margins on the fuel side and so what we've seen this year. So far is that we have seen some normalization.
But still kind of including the impacts of that.
Inflation into the margin as well as our price optimization.
Kind of looking forward margin, calling margin in these businesses is difficult.
We'll go round a bit but I think the fundamentals that for you.
That we've just seen around it continue to be very supportive so.
We'll see how we go through the rest of the quarter, but I think.
We're managing a doctor food.
Okay. Thanks, and then for my follow up here is on M&A and specifically Eminem Express.
The number of third party retailers that you have arrangements with sort of fluctuate quarter over quarter I'm just curious to know if there is a.
Right number that you guys are looking for in terms of the number of third party retailers that you have as part of that program.
Yes, so which I'm not following the question fully.
Are you talking franchisees, which we've been expanding.
Yes.
Say count this disclosure.
I think theres arrangements with roughly 20, 203rd party retailers to be able to sell the <unk> products.
Yes.
Moscow area.
That's the express program, where we're in third party sites.
The team has done some good work rationalizing that.
Sure.
Some.
Customers, there that werent, representing the product well and they've decided to pull back in a couple of areas.
And on the flip side, we have been pushing the Eminem Express concept and all are convenience stores. So.
Most of the convenience stores that we have in Canada and now have the.
Express concept within debts and as Bob said, we control the offer better we can presented better and it's actually been on the same store sales basis. It has been one of our fastest growing categories.
Kind of a quarter.
Quarter over quarter. So we're quite pleased with that and we also continue to grow the number of franchise stores as appropriate within the market.
Got it thank you.
Thank you next question will be from Michael Vanilla at PD Cowen. Please go ahead.
Hi, Thank you.
I just wanted to touch on the rebranding of the Husky sites.
Can you repeat what the lift you.
We've been seeing and then are these all.
Being switched on the run.
And what are you doing as you convert them or are you doing any renovations what programs are being changed now what will be added later.
Thing.
Okay.
Yes, Hi, Hi, Michael its Bob Good question and look we're really pleased with what we're seeing in the rebrand of the Husky network and it does speak to the strength of our brands.
Little bit of a different story in different regions of the country. So if you look at.
In D C.
We've been rebranding chevron and on the run we've seen dramatic lifts and it speaks to the strength of both brands and the ability to pull in consumers.
And in terms of how much the extent of the investment I mean these are.
Those sites were pretty tired so they are pretty.
They are pretty comprehensive overhauls in the site.
The exterior and interior to make sure that we bring it up to parkland standards.
But again, what we're seeing there in the west is a 30% lift on average.
In our same store volume.
These are early numbers and then certainly.
Above average comps in our.
In the C store now interesting interestingly none of that is currently factored into our same store sales growth because we only looked at sites that have been.
Within the network for a year, so we'll expect to see that pull through next year.
Comps.
In the east.
You've been rebranding primarily to pioneer with some ultramar and against on the run back court and seeing similar sorts of growth I'd say, the one area, where it's hasnt come as quickly as in the Calgary market.
Chevron on the run.
And I would attribute that to the Chevron brand isn't as well recognized now vertical we're doing some promotional work there to bring that up but again the trend is up and certainly over where the husky brand.
So overall again when I step back and look at that acquisition. It really is a testament to the power of the brands and the team to drive performance insights.
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That's before taking into account our supply advantage, which we're also bringing to that network.
Thanks for that Bob So just to be clear, though you're.
As you are rebranding you are doing all the upgrades to the.
We are.
Are all of the programs all of the on the running programs going in right away.
Are they going in phases over the next few years.
Going in right away. So now when you go into it it's at our standards.
Would be.
The branding standards or our <unk>.
Merchandising mix and then the other big thing is enhanced.
It is an offer which would be <unk>, which again, we're seeing some good uptake in those sites.
Excellent. Thank you and congratulations on the quarter.
Thanks.
Our next question will be from Neil Mehta with Goldman Sachs. Please go ahead.
Hi, Good morning, Thanks for taking the question. This is Nick <unk> on for Neil Mehta. So just wanted to focus on the 2025 expected outcome.
I think where you lay out $2 billion of adjusted EBITDA leverage ratio at the low end of the two to three times and then $9 50 cash flow per share are there any early thoughts about what the capital return framework may look like at that point when meeting these targets and how the over 4% current dividend yield with fit into that framework. Thank you.
Yes, let me take that and let me take your question Nick let so we continue for for now up to 2025 to continue to focus on our priorities as we've laid them out. So first is to bring our leverage down to the lower end of that range. So that's our first priority.
We have a good track record of dividend growth over many many years and our shareholders important so you'll continue to see that we take a look at our at our dividend.
We are constructive in that.
And in addition, where we see opportunities opportunistically for share buybacks, especially as our shares continue to be undervalued, we will continue to do that.
And then the remainder goes into organic growth.
The pace of our divestment program, so to reallocate capital within our overall portfolio is an important part of that as well and so we balance that.
First the first order of business is always to get leverage below three and to get back into a normal range and thats, what we focused on at the moment.
Great. Thank you so much.
Thank you once again as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone.
Next will be Luke Davis at RBC. Please go ahead.
Yeah. Thanks, good morning, so just to expand on some of the prior questions.
Given some of the initiatives that you've outlined and performance to date seems like you're potentially tracking ahead of that 2025 target to hit $2 billion in EBITDA. So just curious if you see a path to achieving that run rates sometime next year.
And if you could just outline some of the key drivers or risks to that both.
On kind of a macro and internal basis.
Yes.
Good question and look we are.
Making good progress against that target.
Selling very comfortable with that as a 2025 target <unk>.
Consistent with what we've talked about in the past and you're seeing some of the results show through here.
You can see it's based on organic growth synergies.
On the organic growth side again, we're seeing kpis strong kpis across the business.
<unk> talked about Europe .
The organic growth we've seen in international so that's a real.
Key component to that second thing is the synergies, particularly in our U S business and.
As our team there digs in their finding lots of opportunities. So we are.
We're feeling quite bullish about the opportunity to deliver the returns that are.
Investors expect in that market and then.
The other thing is what Marcel alluded to I mean, we have we do continue to look for opportunities for efficiencies across the business driven in our overhead structure.
<unk>.
And there is two phases to that first is the work that we've currently done that Marcel alluded to in the second thing is we're doing a lot of work on your underlying systems and processes, we expect to be able to take more of that out.
Over the subsequent couple of years. So when you do bring that altogether, we're very comfortable with.
Good.
We are making good progress against that.
That's helpful. Thanks, Bob.
Thank you and at this time, we have no further questions. Please proceed with closing remarks.
Great. Thanks, Thanks for listening and look forward to connecting next quarter have a good summer.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines have a good weekend.
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