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Good morning, ladies and gentlemen, and welcome to Parkland Fuel Corporation's Q1 2019 Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, May 2, 2019.And I would now like to turn the conference over to Brad Monaco, Director of Investor Relations. Please go ahead.
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, Supply, Trading and Refining. This call is webcast and I encourage listeners to follow along with the supporting slides. We are targeting the call to be one hour this morning and we'll go through the prepared remarks and then open it up for questions. We will prioritize questions from the investment community only. If you are a member of the media, please connect with our communications team, who will be happy to respond directly. Please limit to one question with a follow-up as necessary. Our Investor Relations team is available for more specific question afterwards.During our call today, we may make forward-looking statements related to expected future performance. These statements are based on current views and assumptions and are subject to uncertainties which are difficult to predict. These uncertainties include, but are not limited to, expected operating results and industry conditions, among other factors.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.I will now turn things over to Bob and Mike, who will highlight key takeaways from our first quarter results. Bob?
Thank you, Brad. Welcome, everyone, to the first quarter earnings call for 2019. On our opening slide we have the logo for our 50 year anniversary, a significant milestone for the Company. Parkland has a rich history and it has evolved quite materially over the 50 years as a publicly traded company. I look forward to revisiting that history later this morning at our AGM. Congratulations to the entire Parkland team for 50 years of success, and thanks for all of their hard work in the quarter and continued focus on safety.Before we get to the operational results for the quarter, I first want to acknowledge the announcement of Mike's decision to spend more time with his family in Ontario. Mike has been with Parkland over 10 years and has been integral to the growth and success of the Company. Mike has agreed to work with us as we commence the search for his replacement and will help with the eventual transition. I know I speak for many at Parkland in saying that he will be missed. On behalf of everyone at Parkland, thank you, Mike.The Parkland team delivered an exceptionally strong quarter to start 2019 with another record quarter of results. At our Investor Day last month we spoke about the ratable nature of our business, our proven acquisition and integration strategy and the biggest aspirations we have for Parkland. We continue to execute on the strategy and delivered another outstanding quarter. This was our first with the new Sol International business, and are happy with what we are seeing there.Important to note that on January 1, 2019, Parkland adopted the new accounting standard, IFRS 16 Leases, IFRS 16. Mike will speak to this to the next slide, but keep in mind -- but keep this in mind as we go through the numbers.We delivered adjusted EBITDA of CAD315 million in the first quarter; or on a pre-IFRS basis, CAD288 million, relative to the CAD153 million reported in Q1 of 2018. This is up materially compared to Q1 2018, as we had a turnaround at the Burnaby Refinery, which had the refinery shutdown for 2 months last year, plus we added Sol this quarter. We had strong execution across the rest of our segments, and are on track to deliver our 2020 synergy targets of CAD180 million with the Chevron and CST business.I'll turn it over to Mike to touch on IFRS 16, then I will add some color on the segment performance.
Great. Thanks, Bob, and thanks, everyone, for joining us this morning. Appreciate the kind words as well. My almost 10 years at Parkland have been very rewarding and I'm proud, very proud of where the Company has come. I'm committed to a smooth transition, as Bob noted. And you'll be hearing from me for a while yet, so I look forward to that.As mentioned, we adopted the new accounting standard, IFRS 16, which speaks to leases. This was effective on January 1. You'll see this accounted for in all of our peers' results as well as the adoption was mandatory. From a high level, we now capitalize our leases with a commensurate liability for the lease obligations. Costs now flow through the income statement differently than in the past. And this has an impact on key metrics. Due to Parkland's selected transition method, we are not required to restate prior year comparatives. IFRS 16 increases operating -- or reduces operating costs and almost as most of the -- the lease-related costs are no longer expensed, but instead there are increases in depreciation, amortization and finance costs. As a result, adjusted EBITDA increases and there is a small impact in net earnings.As you can see, the change had a CAD27 million impact in our Q1 adjusted EBITDA attributable to Parkland with the largest impact on our International segment. We leased charter ships in the Caribbean, which is the bulk of that impact. The impact to net income attributable to Parkland was about CAD3 million. On a full year basis, the expected impact of IFRS 16 adjusted EBITDA will be approximately CAD105 million. I encourage you to review the Q1 financial statements and MD&A for further detail on the change. We have endeavored to include as much detail as possible.Bob, back to you.
Thanks, Mike. You'll notice we have aligned our segments in the key geographic regions: Canada, the US and International. I alluded to this at our Investor Day, maintaining a local focus in customer service and tie together with strong marketing, supply, and health, safety and environmental.I'll start with Canadian Retail. We continue to demonstrate strong organic growth in our KPIs. Our Retail segment had yet another strong quarter with Company Volume same-store sales at positive 1.4% and Company C-Store same-store sales growth at positive 6% year-over-year, marking the 13th consecutive quarter of positive Company C-Store same-store sales growth. We continue to demonstrate solid operational execution, the benefit of our marketing programs and focus on forecourt to backcourt conversions. We are proud of both these numbers. Our COCO to CORO conversion program is on track with approximately 40 location conversions completed in the quarter with 50 outstanding for the remainder of 2019.Excluding the impact of IFRS 16, our adjusted EBITDA year-over-year was relatively flat and we continue to see some competitive pricing dynamics across the country. Most major markets saw a decrease in fuel margin this quarter as reported by third-party providers. That said, we have grown our market share in this highly competitive environment. We view the fuel margin pressure as transitory and hope for a return to normalized fuel margins over the long-term.On the Canadian Commercial front adjusted EBITDA increased year-over-year due to strong operational execution in cold weather that drove our propane and home heat businesses. We are leveraging our regional operation centers approach to optimize the performance of the business.In the US, our first quarter adjusted EBITDA increased, owing to the Rhinehart acquisition, which was not part of our Q1 2018 results. We also saw strong lubricants performance in the quarter and our integrated team is driving good growth in capturing new business.As I mentioned, this was the first quarter with our International business through the acquisition of Sol. We closed the acquisition on January 8, and are pleased with the results to-date, specifically in the Eastern Caribbean and South America. As a reminder, we discussed our International results based on our 75% economic interest in Sol. In terms of seasonality, the first and fourth quarters are expected to be the strongest due to tourism in the Caribbean and South American assets in Guyana and Suriname will be influenced by the volume of activity in the natural resources sector.Finally, turning to supply. We had a strong overall results there as well. Cold weather provided opportunities for rub-over marketing to market propane and we continue to advance our supply advantage through our strategic infrastructure and supply sourcing initiatives. A big part of the increase relative to last year was the refinery, which shut down operations for 2 months in Q1 2018. We did some work at the refinery in Q1 2019, but there was no downtime.One other thing I would like to note is, we exited the second stage of the Chevron Transition Service Agreement on April 1, which will lower our corporate integration expenses going forward. Congratulations to the Parkland team on the significant milestones.I will now turn it over to Mike to walk through our comparative numbers. Mike?
Thanks, Bob. I'll take a few minutes, as Bob noted, to add some color on the contributions made by each of our business units in the first quarter. We have added 2 charts on this page: the one on the left walks through our as-reported numbers; and the chart on the right shows the comparable pre-IFRS amounts, again more comparable to the prior year numbers.The total Q1 impact of IFRS, as I mentioned, on adjusted EBITDA was CAD27 million. Canada Retail, adjusted EBITDA was up CAD4 million year-over-year, relatively flat on a pre-IFRS basis. There have been some softer margins across the country, which Bob alluded to, but we have offset that with our strong execution, volume growth, marketing programs and growing non-fuel profits. We continued to focus on what we can control, and the team has been doing a great job at that.Canada Commercial adjusted EBITA increased year-over-year. A reminder, the Q1 is seasonally a stronger quarter given the cold weather impact on home heat and propane business; but by all accounts, a strong performance. The IFRS 16 impact in Canada Commercial was not material.Our USA business grew adjusted EBITDA by CAD7 million due to organic growth and the expected impact of the Rhinehart acquisition. There was negligible impact of the IFRS 16 on US operations.Parkland International contributed CAD71 million of adjusted EBITDA in Q1 and CAD57 million on a pre-IFRS 16 basis. The pre-IFRS 16 number is what has been guided to in the past, which is CAD210 million for the full year of 2019. Bob mentioned the seasonality here, so CAD210 million is what we are guiding to for the full year.Sol contains our largest IFRS impact, mostly due to the fact that we leased all the shipping vessels used to transport product throughout our network. If you look at our financial statements and MD&A, we have a non-controlling interest, which is the 25% of Sol owned by the Simpson Group. We have included several reconciliations in those documents and it is our objective to be as clear as possible when it comes to the 75% of adjusted EBITDA that is attributable to Parkland.Bob spoke to the overall supply results, which benefited from strong supply sourcing initiatives. We had a large refinery turnaround in the first quarter of last year with the resulting utilization at 33% for the quarter. So a large uptick in supply adjusted EBITDA reflects this. The refinery operated at 92% utilization in the first quarter of 2019. The IFRS 16 impact in supply was approximately CAD6 million, as we leased railcars through Elbow River and some of the terminal structures across our infrastructure network. Corporate expenses were relatively flat, but importantly, much lower as a percentage of overall gross profit. I'll speak to that later with our KPIs. All in all, lots of moving parts on the face of our statements in this quarter. A special thanks to the team for pulling it all together and making it as clear as possible for our investors.We have shown Slide 7 before, well, not the actual crack spreads experienced by our Burnaby Refinery, the 5-3-1-1 generic Vancouver crack can serve as a reasonable proxy for the Vancouver crack spread, and should provide investors with a reasonable benchmark for comparison of their own crack spread assumptions. The index plots historical values against the 3-year average. And the end note has more details on the methodology used. You can see the first couple of months were lower as a result of increased feedstock pricing with March crack spreads strengthening.Back to you, Bob.
Thanks, Mike. Our key performance indicators or KPIs are tracking well. In Retail, net unit operating costs improved. We continue to see an impact from the COCO to CORO change in the Retail operating models, which we have spoken about previously. Although there is an impact from IFRS, underlying performance was very strong. We continue to win customers in Retail, as evidenced by our volume, same-store sales growth in the corporate channel being positive by 1.4%. This also speaks to our network development plan, which continues to develop the best sites in growing markets.Our C-Store same-store sales growth continues to perform at positive 6% for the first quarter. The increase was across all merchandise categories and speaks to the success of our key Retail initiatives we talked about at our Investor Day; better execution, make the most of every stock with on the run and strategic marketing efforts, private label products and leveraging digital.On the Commercial side, gas, diesel and propane volumes were off slightly due to soft demand in the prairies and some adjustments to our customer portfolio. You can see we also continue our progress on the costs side, evidenced by the TTM operating ratio. The decrease in this ratio of operating costs and MD&A to adjusted gross profit demonstrated the initiatives in the quarter. Refining utilization was 92% this quarter, up materially from prior year due to the 2018 Turnaround discuss.I will now turn the call back to Mike, who will take us through USA, International and a number of corporate KPIs. Mike?
Thanks, Bob. In the US, Wholesale and Retail volumes were up 50% and 59% respectively year-over-year primarily due to the Rhinehart acquisition. This deal closed in August of 2018. The trailing 12-month op ratio improved by almost 4 percentage points to 70.3%, again reflecting our commitment to the successfully implemented cost control measures while driving business growth. Aside from the acquisitions, the base business is performing well here too and experienced strong lubricant margins in the quarter.This is the first quarter with International, so we have no comparable KPIs. That said, we can confirm the business is tracking very well and on plan.Looking at our corporate KPIs on a consolidated basis. Corporate marketing and general administrative expenses as a percentage of Parkland's adjusted gross profit attract as planned to add about 3.9% versus 6% last year. Our business has gotten bigger to support the new scale and scope, and to support further growth. However, corporate costs have come down as a percentage of gross profit. This is our goal to reduce the corporate overhead relative to gross margin. Our adjusted dividend payout ratio improved to 35% compared to last year due to the initiatives we spoke about in the comparative quarter in 2018, having the refinery turnaround.Excluding the impact of acquisition, integration and other costs, Q1 adjusted distributable cash flow per share increased by CAD0.09 year-over-year to CAD0.93 per share. Even with the increased share counts, we demonstrated per share growth. Our total funded debt to credit facility EBITDA ratio remained very strong at 2.71 times, and now accounts for the Sol acquisition. Just as a reminder, this is a trailing 12-month calculation.Our first quarter total recordable injury frequency measure for the trailing 12 months decreased to 1.71 compared to 2.51 in 2018. TRIF provides meaningful information in evaluating performance in providing a safe work environment. Safety is a key part of our culture at Parkland and is at the forefront of all that we do. A safe workplace is an efficient workplace and we think it helps us to attract the best employees to us.I'll now flip it back to Bob to wrap up his comments on our outlook.
Thanks, Mike. Our guidance for the year remains at CAD960 million pre-IFRS 16, plus or minus 5%; and we remain highly confident in that range. It is still early in the year, but business is progressing extremely well and we are optimistic for the rest of 2019. The strategic pillars remain the same: grow organically, build and maintain the supply advantage, and acquire prudently and integrate effectively.An important note for our 2019 reported results now include the impact of IFRS 16. The new headline number is CAD1.065 billion, which is the CAD960 million plus an estimated CAD105 million in lease cost that will be amortized below EBITDA and D&A cost. This is not a change in underlying guidance, but reflects the reality of new accounting standards.I'd like to end by once again thanking the Parkland team for their hard work and dedication to produce yet another great quarter for Parkland, and also for the ongoing focus on safety. I'd also like to once again thank Mike for his service to Parkland. It's been a real pleasure working with him over the last 10 years.This concludes the formal portion of the call. We will now take questions from our analysts and institutional shareholders. Operator, please open up the call for questions.
[Operator Instruction] And your first question is from Derek Dley.
Yes. In the past, we've talked a lot about some of the initiatives that you have to -- that you're implementing to drive same-store sales on the merchandise side, but you had some pretty strong same-site volume growth this quarter. Can you talk about some of the initiatives on the fuel side, and are you gaining market share in your key regions?
Yes. Derek, it's Bob Espey. It's a combination of things. Again, it's better execution in the field and an improved focus on making sure that our proposition is relative -- is relevant within local markets. And that's done by making sure that we're having the right promotions in the market at the right time, and that we're also pricing each market effectively. So that's some of the work that the team has done on the volume side. One of the other things that we were still piloting and will roll out later in the year is our new loyalty program called Journie. And what we've seen in the markets where we piloted it is some good increase in volume and -- on a number of different factors. One is we've seen the average transaction size increased, so more leader spot. We're starting to see frequency increase and we're also seeing better conversion into the backcourt. So again, more to come on this and the team has been doing some excellent work there both in the marketing group and on the operational side to make sure that we're executing effectively.
Okay. And within the West Coast market or the GVRD in particular we've seen record high fuel prices here in recent weeks. Have you guys seen any change in the purchasing behavior because of those prices?
High prices do -- they do put pressure on consumers and we do sometimes see a change in buying behavior. I would say, in the first quarter, volumes were slightly off in that market, but we didn't see a material deterioration.
And with this spike in fuel prices there, do you see an opening up of supply arbitrage opportunities?
We are always working supply right now -- right down as far as South America. So there are always opportunities within the entire system to move product around. And I'm really pleased with the team and their ability to execute quickly against those. And we've seen some of that translate into some exceptional results within our supply and refining segment.
Okay. Great. And then just last one for me, with the rebound here that we've seen in Canadian oil prices or Alberta oil prices in particular, have you guys witnessed any incremental or acceleration of activity within that oil patch market for you?
I would say it's always delayed as for the activity to ramp. We'll see how that translates through in the back half of the year.
Your next question is from David Newman.
Terrific set of results. And first of all, sorry to see you're leaving, Mike, but congratulations and all the very best. We'll see in the local market here in Toronto hopefully.
You bet. Thanks, David.
So first of all, just on guidance, guys, Sol has started the year and supply conditions in the second quarter look favorable. So it looks like a good setup heading through the remainder of the year. So I just want to get a sense of what your assumptions are, I assume, you mean reverse in the crack spreads, and any other areas that you're being cautious on, because it looks like out of the chute here, looks like a pretty solid setup?
Yes. Thanks, David. It's Mike here and I'll probably get Dirk here to weigh in a little bit on this as well. I think, certainly, what you would see and I mentioned it in the commentary, you did see the crack spread is pretty tight in the first couple of months and then our indicative spread to tell you that it widened a bit here in the last month of the quarter. Now, I would caution, I mean, I think we are comfortable with our guidance. We are always tracking to historic numbers and look at the forward strip. But keep in mind, we also are producing and so forth and so we tend to watch our production levels, we anticipate some maintenance here and there, and we tend to keep in mind that you're not always going to run at 92% utilization, but we've had some very strong performance. And so we try to make sure that we think about it from a reasonable perspective. Dirk, anything you want to add to that?
Sure. I would also add that during Q1, on the West Coast, you did have refinery outages both in Los Angeles market and in the Pacific Northwest, so think of the Seattle area. And those markets tend to move together, and lot of that was driving the higher prices not just in the Vancouver market, but also Seattle and LA. When you get those refineries back up and running at full capacity, you will probably see some softening in those markets and that's what we would anticipate to see is that those high prices in Vancouver probably come back down and bring us back more in line. So we're -- that's what we're looking to going forward. So we'll see how it plays out, but we only one -- run one refinery and there are a number of them on the West Coast.
And just more holistically, just in terms of your guidance beyond just supply, is there any other areas that you're being a little more cautious on in either Sol or US or Canadian Retail or Canadian Commercial or US or any other areas that you're just saying, okay, well, we had a great set of results here and let's just be -- let's be comfortable with our forecast in terms of those other areas, or anything that you're cautious on at all?
I would say, across the piece we're seeing the business perform as expected and don't see any material change going into the second quarter here.
Okay. Go ahead. Sorry, guys.
Yes. No, I was just going to say, David, see in our commentary that we're comfortable like very confident in the range and a positive, I guess, outlook from that perspective.
Okay. And just on supply, you noted the Elbow River export opportunities and it sounds like you had the crude refined products, propane, things like that and you picked up a delta of around 50 million liters. What sort of pick up would you see on EBITDA and that sort of thing on the arb? And was that more related to just propane seasonality and East West trading across hubs or was there something specific you can call out or is that a sustainable kind of step change that you've had just on the supply arb?
I would suggest to you that the uptick in the volume that you saw in supply, if -- and remember that is the -- those are third-party sales as opposed to internal sales. And that uptick was primarily weather-driven, and it would have been Elbow River moving an awful lot of propane, they had a very strong quarter on the propane side. So they did pick up a little bit of diesel, there was some other finished products, but it was -- a lot of it was weather-driven.
Okay. Got it. And last one from me, guys. Just on the Commercial side, it sounds like you're de-marketing some of the lower margin business. What's going on there strategically? Are you just sort of looking at having more of a national brand, and you've got some local regional guys or what is happening there that you're de-marketing some of the lower margin business?
So are you alluding to the volume shortfall year-over-year?
Yes. No, Canadian Commercial, it sounds like you have a bit of a focus on gross profit as opposed to volume sort of thing.
I would say, as we've integrated the business, we've taken a step back and we've looked at our portfolio of customers and we have made some changes there. There's also been -- we saw weakness in the propane market in Western Canada related to the economic slowdown. So, just with the crude differentials, folks weren't operating there and the curtailments, they weren't operating all of their assets. And in the propane, we supply a lot of propane into the oilfields. So [technical difficulty] that portfolio a couple of accounts that we rationalized.
I would also add -- David, I would also add that cold winter that does translate into the Commercial business, which is supply and home heat and propane. So if you're having to stock inventory at probably a little bit higher margin, then something it would just be normal flow basis.
Your next question is from Vishal Shreedhar.
Just following up on that Commercial question; the volume declines associated with [technical difficulty] quarter?
Yes. We're -- you should see it start to come back. We've done -- we are doing a lot and have done a lot on the sales side that will start to -- we'll start to see that recover.
Okay. So the fact that the margins expanded and the volumes went down, were those -- those customers that you rationalized, were those contracts that weren't profitable, was that the issue?
Yes. I mean, we're always looking our customer base, our portfolio base and the mix of -- some mix of are we making enough money and are we taking too much risk, right? And if we decide that that's not right, we do, at times, make decisions not to service customers.
Okay. In the Supply segment, was there any notable quarter-over-quarter improvement related to the US business, in particular, the size of that business and getting supply benefits there and how about in International, was there any benefit there?
Yes. There was a -- we have opened up an office in Houston and it has started to commence operations. So there was a small contribution coming from that as it was supplying the International operations.
Okay.
It's early stages there, but the signs are positive, and as you know, that's part of our supply advantage.
Right. Okay. And just lastly the synergy run rate for CST-Chevron was indicated at CAD100 million for this quarter. You can correct me if I'm wrong, I think it was CAD100 million last quarter as well. So wondering when that number should start picking up again.
Yes. Just for clarity there, Vishal, it's Mike, Yes, we exited the year last year and our run rate was about CAD100 million and we also confirm that we're tracking well to achieve the CAD180 million in 2020. And so, we haven't -- it's only -- keep in mind, since we pushed out our year-end numbers, it's been almost about 2 months and we haven't provided revised guidance on that, but we're -- I think, our commentary would be we're very comfortable with how that's tracking towards our objective for this year and into next, and we'll update everybody as we make progress as we get further into the year.
[Operator Instructions] Your next question is from Michael Van Aelst.
You covered a lot, but I wanted to have a few things. And by the way, I echo David's comments on the great results and best wishes to you, Michael. Just on, I guess, just quickly, you made a comment about the IFRS 16 kind of new guidance number. Are you going to continue to provide the pre-IFRS 16 EBITDA numbers for the rest of the year?
Yes, we will, Michael. Our plan is to show the comparative, so that you can easily look year-over-year and be clear on that impact. So we'll do it for the course of this year and then evaluate as we get into the following year.
Yes, I think, that way we can speak to the results quickly, because quite frankly it's putting a lot of noise into the numbers.
That's right. On the loyalty program, the Journie loyalty program, can you give us some, I guess, insight on your experience in the pilot markets to-date? How is it working across the divisions, and then how is it being funded, how do you expect it to be funded over time?
Yes. So one of the things that we're making an investment this year and we did signal that in our guidance for the year. So there is -- and we did see the MD&A within the Retail segment go up slightly, that's -- and a large part driven by that and other marketing programs that we're pursuing. The large part of the costs will be in the rollout in the back half of the year, so you should start to, again, you'll see MD&A go up. Once the systems in place, I mean, it's sort of a one-time investment and then it's maintenance beyond that.
Okay. And then the -- but the annual costs of running it like the promotional offers, things like that, is that all supplier-funded?
Well, it's funded through growth in the program. Ultimately, as we get more sophisticated and get more members in the program, we do think there is an opportunity to partner with our supply base to work on promotions that benefit both of us and to have them fund a portion of that.
Okay. So can you just comment on the, I guess, the initial observations in the pilot markets?
Yes. Again, what we're seeing is -- and I'm careful not to give the results we're seeing, because again, we're in 2 smaller markets and we want to make sure that we can scale it and that we see that across the network. But we are seeing average transaction size on fuel volume go up, we're seeing backcourt volumes go up, and we're seeing number of visits go up. So again, hard to translate as to how that will affect as we roll out across the business. We will get the same, but it's very positive so far, and certainly would reinforce the business case that we put in place, which Sol premised on incremental growth.
Your next question is from John Royall.
So on growth CapEx, you guys are well below the run rate implied by the CAD200 million guide. And I assume that has a lot to do with the new store activity being little light, which I think is normal seasonally. Do you expect to pick up as early as 2Q or is the cadence more 2H weighted like last year?
Yes, it is. It generally tends to be second-half as projects as we come out of winter and project starts and there is a rush to beat the next winter, so that tends to peak the capital spend on Retail side.
And then just wanted to get a sense of what you're seeing in the M&A market right now broadly, particularly in the US. I know you can't get into specifics, but just in terms of the motivation level of sellers, the bid-ask spread, things like that, just trying to get a sense for maybe the likelihood of seeing some bolt-ons here over the near-term?
I would say that the situation hasn't changed and we are seeing opportunity. We're fortunate to have a broad set of opportunities, because we work in multiple jurisdictions now. And our focus is always on having a broad pipeline, so that we can find the best value in the marketplace for both the vendor and our shareholders.
Your next question is from Kevin Chiang.
Congrats on the good results there and best of luck, Mike, as you head back here to Ontario. I got on late on the call, so I apologize if these had been asked already. But in terms of what you're seeing in BC, I know fuel prices are quite high, but are you seeing any increased risks around regulation? I mean, it seems to be a very popular topic now in that area. Any concerns on your front that the current government in place will look to implement some sort of regulation that impacts your refinery operations or your Retail operations there?
It's hard to speculate on that. I do hope that folks understand a number of things that influence pricing. And as Dirk had mentioned, there were -- there's a shortage of supply of product supply on the West Coast of the continent and that will influence pricing, I mean, the other is just taxation, lot of taxation flows through into to the Consumer. And I do hope that people understand that and let the market prevail.
That's helpful. And then my second question here is, when I look at your international segment, you provide your kind of Retail mix. How do you think about that mix over time? Is there an investment that needs to be made there to get to some sort of optimal mix like you're doing within your Canadian Retail network? And then with some of the initiatives that you're pursuing here in Canada in terms of private label and some of the other initiatives to drive more traffic, wondering on the ability to export that into the Caribbean and would that be additive to your synergy number or would that have been included when you provided a synergy number for Sol?
So, I'll break it down 2 questions, one is the US and the mix of Retail within that business. We don't have a specific target. We are -- as we have the opportunity to buy businesses, they have different mixes. We do like each business to have a retail component to it and generally that's what we get. So I would say, as we grow the business, it will depend on the opportunities that present themselves in terms of how that mix will pan out. I would say is that we're committed to having the Retail business, the Commercial business and then a supply platform consistently in every jurisdiction that we operate, because we feel that that provides supply optionality and also scale within local markets to make sure that we can service the customers effectively. On the Sol side, again, many opportunities, there is a great team in place there and our focus on the synergy side is a mix of initiatives that are operationally-driven, supply-driven and back-office-driven. Generally, we tend to focus on items where we can quantify and are confident before we put a number out there. And so, things like revenue growth through rolling out common initiatives that's something that we tend to focus on later and don't necessarily count in the initial estimate.
Your next question is from Sabahat Khan.
So just one on the Retail segment, I guess, the results, even though they were flat year-over-year, came in better than the trends that we're looking for. I know you called out some competition and some pressure on margins, but just trying to figure out how we should think about the rest of the year. And then if you can provide any commentary on trends you may be seeing at your stores or through your distributor partner stores across high-end versus low-end fuel.
Okay. So again, we had some exceptional same-store sales growth in both the fuel and non-fuel segments. And I would say that -- and you can look at the Kent's to get the -- the Kent data to see where the margins go or have been. And I certainly don't speculate on where they'll go going forward. And I would say, our focus is on get the non-fuel up, which we've been doing quite successfully; get the net unit or operating cost down, which we're starting to see trend down now as we continue to grow non-fuel and reconfigure our business under the CORO model; and really focus on tight execution and good marketing programs. And fundamentally, the margin is what it is and we'll run our business accordingly. So I would say in a tough environment the team has delivered exceptionally well and it shows the resilience of our business and the ability of our business to compete effectively in a tougher market.
And then just a follow-up on the new -- on the CORO sites. As you're -- you've indicated at your Investor Day that you are looking to put up more new sites every year and you do want to focus more on the CORO model. You typically have a partner lined up before you build out a site or do you sort of build out a site, run it for a bit and then transfer it to a distributor or a partner to...
No, we've got a really good bench of existing and new partners, CORO partners that the operations team has spent a lot of time putting together. We've been able to attract some of the best retailers in the industry and we always launched directly with the retailer that will take the sites and they are retailers run those sites as if they're owners, they're highly motivated to make sure that we provide good service and we execute programs effectively and make sure that the sites are safe.
Okay. And then just one last one more of a housekeeping modeling question. As we shift our numbers based on Q1 towards more of a IFRS 16 numbers, the quarterly impact, I think, if I read it correctly, is going to be probably about the same. I think, you're seeing CAD100 million for the year. Just trying to understand, given that the biggest variance between your reported -- between the 2 standards is International, should we just do the -- I'm just thinking how to adjust the last CAD75 million over the rest of the year. Should it directionally move with the contribution from the International segment where the biggest variance, just some color on the seasonality of the IFRS variance.
Sabahat, it's Mike here. I would say it's -- you should expect it to be reasonably flat as a general principle, just because it's driven off lease costs. So the CAD105 million like we did CAD27 million this quarter is a good estimate of what you should expect. Now, the one factor we'll continue to talk to atx if it changes is just as leases come in and out and what that movement may be, but our best estimate right now is CAD105 million and you can see from our Q1 that's roughly a quarter of that adjustment.
And your next question is from Peter Sklar.
On the Sol acquisition, you've had it for a few months now, you mentioned that you've set up the Houston office. But can you talk a little bit about -- and I know they have their own independent management team, but from your perspective, what is the first order of business for you and what have you done so far and where do you anticipate going through the course of 2019 in terms of initiatives?
Yes. Hi, Peter, and welcome. As with any acquisition, the first step is business continuity, it's making sure that we land the team that we don't upset any customer activity, and that we start to learn the business. So I would say we're well into that and we've got some -- and we're getting traction across initiatives on multiple fronts. The key is to work with the team because of the geographical nature of the business, the fact that everything's dispersed into multiple countries; it's really getting the team to understand where the opportunities are and starting to push them towards it. I would say that the CAD42 million in synergies that we've projected, we're still on track to achieve that. And again, that's a year 3 projection and it fits with that model of business continuity, understand the opportunities for growth and then pushing those. And a key contributor to that will be enabling the supply system around that. You're right, we did open an office in Houston and that's not just the service that Sol business provides us a product into that business, but also to service our US business, that is growing quite dramatically right now. So we expect that to start to generate opportunities or benefits for both the US and the International business.
Okay. And then I just have a question on your Canadian C-Store business. Can you talk a little bit about the tobacco category? Some of the US C-Store companies are reporting very strong comps in tobacco, lot of that is generated by the vaping product. Can you just talk about what trends you're seeing in that category?
Yes. So we have seen some good growth in the vape segment. And overall, we've seen positive growth in the tobacco segments driven both by vape and traditional products. We do have those numbers broken out and I'm sure you can follow-up with our IR team, and they will provide some more color on that.
Your next question is a follow-up from Sabahat Khan.
Just a quick follow-up here, I guess. Looking at your pro forma leverage, it has come down as of this quarter, and then there are a number of, I would say, maybe medium-sized assets on the market. Just want to understand the propensity to take on a medium to larger size acquisition, following the full acquisition, just any thoughts directionally would be great.
Again, we don't comment on specific opportunities. I would say, as a business, we're generating strong cash flow and that cash flow is certainly sufficient to fund our organic growth and provide some additional cash flow to fund M&A. So obviously depending on size and opportunity, we would certainly look at a broader range of opportunities and continue to grow the business both organically and through acquisitions specifically on the leverage. I'll let Mike talk to that.
Yes. Thanks, Sabahat. So, on the leverage side, I mean, I would say the scale of our business, a couple of points there. One is -- point one in leverage right now is about CAD100 million round numbers, and so they're approaching that. And so our objective is to maintain our discipline as we've always spoken about at an upper limit around 3.5 times where we see a material acquisition and driving our total leverage down to holding around that in between that 2 times to 3.5 times and ideally between 2 and 3 times unless we do see material acquisitions. Now, we're always looking at capital acquisition and growth opportunities, both through initiatives and through the tuck-ins and acquisitions. And so we will speak to those investments certainly where we see very attractive returns and some great synergy potential. But I would say nothing generally has changed in terms of how we think about allocating our capital and sources of capital using equity sparingly, understanding the dividend commitment where we have a very strong dividend and also balancing our debt and leverage in a fashion that keeps our balance sheet very strong. So again, we're in that to 2 to 7 range we think over time that may come up a little bit just because of we had some very strong results in the TTM numbers that we use for that, but very comfortable as to where that's headed.
Great. Well, thank you. Thanks for listening in and look forward to talking to you at the end of Q2.
Thanks very much.
Thank you, ladies and gentlemen. This concludes today's conference call. We thank you for participating and we ask that you please disconnect your lines.