Parkland Corporation

Thank you. With me today on the call are Bob Espey, President and CEO; Darren Smart, Senior Vice President, Corporate Development and Interim CFO; and Dirk Lever, VP, Capital Markets.

We also have Ian White, our STP, Strategic Marketing and Innovation available for Q&A. 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. [Operator Instructions] During our call today, we may make forward-looking statements related to expect future performance.

These statements are based on current views and assumptions and are subject to uncertainties which are difficult to predict. These uncertainties include, but are not limited to, expected operating results and industry conditions, among other factors.

Risk factors applicable to our business are set out in our annual information form and management’s discussion and analysis. We will also be discussing non-GAAP measures, which do not have any standardized meanings prescribed by GAAP.

These measures are identified and defined in Parkland’s continuous disclosure documents, which are available on our website or SEDAR. Please refer to these documents as they identify factors which may cause actual results to differ materially from any forward-looking statements.

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, Brad and good morning. I hope everyone is staying safe and healthy and we appreciate you taking the time to join us today to discuss our strong second quarter results.

On our opening slide we showcased a great picture of brand new retail location in Calgary, Alberta. We open the site in early July which features our Chevron, On the Run and Triple O brands.

All which are proprietary to Parkland in Canada. This is our first co located Triple O site outside of British Columbia and the initial customer response has exceeded expectations with the best opening results in the company to date.

These results reinforce the strength of our retail value propositioning including our recently relevant forecourt brands and commitment and growing or non fuel gross profit. Our On the Run convenient store and branded food partner supported branded food partner supported by our JOURNIE rewards program, represent a compelling customer proposition.

We will continue to advance this concept in new geographies, as we ramp up our future network development activities; and allowing our customers to make the most of every stop. We last spoke in early May as we were exiting the trough in COVID-19 demand destruction, as we've seen towards through the Q2 earnings session; it has been a tough second quarter for a lot of businesses and in some regards ours was no different; however, I believe we set ourselves apart with our quick and prudent reduction of capital spend, and our ability to drastically lower our cost base.

We are very pleased with our results as our financial and operating performance for the second quarter demonstrate the resilience and flexibility of our business. I'd like to congratulate the Parkland team especially our drivers and store staff for their commitment, hard work and dedication to provide our communities with the essential products and services they rely on for delivering strong results for our shareholders during the most challenging quarter on record.

Despite the challenging environment, we continue to advance our growth strategy and delivered on many key milestones. Let me touch briefly on some key highlights from the quarter.

We maintained and enhanced our balance sheet strength by securing additional liquidity and refinancing two maturing bond issues totaling $400 million, which is now not due until 2028. Parkland is well positioned to manage through any further uncertainty and capitalize on growth opportunities.

In late June, we delivered on our national rollout of JOURNIE rewards and launched the program at over 900 sites across Canada. I will speak in more detail when we get to the retail segment, but we are often running with JOURNIE and are excited with the early results.

We safely completed the Burnaby turnaround, and while we were delayed and adversely affected by some contractor productivity challenges in COVID-19; we were up and running in late April, and did not have a single case of COVID-19 during the turnaround. We closed our ConoMart super stores acquisition in mid-May and as is typical with our U.S team, we have fully integrated and have added value quickly to this acquisitions.

Thanks to both the Parkland and ConoMart teams for working hard to close the transaction in the middle of the pandemic. We proudly supported our Canadian, U.S and international communities through the pandemic by donating over $4 million of fuel and premium food items to front line health care workers and Canada's truck driving communities.

I'll now pass over to Darren to go through the corporate financial results. Darren?

Great. Thanks Bob and good morning, everyone.

We delivered adjusted EBITDA of $191 million for the quarter. As you can see in the chart on slide 4, our combined marketing segments in Canada, USA and International increased relative to last year; driven by strong fuel margins, acquisitions, organic growth and operating and MG&A cost savings.

These accomplishments helped offset volume declines due to COVID-19. As you would expect, our supply segment was lower year-over-year due to the turnaround, which was extended into April and strong comparable refining margins in Q2 2019.

Recall that there were unplanned outages along the West Coast of the U.S in Q2 2019 which supported our refining margins last year. I alluded to operating an MG&A cost savings and you can see the magnitude of these on the right hand chart.

Total OpEx and MG&A was $282 million in the quarter which is 22% lower than our $362 million in Q2, 2019. Our ability to deliver these efficiencies highlights the flexibility and adaptability of our business model and teams; and we are extremely pleased with how operations adjusted.

Savings were driven by the variable nature of some costs and proactive cost control measures supported by some benefit from the Canadian government's emergency wage subsidy program. When considering the strong operating performance and actions to reduce spend in late March, we were again able to self-fund our CapEx acquisition activity and dividends paid in the quarter.

On to slide 5; our original capital expenditure guidance was $575 million for the year, which we quickly reduced to $275 million in late March in response to the impact of the pandemic. That prudent decision along with our strong operating performance helped generate significant cash flow in the quarter.

Strong cash generation and business resiliency gives us confidence to increase growth capital by $20 million. We have also added back some maintenance capital to true up our turnaround costs to reflect the delays we had in Q2.

All-in-all, we expect a $50 million increase to our capital forecast to around $325 million. This is well supported by our results year-to-date, as well as our balance sheet strength.

We sit at $1.6 billion of liquidity at the end of Q2; plenty of cushion and capacity for growth. Turning to page 6; our bank credit agreements allow us to normalize for the impacts of the Burnaby refinery turnaround when computing our total funded debt to credit facility EBITDA ratio, which came in under 3x, and provides us with significant headroom relative to our 5x covenant.

Our banking group continues to be supportive. We've also highlighted our debt maturity ladder, pro forma, the bond financing executed in June.

We closed on a $400 million, 2028 maturity bond issue in the quarter and in July redeemed two bonds maturing in 2021 and 2022 totaling $400 million. We now have no senior note maturities until 2024, which provides additional financial flexibility for us to execute on our strategy.

We will continue to ensure that our balance sheet remains strong, and that we're well positioned to navigate any challenging market environments. I'll now turn it back to Bob Espey to discuss the segment performance.

Thank you, Darren. I'll start with Canada on slide 7; adjusted EBITDA was $93 million, up by 30% relative to last year.

While volumes were down due to stay-at-home orders implemented across the country and the economic slowdown, fuel margins strengthened, which helped compensate retailers for lost volume. And we benefited from our enhanced digital capabilities, which strengthened our dynamic pricing capability.

Costs in Canada adjusted to reflect volume declines; and our combined operating and MG&A expenses were approximately flat on a per liter basis compared to last year. Our strong results were supported by the convenience store channel.

I couldn't be happier with the resilience of our convenience store offer, which further demonstrated the strength of our customer value proposition. During the quarter, we saw customers alter their habits and frequent our stores to purchase grocery items, household essentials; take-home formats, tobacco and alcohol.

The team recognized this shift in behavior and immediately adjusted our merchandising plan to accommodate the change. We remain focused on evolving our customer value proposition, tailoring our assortment; keeping shelves fully merchandised with relevant offers in a safe customer environment.

Company C-Store Same Store Sales growth was 12.1%; our 18th consecutive positive quarter. The JOURNIE program was in its initial rollout phase when we paused in March; however, we completed the national rollout in late June.

Membership trends are encouraging with improved average fill C-Store basket size and visit frequency from CIBC card holders. We are excited about our planned marketing launch program with CIBC in the coming months; membership sign up in the key area of focus for the upcoming campaign.

If you have not signed up go to the JOURNIE app and join; it is free and you can start to save. You can even win a $1,000 for fueling up with us.

Our commercial operations performed well, and continue to win new business in the quarter. It speaks to the quality of our team being able to sign up several multi-million liter card lock customers during the pandemic.

In terms of the recovery; the chart on the right of slide 7 represents fuel and petroleum product volume since the start of March. As you can see, the recovery in volume has not been linear; but has been clear.

Retail volumes have increased 40% from April lows; commercial has recovered more slowly but did not experience the same initial drop; both are sitting around 15% lower in July relative to 2019. Margins have moderated slightly from Q2 2020, but remain strong.

For our International operations; we delivered adjusted EBITDA $54million, a decrease of $20 million compared to last year, considering the more extensive COVID impacts in the region compared to our Canadian and U.S operations; we are extremely happy with the result. The geographic diversity within the region and the ability of the team to continue to win new business was evident in the quarter.

As an example; we secured a five-year supply agreement in Guyana to service Exxon's offshore operations. The team has grown our commercial and wholesale volumes in the construction, power and natural resource sectors across the region.

You can see the volume trend for international on the left-hand chart on slide 8. Our retail line of business was hit hard in April due to strict curfew laws; with many sites closed early in the pandemic.

We are in a seasonal low for tourism and you can see how our robust base business has recovered with retail volumes off 10% relative to 2019. Commercial volumes were strong in the natural resource sector and benefited early on from higher than expected marine bunkering business.

These volumes have fallen off slightly as some of our commercial driven markets have recently shutdown due to COVID-19, and the aviation business remains down. We expect this to be to be fluid for the remainder of 2020, but are happy with how overall operations have responded.

We have also made significant progress on costs and integration activities during the second quarter with combined operating and MG&A cost reductions of $18 million relative to prior year. Our U.S segment delivered second quarter adjusted EBITDA of $22 million, reflecting organic growth and the impact of acquisitions.

Strong per unit fuel margins and increased national account sale; and marine fuel sales. The U.S was not immune to COVID-19 with the largest volume declines in the Northern Tier where Bakken energy activity was down.

Retail volumes also declined; however, the natural -- however, the rural and suburban nature of our operations supported volumes relative to other areas of the country; and strong rack to retail margins offset that decline. Excluding acquisition growth; we grew in a very difficult quarter through our ability to add customers.

A steady diet of new customers is the life blood of any healthy business, and we added over 300 new commercial customers in the quarter with several multi-million liter wins. Finally, turning to supply; we delivered $40 million of adjusted EBITDA significantly lower than 2019 primarily due to comparable quarter having 95% refinery utilization, and strong refining margins tied to unplanned outages along the West Coast of the U.S.

I'm proud to say the refinery team successfully managed through the COVID-19 challenges while remaining healthy and safe. It was a large and complex scope of work; we had additional COVID-19 safety measures and issues related to weather, power failures and contractor productivity.

We mitigated as best as we could the pandemic, but did incur roughly $15 million of additional capital relative to our $60 million guidance. The refinery was up and running in late April, and we have tempered utilization to the underlying market demand.

In May and June utilization was between 75% and 80%, and is currently running between 80% and 85% through July. We will optimize the product slate and utilization as market conditions change.

We continue to progress our overall supply strategy, evaluating optionality for product import into Quebec and Ontario; negotiations with suppliers and building our co-processing capability. The refinery has demonstrated optionality by switching from talon to canola due to product availability.

On slide 11; I wanted to reiterate some of the opportunities in front of us for growth. This quarter has demonstrated the agile nature of our operations and ability to flex our business model quickly in a volatile economic environment.

Just as we can pull back on growth early in the pandemic; we can ramp it back up. We have numerous options most requiring small capital investments, and you can see some examples on the page.

We are not getting ahead of ourselves; however, we will continue to be prudent stewards of capital and look for high return projects. This includes acquisitions, where we will look to continue our disciplined activity in the U.S on the back of our strong cash flow generation; ample financial flexibility and improving market backdrop.

The extent and duration of the pandemic remains hard to predict, but our growth capabilities remain intact; and the team is ready to opportunistically execute our strategy. As I said with our Q1 results call in challenging times, the resilience and flexibility business shine through.

We have a diverse product and geographic footprint. When you combine this with our entrepreneurial culture, strict financial discipline and organic growth initiatives; I believe we are well positioned in the second-half of 2020 and beyond.

Thanks to the entire Parkland team for a great quarter and a continued focus on faithfully supporting our customers and communities. Thanks to those on the line for your support.

And we’ll now open the line for questions.

Good morning, gentlemen. Congratulations on a very good quarter and obviously a very quick reaction.

I guess my first question would be $96 million OpEx and MG&A cost savings that it excludes the US. You know sometimes these situations are an opportunity to kind of look in the mirror and dig down deep and look for inefficiencies in the organization.

Of the $18 million, Bob, I mean how much do you think would be more permanent in nature that as we look into next year you'll be able to enjoy the benefits of this as volumes return?

Yes. Thanks.

Thanks David. Good question.

I would say the quarter really demonstrated the flexibility and resilience of the business from a cost perspective. We do have a lot of costs, which naturally unwind with volume.

So what you saw was a large readjustment in the cost in our variable cost base that happens naturally within the business, so I was very pleased to see that and certainly never got to test it to the extent that we saw in the quarter. There certainly are some permanent cost savings that we have achieved.

We've also continued to push on our systems and process improvements, which give us long term productivity improvements that you'll see in a lower cost base. In terms of the exact number, we're probably looking in the $50 million to $70 million on an annual basis across both the variable and fixed costs on a permanent basis.

That’s, that's excellent. And second question Bob just on the, I just noticed across the board, it seems like you're hitting your stride on winning new accounts Canada and diesel with your fixed price offers.

Looks like Canada propane a little bit as well, marine fuel contract in the Caribbean and some of the US national accounts, at a higher level, what are your thoughts some of the teams across the board and why they’re now sort of hitting their stride. I know a lot of groundwork goes into it and maybe some specifics on each geography as you kind of looked at as you are winning all these accounts, 300 in the US which is a remarkable.

Yes, again you know I'm really pleased with what the team was able to achieve in the quarter, and I think what the wins do is speak to the commercial intensity of our team and; and also our ability to continue to service our customers throughout the pandemic and in under any conditions. And that ability to continually serve is certainly the foundation of our success as a business, and it allows the sales team to go out and win new business.

I would say some of the items that the commercial business across each of the regions has been able to do is we’ve spent a lot of time last year implementing a new sales generation process, a lead generation process called Storm. We’ve successfully implemented that across the business, and that's helped us tracked; and also helps the teams in terms of winning and landing new business.

The other thing is our -- we’ve been able to leverage national accounts now across multiple jurisdictions. That's helped the fact that we're in multiple regions.

And then finally our risk management has enabled us to improve our customer value proposition and offer fixed price contracts to customers, so that they could take advantage of the lower commodity prices. So there's number of things that have come together.

Certainly, a lot of hard work that was done last year is we're seeing the benefits of that in 2020.

And the system you put in called Storm, if I’m not mistaken is that what you said?

Yes. It’s a sales lead generation and management process.

Yes. I'd like to squeeze in one more, Bob.

In the US, is that growing awareness of your national, as you had to get your rocks down on the US, there’s a growing awareness of your national exposure. Is that, is kind of get hitting critical mass?

Yes. Look, we’re still in the rocks that we're in and we do have great businesses there and great teams.

Overall relative to the US, our presence is very small in the US , and hence the opportunity on the M&A side to continue to be the acquirer of choice in those regions by great businesses and fold them into our business like we recently did with ConoMart.

Hey. Good morning, guys.

Thanks for taking my question. So, the C-Store comps obviously came in really strong despite some of the headwinds you called out but just I’m going to pull out the fresh food in the sense average piece.

Curious as to whether you've seen consumers become more comfortable with that type of activity or do you think maybe there's a longer term kind of impairment there?

Yes, hi, John; it's Bob Espey. We do have our SVP marketing here today, and I'll turn that question over to you Ian White.

Hi, John. Thanks, it's Ian.

I would say through the worst of the pandemic certainly into the spring; we saw that business come right off and for safety reasons we had -- we've made some changes besides we have stopped a majority of the dispensed beverage programs. What we have seen as new particles that come into place as consumers have become more comfortable sort of living in the current environment and as a team has put a lot of good preventive measures in place and make customers feel more comfortable.

We've seen that business come back, particularly in the summer months with frozen dispensed beverages et cetera. So we are seeing that business come back and we're pleased with the trend to this point.

Great. Thank you and then working capital was $400 million tailwinds.

I mean cash from us this quarter can you talk about the dynamics driving that we think it's mostly coming from payables and receivables but not sure if it's related to commodity price or activity level or something else and should we expect some sort of a reversal of that draw in the second half?

Yes for sure, John, I'll turn that over that Darren and he can provide some color on our balance sheet.

Sure. Hi, John; it's Darren Smart here.

So, yes, you're right; we did see a working capital release in the quarter. And as you've noted driven by a couple things; first, higher payables due to some extensions in payment deadlines for some government taxes and duties.

Also lower accounts receivable and inventory. And again, as you've noted, some of that is due to lower commodity prices and lower volumes.

So that would change with activity levels and pricing levels. But I'd also note that we did have very focused efforts in the quarter on our AR collection, and you're seeing some of the benefit of that as well.

Thank you. And congrats on some strong execution in the quarter, guys.

David stole a lot of my questions, but I do have a few things that I want to clarify and then touch on so the $50 million to $70 million and that you mentioned, Bob, in terms of I guess savings that are more sustainable on an annual basis. So that was -- so that’s even once the variable -- even once the volumes recover to normal levels you're comfortable that's $50 million to $70 million of annual costs that are out of the system?

Yes. That certainly we will be able to retain some of those cost savings again.

In the background, the teams doing a lot of work on our systems and processes; that's enabling us to get some productivity improvements on a permanent basis.

And is that more geared to one of the divisions that you're able to get more permanent savings?

At this point where I would take that number across the business; certainly some businesses are going to retain more than others, but I'd encourage you to follow up with Brad and Dirk after the call on that.

Okay. Great.

And as far as the On the Run rollout, can you update us as to where you are in terms of the number of stores now with that matter, and where you see that go in the next few years?

Hi, Michael. It’s Ian White.

The exact number I have to come back to you on, because I don't have that handy, but I can tell you around the rollout. So we did -- we were aggressively as you know pursuing that rollout across Canada.

We did pause the rollout as a result of COVID. We have since ramped up the thinking and we'll be hitting the ground running in 2021.

We are continuing to refine the process as well. As we open new sites that, Bob referenced, the site that the new site that we just opened in Calgary where we're seeing terrific results from our partnership with Triple O.

So that's got us even more excited, encouraged to continue to progress the retrofit program and also build new locations. So and I said the team to come back to make sure I've got the exact number for you, but we anticipate to ramp up that activity in early 2021 and beyond.

Is it getting anywhere near the 900 sites that you have the JOURNIE on?

I would say we're probably little less than halfway there at this point. A big part of the transition is taking existing the Ultramar network and the Chevron network and shifting that to OTR.

So our focus up until the pandemic for 2021 was to begin to shift the Western Canada business, so the legacy Chevron business to on the run. So that's our next area of focus.

Those some of our highest and most productive locations. Part of the reason we've held off to this point is we wanted to make sure we felt really good about the concept, the productivity metrics, we were seeing the results and we're at a point now where we want to start to push quite aggressively to complete that.

So a big part of that as you said is really the value of the ecosystems tie in our forecourt and backcourt brands. So that’s going to be an important area of focus for us as we ramp capital back up again.

So again does that make it more challenging than to roll-out the JOURNIE program when you have multiple banners that this is tied to --

Yes. I mean it's fair question.

Part of the reason we created JOURNIE as an independent brand was to allow us to have multiple brands associated with it, particularly given our strength of having regionally relevant forecourt brands across the country in different geographies. So it’s certainly optimal for us to have all of our brands connected.

We believe that having now JOURNIE roll-out to these sites will just accelerate the productivity of on the run. So I think the short answer is we're quite pleased what we're seeing with JOURNIE irrespective of on the run branded backcourts in a number of these locations, but feel that as soon as we do that, I'll just accelerate and are already successful program.

Yes. Good morning, everyone.

First question is that the possible that our potential M&A environment. I apologize if I missed it in your opening remarks.

You did refer to an additional capital spend coming forth. And I was just curious whether or not you've reassessed the M&A landscape which you previously suggested you are going to pause on.

Yes. Hi, Steve.

It’s Bob Espey. So we are spending some more capital on growth capital, which is on sort of smaller projects within the business, where we can get a quick payback.

In terms of the M&A environment, our intent is -- we are seeing activity again in that market as people pull out of the pandemic, and we have ample capacity on our balance sheet to pursue M&A, and we’ll certainly be in the market looking at opportunities as they come to us.

Okay, helpful. And just one follow-up if I may on that JOURNIE rollout.

I'm just curious that having already planned that myself and finding the offering quite compelling relative to your peers in the market, I’m just curious whether you had any learning thus far really around the incentives that you're offering and whether or not they need to be adjusted, whether they are compelling enough, et cetera. I mean what have been the key learnings thus far as you contemplate the broader marketing roll out into the fall?

Yes. It's Ian white.

Yes, I’d say a few things. First of all, I would say the biggest learning is that when we get people into that program and if you're part of it, that you get through a cycle and the end of the cycle there's a reward of a large field discount, that is incredibly compelling and people when they move through that cycle our retention rate is quite good.

So we are seeing a lot of stickiness to the program once we get folks registered and it's become really quite appealing, given the sort of value conscious sort of consumers certainly through COVID. From a learnings perspective, in terms of offers, we are testing a number of accelerator sort of scenarios.

We’ve got some programs as Bob alluded to in his opening remarks hitting -- our marketing programs hitting with the bank. We’re seeing very good penetration with CIBC customers.

So we’re seeing the appeal of our brands and our offers there. So that partnership is working well for both parties; and we’re also testing a number backcourt offers from different single serve items to profiling our 59th Street Brand.

And I would state for the most part what we’re seeing is, and it’s interesting to watch people gravitate towards certain types of snacks. So whether it’s a healthy snack versus an indulgent snack and those are the items as we start to understand consumer behavior, we’re able to start personalize directly to that consumer.

So I think the shorter answer is lots of sort of early learnings; we are throwing a number of sort of offers and ideas out there assessing customer reaction and then continuing to build the program and a program attributes accordingly.

Yes. Hi, guys.

Thanks and congratulations on a strong quarter. You guys mentioned that you saw more customers coming into the convenient store this quarter without sort of purchasing fuel and then coming in, can you talk about your plans to sort of capitalize on this customer base and is this can be something you’re going to continue to focus on going forward?

Yes. Hi, Derek.

Bob Espey. Well, one of the strengths in the quarter was the convenience channel and our C-Store business held in incredibly well.

We did see a change in consumer behavior; it became an alternative for some of the basics that people need, and the beauty of the convenience channel is you can get in and out quickly and certainly in the early days of the pandemic that was important to consumers. It's interesting at a time where volumes were up significantly, our C-Store sales were up.

So we were getting a lot of visits and a lot of visits directly to the C-Store; hard to predict the way that that will continue. I am encouraged by what we've seen certainly through the tail end of the quarter when we did see volumes recover; we have seen that strength in same-store hold.

So as we're getting people to the forecourts; we should continue to see good strength in our backcourt business and certainly that's the trend that we're seeing right now.

Great. And then just on the international segment with the commercial business in particular, you mentioned you've seen it sort of come back a little bit.

How is -- what is the best way for us as analysts or buy side analyst to sort of track that businesses. Is there any metrics you can point us to help to us sort of gain some confidence and visibility on what's happening there?

Well, we'll separate into two parts. I'll talk about the business and how it's performing and then Brad can chip in around what to look at externally as a guide post.

I would say, the -- again our commercial business has held in well and surprisingly well; part of that is the markets that we're in and particularly the natural resource intensive markets, where we saw increased demand in Guyana and Surinam driven through the oil finds in Guyana and gold mining in Surinam . We also on the commercial side supply a lot of energy into the utilities; so for power generation and that was robust through that period.

And in fact, we won some new accounts there. So that helped that volume continue through the pandemic and our marine bunkering business held in well as an alternative to selling fuel to the marine sector within the Caribbean.

So that strength offsets some of the local onshore weaknesses that we saw due to the lockdowns. Again it speaks to the strength of the team and their ability to win business in a tough environment.

We do expect that to continue and then certainly be a good backbone for diesel demand in the region. Brad did you want to comment on specific indicators that we look at in those markets.

I think you've got most of it, Bob, from a tourism perspective there; folks will look at flight traffic in and out, talk to travel agencies; cruise ship bookings things like that. But as this quarter proved I think the base business ex-tourism is performing pretty strongly as well.

We do have some economies there that are quite diversified. Puerto Rico is a good example, and those areas will kind of ebb and flow with GDP and have been tracking more closely to North America as it relates specifically to the pandemic.

Hi, this is [Ziyad] on for Ben. Thanks for taking my question.

This is more of a just kind of high level understanding of the integration of that refinery, and how it impacts those margins; and as having to turn around, the beginning of this quarter is also started with lower of utilization rates just because of how the market has evolved. And just can you kind of talk a bit about how we can kind of think that should, if at all, impact margins in the other segments with respect to have the supplies through there?

Yes. Let me -- I think there is two parts to that question.

So there’s the margins that we're experiencing sort of rack to street. And then there's the refining margin and why don't I start off now, I'll talk about the rack to street margin, which was favorable in the quarter and certainly favorable year-over- year.

As we've talked about I mean the rack to retail is made up of many players in the markets. And it appears that the market was able to make up for some of that volume shortfall with enhanced margins; on top of that Parkland has done a lot of work on our customer value proposition to make sure that we're pricing markets competitively throughout the country.

So we've seen some of the benefit of that in our -- for example our retail margins in Canada and throughout the business, again the teams done a great job managing that; specifically with that refining margin, why don't I turn that over to Brad and he can provide some comments on that.

Yes. I think short answer is, Ziyad, you've got to separate the refining margin from the rack to retail.

If you take that out, I think our retail margins would have been pretty consistent. We do – the Retail Group will buy at a competitive price in the market from the Refining Group, so you do have to separate those.

Hi. Thanks for taking my questions.

On the data analytics that you've chatted about recently; wondering if that had factor in these strong fuel margins we saw in Canada; if at all, I know it's early days and what opportunity you see with those initiatives on that analytics in terms of the fuel margin expansion?

Yes. , as we’ve indicated one of our pushes in 2019 was to stand up and start to build a digital analytics capability.

One of the things that our business is has a lot of data. We're very data rich company.

We weren't necessarily very good at utilizing that data. Our data platform that we're building and you would have seen a release around a partnership with Amazon Web Services has really allowed us to get better visibility into the business on a micro market basis.

And just make sure that we're managing our customer value proposition appropriately for that local market, and it's enabled us to really look at pricing right down to the individual sites and making sure that we're pricing appropriately for the market conditions. So that's been really beneficial.

I would say and that's just one initiative that we had with our digital capability. Again, we are now able to look at data across the business and make real time decisions that help us both on the value proposition side but also on the cost side; and make sure that we're optimizing in a real time manner.

We are early days into this, again we just really stood up the team late last year and the pandemic really helped us make sure that we focus and get to the information and allowed us to accelerate some of those initiatives.

Okay. Thank you.

Thank you for that. On a fuel volume; obviously good improvements through the quarter, it’s still down year-over-year and there are some many factors impacting the consumer on -- retail fuel volumes in particular.

There is work from home dynamic; there is perhaps vacation, and driving vacations within the country and other factors as well. Wondering as you look out, is it a situation with Parkland ambitions, these are volumes permanently impaired or do you see is gradually offsetting on time?

It's hard to predict where it's going to go. I mean I would say our observations so far are accurate to what you’ve said.

I mean we have seen the compute volume come off. We have seen some of our non-urban sites that are have gained volume because of the phenomena of people staying in Canada and driving.

So there has been an offset there; it will be interesting to see through July and August, those are the big months where folks take holidays how that process, and then on the commute side what we’ve seen is commute volume come back outside of the urban centers as people have returned to work in industrial environments and non-urban offices. Obviously, as there will be some dependency there on how safe people feel to go back to work; and the rate at which offices start to open from an administrative perspective.

So hard to tell the way that’ll pan out; I mean it's certainly, there is a portion of that the commute side, which is tied to people feeling comfortable going into work and doing that work.

Okay thank you for that. Taking a two step back and has COVID caused to reevaluate any strategic pillars or business focus areas for you maybe international expansion outside of North America; the way leverage is carried on the balance sheet.

Have you had any thoughts on what the business probably change as a result of COVID?

Yes, that’s a good question. And it’s early days in terms of what is the long-term impact as we talked about.

I would say what the recent quarter, the last quarter and half of have allowed us to see is the resilience and flexibility of our model; and certainly what we’ve seen in the convenience segment has been encouraging in terms of the strength of that. And I would say in other areas where we have seen volume declines; the ability of the business to scale quite dynamically around that has been encouraging.

You also have to keep in mind we were in a turnaround through that period. So of our first half of the year three months of earnings have been lost because of refinery wasn’t turnaround, which was planned turnaround, but that needs to be taken into account when you do look at the business.

And if we were to sort of normalize that; that would have had a large impact on our earnings through a positive impact through the quarter. So as we step back, the business has proven to be dynamic and flexible, and all segments have shown that they can be profitable throughout what has been a very tumultuous time in the macro economy.

Good morning. I've got a question focused on supplier, the refinery.

Given that the refineries seem to operate to the weakest link and the weakest link I think at the moment is jet fuel. Is there something that you can -- that you're doing short term and maybe something that you can do long term if you see something sort of structural with jets now coming back that can help refinery utilization increase further; I'm actually pretty shocked that it's operating as high as it is?

Yes, it's a good question. And certainly with our refinery in Burnaby, we do have flexibility there to adjust the amount of jet that we produce.

And that has enabled us to increase the refining rate. Dirk, if you want to comment specifically on the refinery and its flexibility around that area.

Sure. And thanks very much.

Thank you, Elias. Yes.

As our utilization rate was -- had gone down, we had a better ability to take the distillates to the heavy end of the barrel and shift it away from jet and into diesel production, but as our production level, our utilization rate comes up then we have to shift more towards the jet side. So if you see us running at 85 versus 75 that should be an indication that we're starting to see some jet demand come back.

We are one of the largest suppliers to that Vancouver International Airport. We are connected directly by way of a pipeline to that airport.

And as they are building out their sea port facility; we'll be able to also send it by way of barge. So that Vancouver Airport as volume starts to pick up, Elias, we will be able to be picking up some of that volume, and we'll be able to increase our utilization; and switch some of that distillate production away from diesel, and into the jet in order to provide jet to the airlines.

And we're about a third of the activity at that Vancouver airport. And we have some long-term contracts with both domestic and foreign airlines.

And we'll be looking to solidify those contracts as we go forward.

Okay. And just one final thing, are we going to see some what I would call short-term tracking error in our sort of formulaic approach to refining margins because of this shift?

Elias, actually -- probably not, in that if you look at the price of diesel and the price of jet; there's not a big difference. So really it's a matter of was the uptake is that the demand there for the product and because we are fortunate to be working in an orbit that's an area of service that is quite unique, and there is a fair amount of marine activity.

There are other industrial uses for the diesel. And this refinery was built in 1935 and was designed to fulfill the needs of the marketplace.

And so the configuration of the refinery actually works very well for the demands that come out of that marketplace. So I think that when you're looking at the crack, I would suggest to you that the ability for us to shift back into the jet side does help us balance at the refinery, but the economics don't change all that drastically.

Hey. Thanks.

Good morning, guys. Just wondering if you can quantify your expectations for any impacts that you can see with recently federal wage subsidy?

Sorry, Luke, you broke up there. I couldn't fully follow the question.

Yes. Sorry.

I apologize. I guess the background noise here.

But I'm just wondering if you can quantify the impact of the federal wage subsidy that you expect in Q3?

In Q3, the -- we did benefit from a Canadian wage subsidy in Q2. In Q3, we will again -- we on a monthly basis we submit and again it depends how the business is doing and what the criteria are.

There have been some changes in the criteria. And it's difficult at this point to predict exactly what the benefits going to be from that program.

Again, we are thankful for the government for their assistance, and certainly through the pandemic, the program helped us keep some of our sites open and as you're aware we are – were designated an essential service and that certainly allowed us to keep the sites open, and service local communities across Canada.

Yes. Just a quick one, guys on the sustainability of the margins in Canada, one of your competitors did remark that they were buying low cost fuel in the spot market and selling physical inventory forward.

I'm just wondering is there anything that you did through the 2Q period that might allow margins to persist at these pretty different levels into the third quarter.

Again our Supply Group was very active making sure that we found the best value for Parkland. We certainly worked with our refining partners across all of our jurisdictions to make sure that we lift from them in the most effective manner possible.

In terms of projecting forward, again, difficult to do at this point. But certainly our teams both on the marketing side and the supply side are teed-in on that, and we'll make sure that we take our fair share if the market gives us.

Great. Well thank you.

Thanks for listening in and look forward to connecting with the folks after our Q3. Have a great summer.