Parkland Corporation

Thank you. With me today on the call are Bob Espey, President and Chief Executive Officer; Mike McMillan, Chief Financial Officer; and Dirk Lever, VP, Finance.

During our call today, we may make forward-looking statements related to the 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.

We will also be discussing non-GAAP measures, which do not have any standardized meaning described by GAAP. These measures are identified and defined in Parkland's 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 things over to Bob and Mike, who will highlight key takeaways from our fourth quarter and year-end results, and to discuss our outlook for 2019. Bob?

Great. Thanks, Brad.

Welcome, everyone to our fourth quarter earnings call for 2018. We continued to drive record results for our shareholders.

We believe this is a story unlike any other in the space with ratable cash flow, economies of scale advantages, and proven acquisition and integration capabilities that set us up perfectly within a fragmented market. We have a big -- we have big aspirations for our Company.

We continue to target 2020 run rate EBITDA of over $1 billion, and our 2019 guidance demonstrates we are on track to deliver. Before I continue, I want to thank the Parkland team for all the hard work in 2018 and in delivering another record year for the business.

We have an amazing team. I'll get right into it.

We delivered a record adjusted EBITDA of $285 million in the fourth quarter, a 44% increase compared with the same period in 2017 and for the full year. We reported $887 million in adjusted EBITDA, which is 112% increase compared with the same period last year.

We captured a $100 million of annual run rate synergies in 2018 and continue to push this forward in the early stages of 2019. This is up from the last expectation of $65 million.

We continue to demonstrate our ability to integrate and extract value for our shareholders, which is one of our key strategic pillars. Our target for annual run rate synergies on the CST and Chevron acquisition will reach approximately $180 million by the end of 2020.

On the debt side, we exited the year at 2.5 times total funded debt to credit facility EBITDA. The SOL acquisition closed on January 8th, and we are happy to welcome the SOL staff to Parkland.

Our first priority there is business continuity; then, we will turn our attention to synergy capture, our supply advantage within the entire Parkland portfolio. We also announced an increase in our annualized dividend by another $0.02 per share, making this our seventh straight year of dividend increases.

Moving on to our segmented results. I'll speak to our supply division first, as it drove most of the outperformance for the quarter.

We had strong results overall of $199 million adjusted EBITDA, driven primarily by strong refining margins. As most of you probably know, Canadian crude feedstocks were deeply discounted in the quarter and we did benefit from that.

Near the end of the quarter, the Alberta provincial government instituted production curtailments, which had the impact of reducing the discount of Canadian crudes relative to world benchmarks. This reduction in the discounts will impact our early 2019 operations, and we have accounted for that in our 2019 guidance range.

Coincidentally, during Q4, world crude benchmark pricing suffered a decline with U.S. dollar WTI falling from approximately $75 per barrel to $45 per barrel as $30 change in just three months.

As a result of features in our working capital funding agreement at the Burnaby Refinery, we were able -- we protected this from significant price decline. Mike will speak in to this in more detail.

Keep in mind, this segment is not just the refinery. This includes the benefits of leveraging our supply skill, refining relationships, optionality and in-house expertise to source product.

We continue to execute on our broader supply advantage strategy across the portfolio and it remains a strategic pillar for 2019. In retail, we had strong organic growth on our KPIs.

Our retail segment had another strong quarter with company volume same-store sales growth at 3.5% and company C-store same-store sales growth of 10.3% year-over-year, marking the 12th consecutive quarter of positive company C-store same-store sales growth. This is being driven by ongoing marketing programs, our new On the Run store concept, the rollout of our private label brand 59th Street Food Co.

and new product launches. Our increasing same-store sales growth volume has also assisted with forecourt to backcourt conversion and which assisted to derive our same-store sales growth on the merchandise side.

Adjusted EBITDA in the segment was lower than Q4 2017, and Mike expand on that. You will see, when I talked to our key performance indicators, the underlying performance and execution of the business is very strong.

On the commercial front, segmented adjusted EBITDA was relatively flat, compared to prior year, which included slightly softer volumes to a slowdown in Western Canada, a slightly warmer Q4, and this was partially offset by gains in other areas of the country. In Parkland USA, we completed three acquisitions in 2018, the biggest of which was Rhinehart.

Q4 had the full impact of these acquisitions, which should help frame a run rate in that segment. We continue to see a large pipeline of opportunities in the U.S.

where we can expand our supply advantage, which is the priority in this segment for 2019. I will now turn it over to Mike to walk through our comparative numbers.

Great. Thanks, Bob.

I’d also like to thank everybody for joining us this morning. And I’d like to welcome our new team members from SOL.

I'll take a few minutes to add some color to the contributions made by each of our business units in the fourth quarter. Retail adjusted EBITDA was lower by $16 million year-over-year, mainly due to softer margins in some areas, which Bob alluded to.

Relative to Q4, however, we did experience a decline in fuel margins mostly because of the tough comparable number year-over-year, namely strong gasoline and diesel margins in Q4 of 2017, but also some softer margins in Quebec and Alberta. This is the nature of the beast, and our team is doing an excellent job of executing on operational items that we have control over.

Importantly, volumes were similar year-over-year. Execution and KPIs are strong, and we are excited about our initiatives and plans for 2019.

Commercial adjusted EBITDA was relatively flat, despite a small decrease in volumes sold. Western Canada had a relatively tough quarter, as you know.

We expect that to normalize in 2019 with less volatile oil and gas markets. Bob spoke to the overall supply results in Q4, which benefited from historically strong crack spreads.

We have provided our standard indicative charge, as usual, on the next slide, to help frame that. And I'd like to touch on the $49 million benefit from our existing working capital funding agreement and our Burnaby Refinery in the quarter.

We have a facility in place which essentially funds the working capital requirements at the Burnaby Refinery and BT [ph] retail and commercial sites. The resulting gains and losses from the facility apply to both crude oil and refined product inventories, and are meant to protect against significant swings in pricing, which it did.

When feedstock and finished product prices decrease as fast as they did, we realize lower profits as a result of higher inventory costs. The lower profits are offset by gains realized from the embedded hedging within this facility.

If prices rapidly increase, we would expect the opposite. Needless to say, the magnitude of the change in the quarter is not something we expect to see on a regular basis.

Parkland USA adjusted EBITDA grew by $7 million due to organic growth and strong lubricants and retail performance as well. Incremental adjusted EBITDA growth was mainly from the Rhinehart business -- or the Rhinehart acquisition.

We're excited to add this team to our U.S. operations and look forward to growing this business together.

Corporate expenses increased by $8 million, as expected, primarily due to additional corporate costs to support the larger integrated business and execution of future growth strategies. This is expected change to support the larger overall business and to deliver on our growth objectives.

We have shown slide seven before, and while not the actual spreads experienced by our Burnaby Refinery, the 5311 generic Vancouver crack can serve as a reasonable proxy for the Vancouver crack spread, net of transportation costs and should provide investors with a reasonable benchmark for comparison of their own crack spread assumptions. The index plots historical values against our three-year average, and the footnote here has more detail on the methodology we have used.

You can see how strong refining cracks spreads were in Q4 for those sourcing low cost Canadian crudes. The government of Alberta initiated a mandated production cut in December or a curtailment, which now back Edmonton light crude product pricing.

Because we nominate barrels on the Trans Mountain pipeline a month in advance, we see the impact of tighter product spreads as a Q1 2019 discussion, not in Q4. This is accounted for in the guidance that we have provided for 2019 as well.

On a full year basis, a lot of the themes I just discussed apply, but acquisitions have slightly larger impacts. Retail adjusted EBITDA grew by $85 million year-over-year, due to acquisitions and continued growth in nonfuel sales driven by the convenience store initiatives discussed earlier.

Commercial adjusted EBITDA grew by $23 million year-over-year due to acquisitions and strong propane volume growth, mainly in the first half of 2018. Supply adjusted EBITDA grew by $401 million, again due to the Chevron acquisition and items already discussed.

While the Q4 number benefited from our working capital agreement, was approximately $50 million on its own, there were some losses across the first three quarters of 2018. So, the full year number was approximately $20 million.

Parkland USA adjusted EBIT grew by $12 million due mainly to organic growth and incremental adjusted EBITDA from the Rhinehart acquisition. This deal closed back in August of 2018.

Corporate adjusted EBITDA expenses increased by $52 million, primarily due to the larger size of the business. This remains a focus for us.

We'll maintain a disciplined approach toward cost management to ensure the benefits realized throughout the business performance, outpace our corporate expense. I will now turn the call back over to Bob, so he can take you through some of the KPIs for the quarter.

Bob?

Thanks, Mike. Our KPIs continue to track strong.

In retail, our C-store same-store sales growth continues to set the bar at 10.3% for the fourth quarter. The increases were both in western and eastern Canada, and attributable to the initiatives I mentioned earlier.

We are really benefiting from the OTR retrofit and private label push across all merchandise categories. Net unit operating costs were higher in the 12 months ended December 31st, due to the different operating models and the Ultramar assets we spoke about previously.

Our goal is still to drive this down over time as we roll out our retailer model in the Ultramar network. On the commercial side, gas, diesel and propane volumes were off slightly, mainly due to the slowdown in western Canada and fewer heating degree days in the fourth quarter.

We are making progress on the cost side. However, as you can see in the TTM operating ratio, which is a ratio of operating costs and MD&A to adjusted gross profit, that number came down by 1.6 percentage points, driven by cost control initiatives.

Refinery utilization was just under 88% this quarter, which needs a bit of explanation. We actually operated very well, but strategically made some decisions to reduce crude throughput in light of high land price for the uncontracted portion of our line space.

This was the right economic decision where you can see the impacts of the generic utilization number. We also processed some biofuels in the quarter, canola and tallow, which don't get caught in the calculation.

This was an exciting test for us, which was successful and puts us up with more optionality here in the future. I will now turn the call back to Mike, who will take us through Parkland USA and a number of corporate KPIs.

Over to you, Mike.

Great. Thanks again, Bob.

Turning to Parkland USA, wholesale and retail volumes were up 34% and 75%, respectively, year-over-year, primarily due to the Rhinehart acquisition noted. The deal closed in August, so we have a full quarter of contribution in Q4.

The trailing 12-month operating ratio improved by 4 percentage points to 70.8%, again, reflecting our commitment to successfully implement cost control measures while driving business growth. Aside from the acquisitions, the base business is performing very well here too and experiencing strong margins in the quarter.

Looking at our corporate KPIs, on a consolidated basis, corporate marketing and general and administrative expenses as a percentage of Parkland’s adjusted gross profit tracked as planned at 5.5% versus 4.8% the year prior. On a full-year basis, this number was essentially flat compared to 2017, reflecting the additional scale of our business and investment in capabilities.

Our adjusted dividend payout ratio improved to 23% for Q4, due to higher cash flow available for distribution in proportion to higher dividends declared. This was obviously directly linked to the standout quarter in the supply side that we talked about earlier.

Excluding the impact of acquisition integration and other costs, Q4 adjusted distributable cash flow per share increased by about $0.81 year over year to $1.14 per share. Our total funded debt to credit facility EBITDA ratio for the trailing 12-month period remained very strong at 2.47 times, but this is obviously prior to the SOL acquisition, which closed subsequent to year-end.

We expect to be pro forma -- a number of approximately 3.2 times as we realize the benefit of the EBITDA contribution and potential synergies. We expect this to remain within our comfort range and improve with excess cash flow generation.

Our third quarter recordable injury frequency measure for the 12 trailing months equates to 1.62 compared the 2.04 in 2017. TRIF provides meaningful information in evaluating our performance and in providing a safe work environment.

Safety is a key part of our culture at Parkland and is at the forefront of all we do. I’ll flip back to Bob, to wrap up with our guidance.

Thanks, Mike. Our guidance for the year is $960 million plus or minus 5%.

We're assuming refining margins in line with the five-year historical average, which is obviously lower than what we’ve realized in 2018. With certainty around -- with uncertainty around curtailment and product pricing, we think that this is true.

We will update the Street as the year plays out. We had some one-times since 2018 which we don't expect to continue in 2019, which totaled approximately $30 million.

This includes the benefit from supply initiatives we discussed in Q1 2018. We are excited to have the new SOL business in the portfolio and wealth from the SOL team to Parkland, and we really like what we see so far, both with the business and with the team that has joined Parkland.

I'd like to end by once again thanking the Parkland team for the hard work and dedication to produce yet another great quarter for Parkland and also for their ongoing focus on safety. This concludes the formal portion of the call.

We will now take questions from our analysts and institutional shareholders. Operator, please open up the line to questions.

Thanks and good morning. Just the commentary earlier on the U.S.

side and looking at opportunities there. You said you're looking at things that may potentially increase your supply advantage.

I guess, could we take that to mean that you're looking for opportunities across retail, commercial, as well as supplier, do you a focus for the U.S. that's a little different?

Good morning, Sabahat. It’s Bob Espey.

In terms of our expansion into the U.S., as we’ve discussed previously, we're focusing on what we call the Mid-Continent , Rocky Mountains geographies which are contiguous to Western Canada where we can export diesel and gasoline into that market, when it makes sense. And it will still be predominantly a buyer from local refiners, but on the margins, we'll move products into the market.

I would say in terms of focus, what we -- the businesses that we've been focusing on there, tend to be a mix of retail, commercial and wholesale. Great example of that is Missouri Valley Petroleum business we bought, a small business -- actually two examples, one is Rhinehart, larger business, which expanded our geography in down south, both into Utah and into Colorado, which has a very strong retail network that markets under the Harts brand, large modern, convenience stores with lots of fuel capacity.

And then, also, a wholesale business and in this case, the lubricants business with Missouri Valley Petroleum smaller business, which is in North Dakota and really complements our Farstad business there, again, a mixture of retail and wholesale in that case. So, again, generally, the businesses that we're buying have retail, commercial and wholesale.

And the mix tends to swing, depending on the particular business that we buy. But proportionately, we'll continue to grow in roughly the same proportions we have today.

And then, I guess, some of the commentary earlier around the comps from last year? Are you able to share maybe some commentary on the expected cadence of your 2019 EBITDA, maybe even by half?

So, you have that $30 million come from Q1 of last year and I guess some of the curtailment recently in Alberta may impact earlier in the year. Are you able to comment maybe on how much of this EBITDA could be maybe H1 weighted versus H2 at all?

Yes. Thanks, Sabahat.

It’s Mike here. Just a general comment.

I mean, we tend not to provide quarterly guidance. We tend to -- like to refer everybody to our annualized number.

And you do make a couple of good points. So, I think one of the key differences that everybody can think about is, last year in Q1, we did have a turnaround, we had a one-time benefit of about $30 million that came into the quarter during that time.

And so, in this quarter, if you think about it, we are doing some maintenance work at the refinery, but really not to the extent you would have seen last year, and so more consistent performance throughout the quarter in the refining side. And as far as the rest goes again, we try not to provide -- we try to provide as much detail as we can through our KPIs and indicative crack.

But, as far as forecasting on a quarterly basis, we like to refer everybody to the annualized number. And last year I think is also a good reference point, given that we had a full year of the Chevron or PRBC business and the Ultramar business.

And so, I think that will give you a good indication as well.

Great. And then, just one last one for me.

On the -- just the guidance and within the context of IFRS 16, I guess, when you report the Q1 numbers, would you provide it both under IFRS 16 and sort of without it or should -- we're going to try to take a stab at what that could mean for Q1 ahead of your results? Just thinking in terms of the forecast relative to reporting under the new standard?

Sure, yes. Thanks for the question.

And just for the rest on the call, I mean, IFRS 16 essentially, what it does, is it moves leasing expense out of OpEx into depreciation and amortization. So, it will be a move essentially between, call it EBITDA and below EBITDA.

And yes, so to your question, we’ll provide a lot of transparency around what that looks like because the cash flow nature of that movement, right? And so, you can look to us.

We have not included in our guidance for clarity, but you can look to us to provide clarity on that as we get into Q1 and how we define our performance in terms of EBITDA with and without IFRS 16.

Hi. Thanks for taking my questions.

I just wanted to understand on the retail side why the gross profit dollars in the retail side for the non-fuel was, call it, tepid on a year-over-year basis, despite the strong same-store sales growth? And if you could just give me some help on, if you adjust for the COCO to CORO conversion, would that gross profit dollar -- would that number have grown?

Yes. That’s a very good question.

So, yes, as we do the transition from COCO to CORO, it does erode our nonfuel gross profit but it also reduces our OpEx within the segment. So, I mean, if you look at the puts and takes there, you can see that our gross profit grew due to the strong same-store sales growth.

And now, we're pushing ahead on a -- and originally with the Ultramar business, we projected a three-year implementation of the CORO model and are really pleased with the progress that the Ultramar team has made on that somewhere at 50% after a year and should fully implement it by the end of this year, which will provide better transparency on a year-over-year basis.

Okay. That's helpful.

Thank you for that. But, if I could just drill down a little bit deeper.

So, we're converting stores, COCO to CORO, as you noted, and aside from superior anticipated growth with the COROs stores that I think you've indicated in the past, we didn't really see -- I didn't really see the offset on costs this quarter but I did see the fuel margins go down, as indicated; I did see the gross profit dollars in merch go down. So, as you go through these conversions, how should -- how would the shareholder benefit?

Is it lower assets and eventually higher EBITDA, like how should we think about that?

Yes. Maybe I'll take a little bit of a stab at that for you, Vishal.

I think, the key here is right now, we are in a bit of a transition. And so, when we move from one model to the other, what we tend to represent in nonfuel is our share of the nonfuel margin with the retailer.

In an employee model, you would show it differently. And so, because we're in transition, I think there's two factors to think about.

One is the transition as we move like Bob described from both models, you'll see the reduction in OpEx, you'll see a change in our non-fuel margin. But, we also have a dealer businesses well blended in there.

And so, as we reflect those numbers in our financials, you'll see -- it'd be hard to discern between the two, but we’ll provide a little bit more clarity in terms of performance on that. And then, I think as Bob mentioned, as you see us complete those conversions, you'll start to see the comparable number, year-over-year.

Right now, it's a bit of a blend and that does make it a little bit more difficult. And so, we do share in the non-fuel margin with the retailer.

But, we see the reduction to offset in the OpEx. And so that will cost you a little bit of grief as we work through that transition period.

Overall, when we separate -- and it’s not information that we provide disclosure on because of the way that we reflect this in our financials, overall though when we track net sales -- overall sales, certainly we’re seeing some great performance in both sales and the nonfuel side and margin, before we share it with the retailer.

And just moving on to the refinery side here. In your disclosure material, you indicated that you processed some alternative products, tallow and canola was another one.

Just wondering why in such a savable environment for that refinery, did you switch to other products? And..

Yes. Sorry, go ahead.

And, so that's number one. Why did you switch?

And number two, you gave us a utilization number, which only reflected crude. So, is there some sort of more holistic utilization number you can give us, just for our own modeling purposes?

Yes. Look, let me just -- we'll answer this in two parts.

So, let me just kick off and then I'll turn it over to Dirk Lever, who's VP Finance in our supply area and he can follow-up. I would say -- so, the tallow and canola is part of a partnership that we have with the province of BC where we're developing a technology where we can process biofuels directly through the refinery and essentially produce a molecule that's not blended that has a bio component.

So, that's very advantageous to the business. And obviously, it’s part of our initiative to continue to drive the business around reducing carbon.

And this is a great way to facilitate that and do it in a way that produces like, say, a molecule that’s manufactured with the bio component. It was a trial that we ran, which was really insignificant from a utilization perspective.

I'll turn it over to Dirk, and he can fill you in on the economics of the facility, how this impacted it, and also why we chose to reduce some of our throughput, because of the pipeline.

Sure. Thanks, Bob.

Vishal, the testing of the biofuels, that was planned long in advance. So, when the time came, the biofuels had arrived.

Just think that we're trying to make a compliant barrel for sale in the British Columbia marketplace. This will help us in the feature as we will not have to blend in expensive other types of biofuels that we’d have to import.

So, the economics for this make a lot of sense for us. And then, on the utilization front, really the -- we're using what was called the simple utilization rate, which only measures crude as an input.

If you think about the latter part of Q4, we had very-wide differentials. About 80% of our line space is contracted at a fixed price, the other 20% is on a competitive bid situation.

We just decided it made a lot more economic sense on that 20% to bypass running the crude through there. We actually had some middle distillates that we ran through the back end of the refinery.

So, our output was strong. This was absolutely right economic decision.

You can see that in the results. And we stick to a simple utilization rate.

When we speak to our engineers that use some more complex computations, the utilization rate for them was extremely high. They are very happy with the end results.

Just first of all on SOL, it seems like you're sort of taking a bit of a pause for business continuity and then tackling the synergies over time. So, maybe just give us sort of an idea as to the timeline of when you might start digging with that any initial conversations or refiner partners, and I did notice that you opened up a facility in Houston now maybe on the supply side to Elbow River and how that might tie in.

So, maybe just a comment on synergies and the Houston opening and all that.

So, let me start with SOL. I would say, we did close the transaction here early in the year and are delighted to welcome the SOL team to Parkland.

The business has a very strong team and a very strong operating discipline within it. I would say, in terms of -- so, our initial impressions of the business are it's well-run and as I’d like to say, there are no surprises up or down at this point.

And as we've always articulated, when we do look at businesses, we look at them at a high level as scope or scale. This is a scope transaction where we're in a new jurisdiction.

So, the focus on synergies is really focused around supply. And as we get into the business, it’s obviously an area that we’ll look at to work with the team there to optimize their supply and as contracts start to roll off, that will give us an opportunity to look at reconfiguring the supply system under the business to provide some advantage.

We expect that to start this year, but the full benefit of that to start to be felt towards the end and into next year. The other thing we look at is in operating improvements in the business.

And again, we believe that our operations team, particularly in retail commercial side, we can work with the SOL team and look for opportunities to improve the business. That takes a bit longer.

That's sort of into the next year. And then, finally, on the back office that’s had a very good ERP and it runs very well.

And certainly, we're still doing some work in Canada on our own system. So, we wouldn't look to consolidate the system side until well into next year or the following year.

Got it. And then, just on Houston, Bob, what's your -- you’re opening office down there.

It's seems kind of interesting from an Elbow River perspective. Maybe you can start using your supply procurement and physical assets advantage kind of being down there?

Well, so, as we continue to grow our business throughout North America and down into the Caribbean, we’re touching more and more suppliers that are based in the Houston market. So, we have opened a supply office there to support, both the U.S.

business that Doug Haugh has grown quite successfully in 2018 and we continue to see growth there, and also the Caribbean business. We felt that we needed to have a presence in Houston, which is basically the heart of that Gulf Coast refining hub and start to develop relationships there and work our supply.

Makes sense. And then, on the first quarter, you got a turnaround underway.

And I think you gave $200 million maintenance CapEx for the year. So, maybe just in terms of the first quarter, what do you sort of anticipate with one of the two units being down for a period of time.

What the utilization for the full quarter might come in at? And does the maintenance guide -- does that anticipate the actual dollars related to the turnaround of the facility in the first quarter?

Yes. David, hi.

It's Derek here. This is - we would rate this as a fairly small turnaround.

As far as dollars go, it's well underway. The interruption on the utilization is minimal, compared to what we've seen in the past.

Utilization rates today -- you can see the impact of it, but it's not material. I would say, it would be similar to what we saw, the utilization rate in Q4.

And as far as the dollar quantum goes, a lot of these things -- they turn around. When you start to take some of the equipment apart, you see what the conditions are and then you get a better sense of what the costs are.

But, we can tell you that it's running a little bit under budget. It seems to be on-time.

But they do factor in, there is a 10% flex in there for those. We should get the final results fairly soon.

But, everything so far has been pointing very positive on this turnaround.

Okay. I know you guys don’t really -- you don't -- the growth CapEx that you’re -- what are your plans for ‘19 in terms of growth CapEx and new to industry sites and those sorts of things kind of factored in?

Yes. Again, we don't generally give guidance on that, because our growth CapEx is always limited by the opportunities that are available to us.

I would say, we are planning an Investor Day later in the quarter where we’ll provide -- shed some more light on that. I would say, our growth CapEx, primarily falls into on the organic side into two areas.

One is the retail side, where we're continuing to work on the network, which includes refurbishments, rebuilds and new to industry sites and we see good opportunities in the marketplace to do that. We are investing in the Burnaby facility, particularly on the storage side where we continue to make the investments there that benefits the enterprise.

Those are the two big areas here as we go forward. And then, on the commercial business, it's tank and trucks as we continue to grow that business, in Canada.

The U.S., we again -- as opportunities present themselves in that market, we would see investing in businesses around our operating area to increase scale within those markets.

Excellent, guys. Good job in knocking it out of the park.

Great. Thank you, David.

Appreciate your support.

Just to start, can you -- are you able to estimate how much above the -- how much the EBITDA contribution was from -- in 2018 from having above average crack spreads, to try to normalize the 2000 EBITDA for your kind of average crack spreads?

Michael, hi. It’s Dirk here.

We don't give the details on that. So, I think we'll pass on that question.

Thank you.

Yes. I think, the best way to look at it is that indicative spread Michael, just to give you a sense of magnitude.

On the same-store sale of 10.3%, obviously an extremely high number. And you did talk about some of the drivers.

But, can you go into a little bit more detail as to like, what were the key drivers to get it up to that level, so that we can get a sense of kind of the sustainability and the runway remaining at somewhat elevated levels, at least?

Yes. Look, I'm really pleased with the efforts of both our marketing and operations teams and the results that they were able to drive, I would say, this is -- and we've seen this repeatedly as we bought networks that certainly in the initial phases of that there's opportunities to drive some good same-store sales growth.

We certainly budget much lower than that recognizing that -- just making sure that as we continue to push through these changes, realizing that you do reach a point where you can't sustain this. On the other hand, we do have -- we are in the infancy of a lot of our programs, which are starting to take over from the initial improvement to again a follow-through through what I would call, just good robust marketing program.

So, the private label, where we’ve now tested our loyalty in two markets, our mobile loyalty, called Journey, which, again early days, but indications are that that'll continue to drive conversion, which is one of the big opportunities for us. And then, on the insights, the other initiatives that we have, is continuing to refine the merchandising and make sure that we're relevant to what consumers want within their local markets.

So, those initiatives have -- are continuing to drive remarkably strong comps that I would say, we should expect to see certainly robust numbers in 2019, maybe not to the 10% level, but certainly mid-single-digit here, as we go through the year.

Okay. And when you look at some of those programs, private label, you said you got 20 products at select locations so far, and you're going to add another 20 products in 2019.

But, when we look at -- like, can you give us an idea of like the percentage of stores that those first 20 have been rolled out to?

Yes. So, the first 20 have been rolled out to about three quarters of the sites.

So, we still have another quarter left. And then, by the end of next year, all of our sites will have the private label company sites fully implemented.

And the other thing that's still proving advantageous is when we rebrand on the run. We're consistently seeing lift in those sites beyond our business case.

And what the pace of conversion is expected to be in 2019?

So, I believe, we were at 170 at the end of 2019 and another -- that's good question on the exact number that we're planning for 2019. We’ll get back to you on that.

I think, the plan is to roughly double it. But, let's confirm that, Michael.

Hi. This is Alex [ph] on the line here for Derek.

I think, I just have one quick question here. So, same-store fuel volume was really strong during the quarter, same-store fuel volume at retail that is.

Are you able to confirm and maybe elaborate on what was driving that this quarter?

Yes. A couple of things.

One is -- and as folks that have been following us are aware, we've been investing in our marketing capability. And we did in the last half year or last year, we created a position around fuel category manager.

And that team has done a remarkable job and just working the promotional side to make sure that our offer is relevant at the street level, and we’ve seen some impact of that. And the other thing is execution at the street level where our operations team has just made sure that we're focused in on local markets and making sure that our proposition is attractive within those markets.

Now, that team, again in its infancy, is doing a lot of great work on the branding side, and we expect to continue to see a robust performance in that area.

Maybe just turning to, maybe just some of the questions I'm hearing on the call and around the refinery. This is the second quarter, I would argue something's kind of popped up that I don't think a lot of people were expecting.

So, you got the working capital and you guys went through a great explanation there that’s helpful. If I call, in Q3, you had a little bit of noise around tolling costs that I don't think was expected as well.

So, I'm wondering, when you take a step back, do you think it makes sense to resegment your supply division, given the number of businesses that are embedded within there? Just to provide a little bit more granularity or at least maybe damping some of the volatility that we've seen in the past couple of quarters?

Kevin, it's Dirk Lever here. I would say that given the fact that the organization itself has grown quite significantly that we’ll keep the supply division as it is with the parts in it.

I think, if you look at some, they are all part of our overall supply strategy, which is key to our organization. So, I think, we will keep it that way.

When it comes to things like surprises, they are a lot easier for us in the rearview mirror as there’s a lot of volatility within Q4. And then, we could see what was happening by the time the end of the quarter ran along.

A lot of the change that you’re referring to, particularly on the differentials, that happened in -- within the last few weeks of December with the announcement by [indiscernible]. So, I mean we weren’t planning for that either at the beginning of the quarter.

So, I think, we'll just keep our -- the way it is. And if something unusual comes out, and who knows.

I can't think of anything more, but we'll do everything we can to relay that to -- and explain it like we've done with the intermediation game.

That's helpful. And just maybe my second question here, obviously congratulations on your ability to identify a big chunk of the synergies from the $180 million, call that a $100 million with your Q4 results.

One, I'm wondering why the $180 wouldn’t get bigger over time, given how quickly you're realizing some of these synergies? And then, maybe as I take a step back, when you acquire North American assets now, are you finding it -- the integration process is coming faster, so -- how those energies cascade through your earnings have accelerated, because I think in the past you’ve always talked about it being a three-year process and it takes about a third, a third, a third.

Is it more front-end loaded now, like, is your experience in that is more front end loaded now?

I would say it depends on the size of the acquisition. So, the larger ones again do take time and they need to be done thoughtfully, so that we don't erode values.

The smaller ones, we can integrate much quicker, particularly what I would call a tuck-in, the timeframe there is months rather than years.

Just overall size or just maybe using this one as an example. So, you've obviously been achieving synergies faster, just wondering why the total pie wouldn't be getting bigger as well, given how fast you're seeing some of the stuff come through.

I guess, I'm not following the question specifically…

I guess…

As we -- are you talking about the U.S. or…

You’ve talked about like -- yes, I guess, the CST, Chevrolet deal are in aggregate $180 million of synergies, you've gone from 65 million -- or 50 to 65 million identified in 2018, now it’s a 100 million identified in ‘18. So, it seems like you're finding more things to -- that are low hanging fruits as it relates to the integration.

I'm wondering why the total size of that synergy pie isn’t also commensurately growing as well?

Yes. So, that’s a good question.

First, lots of hard work to get this stuff. So, I don’t want to underplay that, and the team does -- works incredibly hard to make sure that we integrate effectively.

I would say, as always, we're -- we want to make sure that before we go out with guidance on synergies that we've got a clear sight line to them. And at this point we're -- the 180 is -- we have a clear sight line to that.

If that changes we’ll update the Street accordingly. So, again, if you look back on businesses that we purchased, particularly CST and Chevron, the 180 on the initial EBITDA base is a remarkable achievement from our perspective.

That's a fair point. And maybe just lastly for me, just more of a clarification question.

So, you have included some of the headwinds in terms of I guess I'm the refinery headwinds in the first quarter here in your -- in the guidance provided for 2019. But your overall guidance assumes that the Burnaby Refinery margin sits at the five-year average, even with the -- just the headwind they’re seeing in the first quarter, which I guess assumes that the margins will be above average, as we get through the year.

And so, one, is that the right way I should be thinking about it? And then, two, assuming we don't have this issue of pop-up next year, would that suggest that these refinery margins are structurally higher, and I think about 2020?

Yes. Look, it's always difficult to predict, right?

12 weeks ago, we wouldn't have predicted that curtailment would come in. And I also think, it’d be interesting to see how the curtailment is managed.

Our view is that's very difficult to do. And we're seeing that as certain restrictions are put into the system, other areas open up.

So, it’s a bit like trying to hit a goal for in a field, right? So, I would say, back to the refinery and the performance.

Look, last year was an exceptional year, a year that we would have never had predicted when we bought the facility, and certainly not something that anybody should bank on going forward basis. I would say where we've guided the Street to is still well above our investment case for that facility.

So, we're delighted with the performance of the facility, both from a safety, reliability perspective and a profitability perspective. I will let Dirk also add commentary regarding where -- potentially what the facility can do this year.

Kevin, it’s actually -- it's a good question you're asking. And I would point to, we see the same forward markets that you guys do and we model off the same information.

We're looking for differentials to go back to kind of normal levels near the end of the year. That's certainly what the forward markets are indicating.

And if you think of the five-year average that we're benchmarking against that also now includes 2018. So, there has been a little bit of a lifting from where it was the five-year average three years ago.

So, you're right. We are looking and hoping for a little bit better crack spreads in the latter half of the year.

And if you roll to 2019, remember, we've got to major turnaround. So, we'll see a disruption in Q1 of 2019 that you’ll have to factor that into your numbers.

2020.

Sorry, 2020.

Right. Actually -- and maybe just a clarification point on that, and maybe I'm just splitting hairs here.

When I look at your guide, 960 plus or minus, you've talked about a pro forma of a $1 billion in 2020. You're basically at the doorstep.

I'm just wondering, does that -- is that turnaround -- should we be thinking about turnaround being the reason why, it's not just a $1 billion, like it's not a -- you're not just out there saying it should be a $1 billion of EBITDA in 2020, but we should be contemplating some cost run through there in the first quarter that might check that number back a little bit temporarily?

Sure, Kevin. Well, there will be two things Kevin that will happen in Q1 of 2020.

They'll be the turnaround. So, there's cost and we can't determine today how much of them are going to be capitalized and how many are going to be expense because of the nature of the rules of capitalizing of costs.

There’ll be utilization that will be down because got partially shut down the refinery for that turnaround. So, I think what you should be looking at is sort of an exit run rate is kind of where we're guiding to.

And we'll have a lot better visibility as to what the crack spreads look like as we get closer to that. The Canadian markets are fairly illiquid when it comes to the forward markets when you're looking at Canadian products.

So, it's not bad for a year out. Once you start to get to two years out, there's not a lot of liquidity there.

So, as we start to get closer to 2020 and the liquidity picks up in the forward market, I think we’ll get a little bit better vision of what it’s going to look like. This time next year, hopefully we've reported again, record results and hopefully again, we can give you some guidance.

Hi. Just a few quick ones here.

Off the top in the script, I think I heard management say, and this may be splitting hairs here. But, I think management -- I heard them say EBITDA guidance in 2020 of above $1 billion; in your investor deck, it says approximately $1 billion.

Did they -- did you in fact revised guidance for 2020?

No. No, it is approximately.

Okay. And I know you -- another quick one here.

I know you hinted on the U.S. side that acquisitions remain topical.

But on the Canada side and the International side as well, can you comment in general regarding the acquisition pipeline, what you see? And given all the activities that you have underway right now, if management has the capacity either via your personnel and your team or financial capacity to make deals?

And if so, do you see them tuck-in or large in size?

We don't generally comment on forward view. I would say we are a consolidator.

And core to our strategy, one of our pillars is to acquire prudently and integrate effectively. And over 30 acquisitions, I think, we’ve demonstrated discipline in what we acquire.

We have passed at times from high profile acquisitions because we couldn't find value with those. We do -- we are always active in the space looking at opportunities and don't project what's imminent within it.

I would say, from a financing perspective, if you look at our cash flow last year and you carve out our change in working capital and our M&A costs, the cash that we generated in excess of our growth and maintenance CapEx, we plowed into our U.S. business and growing that.

And we see that as a very effective use of that capital and generated some good high-quality opportunities for us. From a capacity perspective, the great news is that as we grow, we bring on additional talented people that can help us both grow the business organically and integrate into the businesses.

I would say, the -- both in the U.S. we've added great skills there.

And that team can run and integrate businesses without drawing on the Canadian team and down in the international business, SOL grew through acquisition. So, they're very experienced at acquiring and integrating.

So, the beauty of the business that we have is that we're not only expanding our supply reach across multiple jurisdictions, but we're picking up talent that can continue to help us acquire and integrate.

I just want to circle back on this $49 million supply gain that you talked about. And I mean, I think I pretty much understand it.

But, I keep getting emails from people that are still I guess questioning it, because of the some of the comments made on the call or questions on the call. So, can you just be -- just clearly say whether that $49 million -- is this something that you think investors should be looking to take out or is this just simply the other side of the hedge and therefore you lost on the long position, you won on the short position, and if oil prices gone the other way, it just would have been reversed, but the consolidated EBITDA still would have been the same?

Yes. It's a great question, Michael.

And I think you have characterized it pretty well there. I think, keeping in mind that for the first three quarters of 2018 we didn't see dramatic price changes in the underlying commodity market.

And so, it was obviously [ph] the same effect. But in Q4, there was quite a pronounced decline in the commodity price.

And because of that effect, you’re exactly right, we're long on the commodity, while we bring it to the refinery and processes and run it through the channel. And the effect of this facility is an offset to the higher price.

And it keeps. I think of it as basically, it's almost like a floor that matches our product 30 days out to the market price.

And so, -- and you're exactly right in characterizing. If we saw a very sharp price increase in a period, you'd probably expect the opposite effect.

But, these things tend to work themselves out. So, we saw $49 million in the quarter.

But on a full-year basis, it was net 20, which is really not an overly material amount, when we think of the consolidated business.

So, this is -- would you characterize this as simply your method of hedging the business and -- but it doesn't really qualify for hedge accounting, so you have to call it out?

Yes. I think we just wanted to provide clarity around it.

Because I think, in some respect, it is roughly hedging the inventory, but it's not hedging the crack spread, right? So, just for clarity -- and it's just providing certainty around the product price as we look forward a month out, once we've processed and taken it to market.

So, in the end, you’re right on the hedge accounting. So, we're just trying to make sure that people understand the nature of that adjustment in the quarter, which was exceptional because of the price -- underlying price change.

And just final question just on the same-store volumes. I mean, that 3.5% is an exceptional growth rate for retail volumes in a market that's not growing.

So, at the same time, we do see, you did bring up the competition in Quebec and Alberta. How do you know that you guys are creating that competition somehow by taking share?

Is there hints in the market, they can kind of reassure you of that?

I would look at that number on a distributed basis, and it really isn't significant across the region, and we did see gains across regions. So, in terms of the competitive environment, I always say, as a business, we focus on the fundamentals.

So, the KPIs, both in volume, the same-store sales volume, merchandise and getting our net unit operating costs down, and that ensures that we're competitive in any pricing environment and we can push through that. So, always very difficult to -- it's very difficult on a national basis to isolate specific competitive factors and say that they're going to continue or that they’re representative on the market as a whole.

Thank you.

Michael, just a quick follow-up to, you had a question around the OTR conversions and maybe just good segue, our disclosure here, we had approximately 175 on the Run and Marché Express conversions and thus NTIs and Retrofit. And in 2019, for clarity, our target is about 100 more sites, which we’ll focus largely on Ultramar in the east and Chevron on the west.

Hi, guys. Not to beat a dead horse, but just on the $49 million, I would think that that should be a wash over time as reflected in your full year $20 million.

And is this just the case that the long position loss was more than overwhelmed by the short position gain because of timing differences?

It's really -- think of it as a match, David. I mean, it's really just -- that’s a realized.

So, it’s matched to the inventory and cost of goods sold across the purchases. And so, it does reflect the flow through.

But, I think it's just the magnitude of the change in the quarter. I would say, we continue to evaluate that method as well.

And so, if we were to change any methodology around the stuff, just so that everybody understands. We’ll speak to, and if we do anything different on that side as well, pretty unique for the quarter though.

And you're right, the 20 on a full-year basis is really not overly material. But when you do see that in one particular quarter, it’s something that we want to be transparent and clear about.

Got it. And just on the intermediation, obviously it’s a volatile environment in Elbow River.

Any sense on how you were able out of the markets, because it would appear that the pricing differences between markets look supportive in any sense on how that could shake out in 2019. And I assume that’s a function also of the volatility?

So, David, it’s Dirk here. Yes.

Elbow River marketing is -- I mean, their specialty is logistics for moving of product either by rail or truck. And because they own product for a period of time, they're always looking to effectively match their long position with a short to lock in a spread.

And so when you've got volatile markets, one would think, oh, it's really easy. But their contracts tend to be longer term in nature rather than just one-off particular trade.

So, as the year goes on and the opportunities present themselves, they're locking in longer term contracts, particularly when you're dealing with producers and refiners at the other end and they're matching the two parties together that they tend to be longer term plays that they're working on as opposed to short-term. But clearly, when you’ve got opportunities in the marketplace, they're all over it.

I think of them very much as an aggregator on the rail front because of their expertise in rail where smaller companies have not got that in-house. So, they are in a very unique position to be able to work with producers and refiners and match parties together and effectively close long distances through their logistics capabilities, and they're looking to lock in there spreads.

So, they're always looking at how they can lock in a spread, especially since they're subject to time risk. They take the time risk out through taking a short position along with their physical long and netting out a spread that will reward them for the time and effort of their work.

And then, final one for me, I promise, guys. Just on the retail margins, obviously, the level of competitiveness in certain markets was high in Montreal and Alberta.

Maybe just give us a sense on how that -- what the dynamics of the market are today, and was this a bit of an anomaly that pressured the retail margins in the quarter?

Again, David, the answer, I gave to Michael is very similar. Right?

I mean, the retail market is a very transparent marketplace from a pricing perspective, and our aim is to always be competitive within that. And I think what we focus on fundamentally is good marketing programs and execution of those, making sure that our same-store sales growth is robust, and at the same time reducing our breakeven costs, which is new lock, so that we can be competitive in any pricing environment.

I would say, difficult to predict or even what the competitive landscape is, because it does -- it is very dynamic and it does change very quickly across the country.

So, just one quick follow-up on the CapEx guidance. So, just going into the quarter, we're looking for a bit of a lower number.

I think on the SOL acquisition, it was mentioned about US$35 million for maintenance. I just wanted to get color on, is there some new projects you identified or is this kind of $200 million range for maintenance in line with what you were expecting kind of going into the year?

Yes. Thanks, Sabahat.

Yes. And we did disclose approximately $200 million.

And that is, as you reflected, inclusive of the SOL business, what we see as the initial CapEx. And so, there's a bit of CapEx that Dirk highlighted earlier just working through some maintenance around the refinery.

And so, that basically would say that we would be in that, call it about 162 to 170 range on the legacy Ultramar, Chevron and historic business with the balance going into SOL. So, that's about where we see it trending this year on an annual basis.

Great. Thank you.

Appreciate everybody listening; look forward to connecting at the end of next quarter.