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Good day, ladies and gentlemen, and welcome to the Parkland Q2 2018 Results Analyst Webcast and Call. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to introduce your host for today's conference, Mr. Ben Brooks. Sir, you may begin.
Thank you, operator, and good morning, everyone, and welcome to Parkland Fuel Corporation's Q2 results conference call. With me this morning are Bob Espey, President and Chief Executive Officer of Parkland; and our Chief Financial Officer, Mike McMillan.This morning, we will provide you with an update on our Q2 and year-to-date results and performance as well as update you on the integration of our acquisitions.I'd now like to point everyone to Slide 2. During the call today, Parkland may make forward-looking statements related to expected future performance. Such statements are based on current views and assumptions and are subject to uncertainties, which is difficult to predict, including expected operating results and industry conditions, among other factors. Certain financial measures, which do not have any standardized meanings prescribed by GAAP, will be referred to during this presentation. And these measures are identified and defined in Parkland's continuous disclosure documents, which are available on our website or SEDAR. Please refer to our continuous disclosure documents, as they identify factors which may cause actual results to differ materially from any forward-looking statements.I will now turn things over to Bob and Mike, who will highlight some key takeaways from our second quarter results. And then we'll take any questions you have at the end of the call. Over to you, Bob.
Thank you, Ben, and welcome, everyone, to our second quarter earnings call. I'm very pleased to report that Parkland has delivered record adjusted EBITDA of $249 million for the second quarter, an increase of 361% versus the comparable quarter in 2017. Combined with the strong results achieved in the first quarter, our year-to-date adjusted EBITDA was $402 million, a 224% increase on a year-over-year basis. This strong performance was further reflected in our volumes, which were up 62% and 57%, respectively, for the second quarter and year-to-date periods. On Slide 4, you will see that given the strength of these results and the comparable progress we have made with respect to the integration of both Ultramar and Chevron, we have elected to further revise our 2018 adjusted EBITDA guidance upwards by $125 million or approximately 20% to $775 million, plus or minus 5%. 2018 has been a busy period to date for the Parkland team, and I'm proud of the tremendous efforts the team has put forward to deliver these results, while integrating 2 sizable businesses into our legacy operations, successfully completing the Burnaby turnaround and realizing synergies well ahead of our initial expectations. At the end of the second quarter, the team is tracking to achieve acquisition-related initiatives that are expected to result in annual synergies for 2018 of approximately $55 million, which is $11 million more than projected at Q1 and well ahead of plan. Strong progress has been made, to date, with respect to the technical integration of the acquisitions. In April, we successfully exited the Ultramar acquisition transitional service agreement, followed later by our exit from the Chevron acquisition marketing transitional service agreement in June. With these 2 steps completed, the key piece of integration work remaining is the transition of certain refinery-related systems to those of Parkland, which we plan to have complete before the end of the year. Given our significant progress to date and a review of the remaining identified opportunities within the business, we are announcing today an increase of $100 million to the annual synergies we expect to achieve in relation to the 2017 acquisition. This brings our current estimate of annual synergies to $180 million by the end of 2020 and, along with anticipated organic growth, increases our annual run rate to approximately $800 million.On the growth front, we have already mentioned the strong growth in adjusted EBITDA and delivered volumes in the second quarter. Supporting this performance were robust results within our retail segment, which achieved its 10th consecutive quarter of positive company convenience store same-store sales growth with an exceptional 8.1%. Our commercial segment also contributed with 13% growth in second quarter propane volumes, resulting in year-to-date growth in propane volumes of 16%.On the supply side, we have previously noted the successful completion of a significant turnaround at the Burnaby Refinery in early April. This was a meaningful achievement given the scale of the project, and we are proud of our team's accomplishments in this regard. In addition to experiencing stronger-than-anticipated crack spread in the quarter, our supply team also continues to meaningfully improve our supply economics and optionality as illustrated by the exceptional 844% growth in the supply adjusted EBITDA in the second quarter of 2018 to $170 million.I will now turn it over to Mike to walk through the growth by business segment.
Great. Thanks, Bob. Thanks, everyone, for joining us this morning. As Bob mentioned, I'll now take a few minutes to walk you through the factors impacting the second quarter adjusted EBITDA by business segment, as you can see on Slide 5.Retail adjusted EBITDA grew $44 million or 116% to $82 million for the second quarter of 2018. This was primarily due to the Ultramar and Chevron acquisitions, improved fuel margins and the success of our retail initiatives, including the new On the Run/Marché Express flagship and retrofit store concepts, rollout of Parkland's proprietary private label brand, 59th Street Food Co. and continued backcourt convenience store optimization. Combined, these initiatives have translated into higher forecourt to backcourt conversion rates and contributed to the strong 8.1% company convenience store same-store sales growth Bob previously referenced. In commercial, we saw adjusted EBITDA growth of approximately $13 million or 260% to $18 million, primarily due to the acquisitions, but also aided by strong 13% growth in propane volumes attributable to organic growth and customer wins as well as improved margins. Supply adjusted EBITDA increased $152 million to a record $170 million in the second quarter of 2018. This significant growth was primarily driven by contributions from the Ultramar and Chevron acquisitions, robust refining margins and profitable supply sourcing initiatives. Parkland USA adjusted EBITDA remained relatively consistent versus prior year, as the team continues to focus on driving new business and maintaining organic growth throughout the segment. Expenses at the corporate level reflect the addition of the Ultramar and Chevron businesses and tracking better than planned, but are higher year-over-year by $14 million.Turning to Slide 6. I'll now go over the same key contributing factors to our strong year-to-date adjusted EBITDA results. For Q2, year-to-date results in retail adjusted EBITDA grew $88 million or 140% to $151 million. This was primarily due to the acquisitions and strong nonfuel growth driven by the convenience store initiatives referred to earlier. In commercial, we saw year-to-date adjusted EBITDA growth of approximately $22 million or 65% to $56 million. The growth was again attributable to acquisitions and strong propane volume growth. Supply adjusted EBITDA increased $200 million or 488% to a record $241 million year-to-date. In addition to the contributions attributable to the acquisitions, the growth was also driven by robust refining margins and profitable supply sourcing initiatives, as noted, for the second quarter. You may also recall, our year-to-date results include an incremental onetime benefit from the first quarter of approximately $30 million of adjusted EBITDA generated from supply improvement and optimization initiatives and improved supply economics in the base business. Parkland USA's adjusted EBITDA also grew on a year-to-date basis, primarily due to the increased sales of winter-grade diesel and growth in the lubricants business.On the corporate front, we incurred higher expenses, which was primarily driven by an increase in marketing, general and administrative expenses and other costs resulting from the increased scale of the combined business following the integration of the Ultramar and Chevron acquisitions.I'll now turn it back to Bob, so he can take you through some of the KPI results for the quarter, which are shown on Slide 7.
On the retail front, net unit operating cost, or NUOC, was 3.3 CPL or 72% higher for the trailing 12 months ended June 30, 2018, as compared to the equivalent period for 2017, primarily due to the acquisitions, which moved our mix towards a higher percentage of company-owned retail locations, which, as expected, bring with them higher gross profit and operating expenses. This will improve as we continue to roll out our retailer model in the Ultramar network. Same-store sales growth volume was minus 1.8% compared to minus 1.1% for the same period in 2017. Despite this drop in volume same-store sales growth, Parkland maintained consistent volume market share nationally. As we have spoken to earlier, company convenience store same-store sales growth was strong at 8.1%. Our results were supported by our ongoing marketing programs, as previously discussed, with 10 quarters of positive growth. We remain encouraged that our marketing initiatives will continue to have their intended effect, as they are fully implemented across the network. Our pilot program to implement our refreshed On the Run/Marché Express store concept has been highly successful, and early results are performing above expectations. To date, we have completed Phase I of the OTR refresh, which included the retrofit of 41 locations and the construction of 5 new flagship locations. Our activation activities across the country are supported by -- are supporting a quick ramp-up for the OTR brand and allowing our customers to make the most of every stop. The new OTR assortment is delivering the intended benefits of a shift in mix to our higher-margin categories, partially driven by strong results and margin lift from the introduction of our proprietary private label brand, 59th Street Food Co., which has now been successfully launched across 275 locations. We look forward to expanding the offering as we move forward with the rollout. Average volume per site decreased 10% for company sites, while increased 19% for dealer sites. This change is primarily attributable to the Ultramar acquisition, which has lower volumes per company site and higher volumes per dealer site due to the nature and location of the sites acquired.In the commercial segment, diesel and gas volumes increased by 168% year-over-year to 675 million liters, while propane volumes increased 13% due to customer wins and favorable weather in Ontario. And the trailing 12-month operating ratio improved from 74.1 to 71.6, primarily due to the impact of the different operating models currently in place for the acquired businesses and our focus on cost controls. We have great brands, and building on the strength of our consumer brand portfolio, we recently announced our intention to consolidate our Bluewave commercial brand to Ultramar in Eastern Canada. This change allows us to build on the current strength of Ultramar across our retail and commercial segments to more effectively market the business.In supply, during the first week of April, the Burnaby Refinery was ramping back up to full capacity after completion of the turnaround. The refinery performed well after coming back online and throughout the remainder of the quarter, resulted in an average refinery utilization rate for the second quarter of 90.9%, in line with expectations. We continue to expect refinery utilization to normalize in and around this 90% level for the remainder of the year. So when you include the lower utilization during the first quarter of 32.2% due to the turnaround, the results is our current expectation for full year utilization of approximately 80%, as previously guided.I'll now turn back to Mike, who will take us through Parkland USA and a number of the corporate KPIs.
Thanks, Bob. Parkland USA's wholesale volumes were slightly lower during the quarter due primarily to a cooler wet spring in the region, causing agricultural and contractor volumes to be softer than normal. Retail volumes, however, saw an increase of 12% year-over-year, led by strong growth in our Wyoming market. Parkland USA operating cost remained relatively consistent, as well, resulting in a slight improvement in the 12 -- in the trailing 12-month operating ratio from 74.4% to 74.2%. Looking at our corporate KPIs. You can see that on a consolidated basis, corporate marketing, general and administrative expenses as a percentage of Parkland's adjusted gross profit improved from 7.6% to 5.3%. This improvement was attributable to higher adjusted gross profit versus the comparable period, partially offset by the additional corporate cost to support the larger integrated business. Overall, our focus on cost management remains very strong. The dividend payout ratio improved by 111 percentage points to 35% for the second quarter of 2018 due to higher cash flow available for distribution in proportion to the dividends declared. Distributable cash flow per share increased to $0.89 per share in Q2 2018 as compared to $0.69 per share for the same period in 2017. Excluding the impact of acquisition, integration and other costs and maintenance capital expenditures related to the Burnaby Refinery turnaround, Q2 adjusted distributable cash flow increased $100 million year-over-year, resulting in an improvement in the adjusted dividend payout ratio of 55 percentage points to 29%. Our total funded debt-to-credit facility EBITDA ratio for the trailing 12-month period decreased by 0.23x to 2.39x. This decrease was primarily due to the strong performance of the business and the resultant increase in the credit facility EBITDA as calculated in accordance with the terms of the credit facility. Our second quarter lost time injury frequency measure for the trailing 12-month period increased modestly year-over-year from 0.22 to 0.28. We continue to put safety at the forefront of all of our operations and have inherited some exceptionally safe -- some exceptional safety processes and culture from our acquisitions. We will continue to work hard to bring this measure down over time.I'd now like to outline some of the assumptions and factors related to our new refinery business and introduce our new indicative crack spread index. Today, we're introducing a new reference index for investors to help think about our crack spread. We will refer to the index as the indicative Burnaby crack index. While not the actual crack spreads experienced in our Burnaby Refinery, the indicative Burnaby crack index can serve as a reasonable proxy for the Vancouver crack spread and should provide investors with a reasonable benchmark for comparison to their own crack spread assumptions. The index plots 2018 values against an average of the 3-year period spanning 2015 to 2017. As footnoted, we have assumed input cost for the crude-based -- input cost for crude based on 5 barrels of spot end-of-day WTI crude converted to Canadian dollars, plus transportation costs. On the output side or product side, we have indicatively used 3 barrels of wholesale regular unleaded gasoline plus 1 barrel of wholesale ultra-low sulfur diesel, both priced in Vancouver and 1 barrel of Los Angeles-based jet fuel, hence, a 5-3-1-1-based index, reflective of our Burnaby production. Since Parkland acquired the Burnaby Refinery on October 1, one can see the crack spreads have been above the 3-year average. At this point, I'd like to turn back to Bob for some final comments and to wrap up.
Thank you, Mike. Turning to Slide 10. We want to illustrate on this slide the significant impact, both the announced increase in annual synergies and our organic growth opportunities are expected to have on the earnings power of the business beyond 2020. The increased scale of the business we have established has created the opportunities that have enabled us to increase our expectation for annual synergies to $180 million by 2020 and increase our estimated run rate in 2020 adjusted EBITDA pro forma the acquisitions to be approximately $800 million. Another important point to note is the $800 million buildup you see is based on our original normalized EBITDA for the Chevron acquisition, which was based on the crack spreads close to a 5-year low average at the time. The increase to a run rate of $800 million represents a 20% increase when compared to our estimates of 2020 run rate adjusted EBITDA of $660 million at the time of the acquisitions. As you can see, the Parkland team continues to make significant progress in integrating these businesses and creating substantial value for our shareholders.
Thanks, Bob. Operator, we'd like to open the line up for some questions now, please.
[Operator Instructions] And our first question comes from the line of Kevin Chiang from CIBC.
Maybe I'll just take it to the last slide. It looks like you're calling on, what, $800 million of EBITDA pro forma in 2020, I just want to clarify. I guess, you're assuming some level of organic growth between now and 2020. One, if that's true. And then two, in that synergy number, are you including some of the initiatives -- or are you including the initiatives around the C-store growth? And would all of that be additive to that $800 million number?
Kevin, it's Bob Espey. The $210 million includes the $180 million of synergies, plus another $30 million of organic growth in the base business. One of the things that we'll do later in the year is have an investor day where we'll start to quantify the full impact of the initiatives.
So I should think of those initiatives being additive to that $800 million. I guess, when I think of -- when I do my own math, which is obviously can be different than what you're budgeting, I get something could be closer to $1 billion of EBITDA when I think of -- and maybe not by 2020, but let's say 2021 or some time frame from not too far from that slide, it seems like there's upside to the $800 million. So I just want to make sure I'm clear on terms of what you are including and what you're not including in that pro forma number.
Again, Kevin, these are synergies that we've -- are confident that we can achieve and some organic growth in the base business. And I would certainly say the -- that $800 million by 2020 is well -- is quite achievable.
That's helpful. Maybe just turning to your balance sheet, obviously, a strong trend towards deleveraging here given the strong performance of the past 6 to 9 months. I'm just wondering, does that change your capital allocation priorities? Do you accelerate some of your internal investments given -- it sounds like some of the payback and the -- around your C-stores is coming in maybe a little bit quicker than you had anticipated? Does that change how you think about M&A in the near term here? Any color there would be helpful.
Kevin, it's Mike here. Yes, maybe for the first part, I would say, first and foremost, it doesn't change the way we think about returns and capital allocation in the business. It is -- as we mentioned, we're having some strong performance in the business. It does bring our leverage down well into our comfort zone at 2.4 and results in some decent capacity. We're very mindful of our nominal debt level as well. And as we look at that, we're sitting north of $2 billion. And so it does give us some flexibility. But I would say, it does give us the opportunity to use leverage with discipline, as we always would. Everything that we're going to invest in is always on its own basis in terms of returns and capital allocation. And so I wouldn't say it changes the way we think about it, but it certainly positions us well to fund a lot of initiatives internally through cash flow as we enter the second half of the year and so forth. So...
Does it change how you think about -- historically, you've had a DRIP program to help you fund some of the acquisitions. When you were a smaller company, it allowed you to retain some more cash. And given how quickly you've brought that balance sheet and that leverage ratio down, providing that increased capacity, does it change how you think about having that DRIP program? Is it as important to you now given the size of your organization? Or is it something you'd like to have kind of embedded there as kind of an option for the organization?
Yes, it's a great point. I mean, I think we've -- we'd certainly have brought our payout ratio down and are generating some great cash flow and grown through the dividend commitment. I think we continue to evaluate that program in respect to the overall growth objectives of the business. And I think we continue to think that through. We've always aligned that with our growth capital requirements and so forth. And so I would say -- suffice to say, we continue to evaluate it as we go forward and what the requirements are and what the opportunities are ahead of the business in terms of capital requirements and access to capital.
And our next question comes from the line of David Newman from Desjardins Capital.
Just on the -- just if you look beyond crack spreads, though, you did highlight -- I think you mentioned profitable supply sourcing and improved supply economics. Maybe you can give us a sense on the contribution how we would model that and how it fits in the guidance. And I would assume, you're talking about taking advantage of the pricing differentials on supplier arrangements. Maybe just give us some sense on how meaningful that is and how it fits.
Yes, for sure. So when we look forwards and the numbers that go in the guidance are 3 components. So one is continued strong growth in the base business. So we've seen some good organic growth in the retail business, in our propane business and then some of our base supply and wholesale initiatives. The second item is the continued impact of the integration. And when we look at that, the source of the synergies there tends to come from -- in 2018, the bulk of the synergies are coming from non-supply initiatives. So we talked about our run rate going to $55 million, for our in-year contribution from those going to $55 million. And a lot of those are savings we're getting in our C-stores from -- through the benefits of scale and various other external cost initiatives that we have in place and also the impact of managing some of the anticipated cost that we would have to bear in the business and finding out that we don't need those on the integrated side. The other thing that we're seeing on the -- and then the third component is the supply component. And within that, we've got -- our Elbow River business is performing well. And we've also been able to benefit in the east from a strong participation in the New York Harbor spread between New York Harbor and Montréal. And then finally, the crack spreads is a big contributor. And again, if you go back to the index that Mike has provided on Page 9 of the investor presentation we just went through, you can see that, certainly, in the first half of the year, the crack spread has been quite robust. And then we've tempered that quite significantly for the second quarter because we can't always revert to the mean. And then what we'll do is we'll apply some thinking around, what are some of the factors in the market that are potentially influencing the crack spreads, so Western Canadian crude discounts, the supply and logistics going into the market. The impact of potential refinery outages or turnarounds, right from Edmonton down to L.A. will have an impact on that, and then continued -- there's the continued demand for refined products out of North America into Mexico, which continues to keep the overall pricing favorable and then, with that, the reliability of the refinery on top of that, which, coming out of the turnaround, the facility has been running very, very well.
Very good. And then if you look at the -- sort of [ arbing ] in the markets, Montreal, New York Harbor, when you guys sort of put your guidance on EBITDA, what do you kind of assume in there? Like -- because I would assume that, that could show the -- [ best of ] pricing or whatever, could swing around a little bit, could go against you. So what do you sort of assume in your forecast?
We tend to be quite conservative in that forecast. We don't want to anticipate or bake into our projections any speculation. We also tend to look at the historic average in those areas as we base our projections.
Okay. And last question for me. If you're looking at your C-store, same-store sales growth has been nothing short of phenomenal. And the drivers behind that, how sustainable -- or I mean, the On the Run refresh, where are you now? What are your plans by the end of the year? What are your plans for sort of private label rollout? Maybe just an update on sort of your plans for the remainder of the year in terms of the number of units on refresh and all that?
The plan is to do a second phase, which will add another 40 to 50 new On the Run rebrands into the market.
On what time frame, Bob?
Between now and year-end or in the last half of the year. The other -- so we do continue to see very positive lift when we do rebrand. The other item is the private label where we continue to roll out SKUs. We ran -- we rolled out our private label water offer recently. And again, the pipeline is quite full here with other offers as we go into the back half, so we'll continue to see that. And again, we continually seeing -- see some good pull-through on that. The other item is -- and again, the team continues to work on the merchandising and making sure that it's appropriate for the consumer. So some good work there across the organization by our marketing team and really focusing in on the needs of our customer and making sure they're met and driving some good same-store sales growth. We expect that to continue given that the initiatives are still in their infancy.
And last one, if I can just squeeze one more in. Just on your loyalty plan, have you started that? And this is an out-there question, but have you ever thought of partnering with the likes of Aeroplan, so they could -- people could redeem their points at your C-stores?
So we're currently in building the prototype, and we plan to launch a pilot in the back half of the year here where we can test in 2 market areas. And once those plans firm up, we'll let our investors know where we're going to run those trials.
And our next question comes from the line of Michael Van Aelst from TD Securities.
I wanted to continue on some of those questions. On this -- the retail side, you gave us that your view of On the Run in the back half of the year, but how do we see the long-term potential into how many stores can have in On the Run banner and model and how quickly you can ramp up to that level?
Yes. So in our base business, the anticipation is we can go somewhere between 400 and 450 of our corporate sites and then our franchisees on top of that. Our expectation is we can get there within the next 24 to 36 months as we continue to roll out the program. So there is a good runway here as we convert and to continue to see the impact of the benefits of that and, again, layering on our private label and some of the merchandising initiatives we have on the go as well as the introduction of loyalty, which we'll really start to see an impact in 2019. We should have a good runway here for the next several years on the same-store sales side. And what we're seeing real success is building in the nontobacco, non-lottery categories and then also -- which is really what we can drive and have a lot of control over. The other item that we're pushing on is the conversion. And the conversion is going up and we're very pleased with the -- the hypothesis we've had when we bought the businesses, we've got industry-leading brands, so we're getting the volume in the forecourt, and the challenge has been how to drive that to the backcourt. And what we're seeing is our programs are having an impact, and we're starting to get that transition.
So you mentioned 400 to 450 corporate stores in your base business. Does that not include the CST and the CCL?
Yes, no that is -- it's all base now.
Okay. it's all base now, okay. And then...
In one more quarter, it will all be base business.
All right. Looking forward to that for the modeling, that's for sure. On the private label side, I think the number was -- you had 16 SKUs or something like that earlier in the year. Where do you stand now? And how quickly are you going to be ramping that up?
Yes. So we added one more SKU, which was water. And again, in the back half of the year, we'll add another 3 to 5 SKUs.
Yes.
So how -- like, 2 or 3 years out, when you look out to your 2020 number, how many -- like, how developed this private label in there?
Yes. So again, we're still bullish that we can get 20% of the nontobacco, non-lottery, non-alcohol SKUs in -- as private label.
Okay. How many SKUs are there? That fit into that category -- or those categories?
Yes. We'll get back with the exact number on that. I don't have it on the top of my head.
Okay. And you also talked about shifting the Ultramar sites from OCO to COROs. And I know it alters the revenues and the gross profit and the cost. But how does that net out at the EBITDA line as you start to convert those formats?
Yes. So as we go through that, we generally see a savings on the OpEx side. And then we also see a reduction in working capital. So typically, the savings can be up to $40,000, $50,000, depending on the site, the size and the scale. And then on the C-store inventory, it's anywhere between...
Probably $75,000 to $100,000.
Yes, $75,000 to $100,000.
Yes. And that's kind of on EBITDA basis, Michael. Like, when you think about the net impact, we see less shrink risk. Labor and OpEx, more efficient. And then we also see the contributions, the site productivity goes up in that model. And so on a bottom line basis, we do see a pretty material improvement there, as Bob mentioned.
And your next question comes from the line of Derek Dley from Canaccord.
In terms of the synergy guidance, the updated synergy guidance, you gave us 2018. Is -- should we expect the remainder to be split, like, roughly evenly over '19 and '20?
Yes, I think -- Derek, it's Mike here. So yes, and I think you're referencing the $55 million for this year and then the 2020 view at $180 million. It is made up of a number of different components, and so you'll start to see the scale of that ripple into 2019. And so our call is to achieve the $180 million as a run rate by the end of 2020. We'll provide -- as Bob mentioned, I think what we'll do is we'll start to provide some better guidance beyond this fiscal period as we get into investor day later in the year and be able to give you some color around initiatives and different components for the synergies here as well as other business initiatives. But I would say, you could think about it ratably at the moment, but we haven't actually disclosed too much here in terms of the phasing for 2019 yet, but we'll look forward to doing that as we approach the end of the year.
Okay. And on those synergies, are they predominantly cost synergies? Or are you including anything, for example, like, a benefit from supply arbitrage opportunities given the increased scale in the business? Or is it mostly cost?
I would say it's primarily COGS related on -- and again, it's 3 chunks, right? So it's our supply, which is all COGS. The second item is operational improvements. Where we're seeing, particularly within the C-store and on our commercial business, the opportunity to leverage scale on a -- again, on a COGS basis. And also the opportunity there is, particularly in our commercial business, we're starting to rationalize some duplicate sites and merge those. And then finally, the third bucket is the overhead piece. And we've talked about coming off the transition services agreement, which enables us to get the full value of our ERP system.
Yes. Okay. That's helpful. Just the last one for me. Can -- and this might be tough. But you guys commented 8% -- 8.1% same-store sales growth on the in-store, extremely impressive. What is the comp difference that you're seeing on the conversion -- on the On the Run conversions versus non-converted stores? Do you have that on hand?
Not on hand, but we can supply that.
And our next question comes from the line of Vishal Shreedhar from National Bank.
Just a few questions, quick ones here. On the retail side, why that diverges between the volumes and the same-store sales growth?
Yes. So good question. I would say, first of all, the volumes, we do track against industry. And our data there lags by a quarter just because the industry takes a quarter to compile their numbers. And what we would show is, certainly, in Q1, with very similar market conditions that we maintained our market share. So that is something that we watch. We -- and we're -- we would like to see that grow. We have, in our marketing group, recently started a fuels marketing team, which will start to focus in on that, to make sure that we start to improve that. But I am pleased that we're not losing market share because that's always the big worry. And demand bumps around, right? It has grown over the long term by about 1% a year, but it does have its ups and downs quarter as we move through the various periods. The -- what the 8.1% is showing is that we're getting -- and there's a number of factors. One is it is largely driven by conversion, getting people to come into the sites. And then secondly, once we're in, we're seeing the basket size starting to increase.
Okay. So on the retail side, it's fair to say it's traffic and basket? That's not in the comp?
Yes. So that would be the basket side would be on the impact of our in-store initiatives.
Okay. And the volumes at the pump, that is traffic predominantly.
Yes. That drives people to the sites. And again, I'm not sure if we've chatted in the past, but one of our key hypothesis is the businesses that we bought weren't -- didn't have strong forecourt to backcourt conversion, so that's really what we've focused on is getting someone to the pump and then getting them in the site. And once we get them in the site, we can generate incremental revenue.
Okay. On the base business organic growth, I might have missed it, but what was -- I think you gave that number to us last quarter. What was it this quarter?
We did. I mean, the challenge we ran into this quarter is as we start to integrate and run thing off common systems, it's started to get difficult to isolate that accurately. I would say that -- and again, what we've been able to measure at a high level shows that we're beating our commitment of 3% to 5%. So we're north of the 5%, including supply.
Oh, you include supply in that, so that would include -- that wouldn't include the refinery though, right? Obviously not.
No, it wouldn't. So again, that would be base business, which wouldn't include the refinery at this point. And again, we'll be -- we'll always be careful not to include that in our organic growth numbers because that does bump around because of the impact of the refining margin.
Okay. Very strong progress on deleveraging, obviously. Does that change management's view at all on the cadence of when they make acquisitions?
Yes. I would say the -- first of all, delighted with the progress that business has made. Obviously, when we look at our forward plan, one of our areas that we are focusing on is the U.S. And we recently hired Doug Haugh, who has now been with us over half a year. And we are making good progress there on the business that's in the U.S., but also looking for opportunities there to potentially add to that business. So I would expect that you'll start to see us be successful with some acquisitions in that area over the coming year.
Okay. That's helpful. And a topic that seems to be coming up regularly on conference calls was unseasonable weather in April. I know you have a variety of businesses. Just wondering how that netted out for you and if you, actually, considered April to be negative for your businesses or net positive.
Yes, I mean, I would say we did see a slow start to retail in April. That was offset in our commercial business by a longer heating season. So again, it always speaks to the strength of a diversified portfolio that we have as a business, where being the fact that we're across the country in multiple geographies or, basically, in every geography, as one part of the business may see some headwinds, the other's seeing tailwinds and that tends to offset. So again, factoring back to the fact that we've got very ratable earnings across the business.
Yes. And I mentioned -- Vishal, it's Mike. I mentioned, with respect to some of our business, there was a little bit of a damp and cool spring in April, resulted in slower agriculture and so forth. And those things tend to take -- it's more timing than it is an impact, like Bob mentioned. So we tend to see a bit more on the heating side. In the east, you see maybe a little slower agriculture, but then that picks up as soon as it dries up. And so you see that diversified. Both geographically and by industry, we see the benefit of having that diversification in the model.
Okay. And just shifting back to retail here. When you implement your private label programs or store initiatives and you have a CORO model, can you -- force is the word that comes to my mind, maybe that's not the best word, but can you compel your -- those retailer -- those retail operators to use your private labels or to implement your programs? Or is it up to them?
So first of all, we've got great retailers. And they're heavily incented and aligned with the corporation. They receive a lot of training from us on how to execute. We supply the planograms, and it is their -- they're contracted to follow those planograms. So -- now the second thing is everybody likes to be successful. And we -- the execution of our marketing team has shown that the products we've introduced have had high success, so that retailers are eager for those program. So yes, it's a question we get asked commonly is, do we have less control over a company-operated model? And I would say, with aligned incentives and the right retailers, we have no issues with that. I would say, our model is much stronger. And we're certainly aligned from an incentives perspective. And our retailing partners, I think, are the best convenience retailers in Canada.
And our next question comes from the line of Sabahat Khan from RBC Capital Markets.
Just switching back to the retail side of the business. You -- there was earlier commentary about switching the model on some of your retail sites. I guess, what's the long-term view on that overall segment? How do you think about retail sites? Would you like to be more kind of company-owned retailer operated? Or what's kind of the long-term plan over the next few years as you potentially add more sites to your network?
Yes. So we do like the retailer model. Again, as I just said, we do feel that we get great alignment between our retailing partners and our business objective, really, which is to provide excellent service, a clean site and the best product selection in the market. And we do spend time with our retailers. Our territory managers work weekly with them to make sure that they're executing effectively. And again, the ultimate incentive is profit, so both of us benefit from that and that drives adherence to the programs. As -- we like the corporates. We like to own sites. And we like to -- and our intent is to add -- yes, I would say, our intent is to continue to build and open new sites. One of the strengths of our retail business is our network management and the fact that we're very careful to make sure that when we do invest that we invest in areas where we can outperform our business case. And secondly that where we do have weaker sites that we are either selling those or shutting them down to make sure that our average volume per site in the corporate network is, in fact, increasing over time.
And just along those lines, how are you thinking about now in terms of -- I know there's some rebranding happening on the commercial side. Are you still kind of comfortable with the variety of banners, at least, within your own network in terms of the variety of brands? Or is there some thought to maybe some consolidation at some point there?
Well, so we've got, in our view, the strongest brands in the market. Certainly, regionally, we always have a top quartile brand in terms of a volume per site on the retail side. On the commercial side, there is some opportunity because some of the -- particularly, smaller independent brands can benefit from the halo effect of a retail brand, and that's certainly -- one of the things -- and again, with our marketing team, we do a lot of work before we do rebrands. We do measure brand equity. And we want to make sure that we do -- we don't make a mistake in the rebranding. The other thing is we're always -- we always do pilot these things. So for example, the switch from Bluewave to Ultramar in the east, we tested that in 2 markets first to make sure that we weren't going to have a negative impact from a consumer or customer perspective. And certainly, the indication isn't that that's the case. In fact, it's the opposite that we'll able to leverage the consumer brand more effectively in the commercial marketplace.
And then in terms of just capital investment for this year. Can you maybe remind us how you expect it to shake out for all of 2018 and how you're thinking about 2019 on a -- sort of a combined business basis?
Yes. No, I think what you're seeing in our numbers, again, with the turnaround and so forth, we've always been projecting for this year coming in around that -- on a maintenance basis, for example, coming in around that $160 million range or so. And that includes the turnaround component. On a normalized basis and next year, subject to some maintenance stuff, we continue to scope out things. But I would say, we would run on a maintenance basis in around that $100 million mark, maybe plus or minus 10 -- $10 million or $20 million depending on the refinery and so forth. And so that's kind of our planning rate as we continue to budget in-scope maintenance activity. But I would use $100 million as a go-forward basis. And then the growth side would be -- it'll -- we'll talk a lot more and provide a lot more color later this year as we talk about initiatives, investment opportunities and so forth. And so I wouldn't say anything has changed from that perspective in terms of how we're thinking about the retrofit program, new industry builds and then the investment in each segment to facilitate growth opportunities, but -- and it's on a case-by-case basis, certainly, as we look at returns and how we best prioritize our capital allocation.
And then just one last for me on the synergies. You provided some color earlier and said that you will provide some more later this year. But just at a high level, are you able to directionally guide us to which kind of line items in terms of -- was it on the supply side that -- once you dug into the business, you were able to identify more? Was it on the overhead? And then in terms of CST versus Chevron where you might be seeing a little bit? More.
So the increase from $80 million to $180 million, on that $100 million increase, roughly 70% of that would be supply. And a large part of that is leveraging the infrastructure we've acquired through the Chevron business to optimize the business, west-east versus north-south, so we've seen some significant improvement. It also does include further optimization in the east, as well. So -- but the bulk of that is leveraging that infrastructure that we purchased in Western Canada or in the Pacific. The balance -- the other 30% is, again those operational and back office initiatives that we have in place that, as we get -- and again, the beauty of our operating model is that we do have an underlying ERP, which gives us great visibility into the cost structures of the relative businesses and allows us to aggregate and go back and leverage the scale impact.
And at this time, I'm no showing no further questions. I'd like to turn the call back over for any closing remarks.
Great. Well, thank you. Thanks for listening in, and I'd like to thank the Parkland team for a remarkable quarter and success in the integration. So thank you, and look forward to chatting next quarter.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude your program, and you may all disconnect. Everyone, have a great day.