Parkland Corp
TSX:PKI
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
30.137
41.03
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
This alert will be permanently deleted.
Good morning, ladies and gentlemen, and welcome to the Parkland Fuel Corporation fourth quarter results conference call. [Operator Instructions] 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.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 is difficult to predict. These uncertainties include, but not are limited to, expected operating results and industry conditions, among other factors.We will also be discussing non-GAAP measures, which do not have any standardized meaning prescribed by GAAP. These measures are identified and defined in Parkland's continuous disclosure documents, which are available on our website or on SEDAR. Please refer to these documents as they identify factors, which may cause actual results to differ materially from any forward-looking statements.Dollar amounts discussed in today's calls are expressed in Canadian dollars, unless otherwise noted. I will now turn things over to Bob and Mike, who will highlight key takeaways from our fourth quarter and year-end results and to discuss our outlook for 2019.Bob?
Great. Thanks, Brad. Welcome everyone to our fourth quarter earnings call for 2018. We continue to drive record results for our shareholders. We believe this is a story unlike any other in the space, with ratable cash flow, economies of scale advantages and proven acquisition and integration capabilities that set us up perfectly within a fragmented market. We have big aspirations for our company. We continue to target 2020 run rate EBITDA of over $1 billion, and our 2019 guidance demonstrates we are on track to deliver. Before I continue, I want to thank the Parkland team for all the hard work in 2018 and in delivering another record year for the business. We have an amazing team. I'll get right into it. We delivered a record adjusted EBITDA of $285 million in the fourth quarter a 44% increase compared with the same period in 2017 and for the full year. We reported $887 million in adjusted EBITDA, which is 112% increase compared with the same period last year. We captured $100 million of annual run rate synergies in 2018 and continue to push this forward in the early stages of 2019. This is up from the last expectation of $65 million. We've continued to demonstrate our ability to integrate and extract value for our shareholders, which is one of our key strategic pillars. Our target for annual run rate synergies on the CST and Chevron acquisition will reach approximately $180 million by the end of 2020. On the debt side, we exited the year at 2.25x total funded debt to credit facility EBITDA. The SOL acquisition closed on January 8, and we are happy to welcome the SOL staff to Parkland. Our first priority there is business continuity, then we will turn our attention to synergy capture, our supply advantage within the entire Parkland portfolio. We also announced an increase in our annualized dividend by another $0.02 per share, making this our seventh straight year of dividend increases. Moving on to our segmented results. I'll speak to our supply division first as it drove most of the outperformance for the quarter. We had strong results overall of $199 million adjusted EBITDA, driven primarily by strong refining margins. As most of you probably know, Canadian crude feedstocks were deeply discounted in the quarter, and we did benefit from that. Near the end of the quarter, the Alberta provincial government instituted production curtailments, which had the impact of reducing the discount of Canadian crudes relative to world benchmarks. This reduction in the discounts will impact our early 2019 operations, and we have accounted for that in our 2019 guidance range. Coincidentally, during Q4, world crude benchmark pricing suffered a decline, with U.S. dollar WTI falling from approximately USD 75 per barrel to USD 45 per barrel as -- USD 30 a change in just 3 months. As a result of features in our working capital funding agreement at the Burnaby Refinery, we are able -- we protected this from significant price decline. Mike will speak into this in more detail. Keep in mind, the segment is not just the refinery. This includes the benefit of leveraging our supply scale, refining relationships, optionality and in-house expertise to source a provider. We continue to execute on our broader supply advantage strategy across the portfolio, and it remains a strategic pillar for 2019. In Retail, we had strong organic growth on our KPIs. Our Retail segment had another strong quarter, with company volume same-store sales growth at 3.5%, and company C-Store same-store sales growth of 10.3% year-over-year, marking the 12th consecutive quarter of positive company C-Store same-store sales growth. This is being driven by ongoing marketing programs, our new On the Run store concept, the rollout of our private label brand, 59th Street Food Co., and new product launches. Our increase in same-store sales growth volume has also assisted with forecourt to backcourt conversion and which assisted to drive our same-store sales growth on the merchandise side. Adjusted EBITDA in the segment was lower than Q4 2017, and Mike will expand on that. You will see when I talked to our key performance indicators the underlying performance and execution of the business is very strong. On the commercial front, segmented adjusted EBITDA was relatively flat compared to prior year, which had included slightly softer volumes due a slowdown in Western Canada, a slightly warmer Q4. And this was partially offset by gains in other areas of the country. In Parkland USA, we completed 3 acquisitions in 2018, the biggest of which was Rhinehart. Q4 had the full impact of these acquisitions, which should help frame run rate in that segment. We continue to see a large pipeline of opportunities in the U.S. where we can expand our supply advantage, which is the priority in the segment for 2019. I will now turn it over to Mike to walk through our comparative numbers.
Great. Thanks, Bob. I'd also like to thank everybody for joining us this morning, and I'd like to welcome our new team members from SOL. I'll take a few minutes to add some color to the contributions made by each of our business units in the fourth quarter.Retail adjusted EBITDA was lower by $16 million year-over-year, mainly due to softer margins in some areas, which Bob alluded to. Relative to Q4, however, we did experience a decline in fuel margins mostly because of the tough comparable number year-over-year, namely strong gasoline and diesel margins in Q4 of 2017, but also some softer margins in Québec and Alberta. This is the nature of the beast, and our team is doing an excellent job of executing on operational items that we have control over. Importantly, volumes were similar year-over-year. Execution and KPIs are strong, and we are excited about our initiatives and plans for 2019. Commercial adjusted EBITDA was relatively flat despite a small decrease in volumes sold. Western Canada had a relatively tough quarter, as you know. We expect that to normalize in 2019 with less volatile oil and gas markets. Bob spoke to the overall supply results in Q4, which benefited from historically strong crack spreads. We have provided our standard indicative chart, as usual, on the next slide to help frame that, and I'd like to touch on the $49 million benefit from our existing working capital funding agreement at our Burnaby Refinery in the quarter. We have a facility in place, which essentially funds the working capital requirements at the Burnaby Refinery and BC retail and commercial sites. The resulting gains and losses from the facility apply to both crude oil and refined product inventories and are meant to protect against significant swings in pricing, which it did. When feedstock and finished product prices decrease as fast as they did, we realize lower profits as a result of higher inventory costs. The lower profits are offset by gains realized from the embedded hedging within this facility. If prices rapidly increase, we would expect the opposite. Needless to say, the magnitude of the change in the quarter is not something we expect to see on a regular basis. Parkland USA adjusted EBITDA grew by $7 million due to organic growth and strong lubricants and retail performance as well. Incremental adjusted EBITDA growth was mainly from the Rhinehart business or the Rhinehart acquisition. We are excited to add this team to our U.S. operations and look forward to growing this business together. Corporate expenses increased by $8 million, as expected, primarily due to additional corporate costs to support the larger integrated business and execution of future growth strategies. This is an expected change to support the larger overall business and to deliver on our growth objectives.We have shown Slide 7 before, and while not the actual 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 net of transportation costs and should provide investors with a reasonable benchmark for comparison of their own crack spread assumptions. The index plots historical values against a 3-year average, and the footnote here has more detail on the methodology we have used. You can see how strong refining crack spreads were in Q4 for those sourcing low-cost Canadian crude. The government of Alberta initiated a mandated production cut in December or a curtailment, which snapped back Edmonton light crude product pricing. Because we normally barrel on the Trans Mountain pipeline a month in advance, we see the impact of tighter product spreads as a Q1 2019 discussion, not in Q4. This is accounted for in the guidance that we have provided for '19 as well.On a full year basis, a lot of the things I just discussed apply, but acquisitions have slightly larger impacts. Retail adjusted EBITDA grew by $85 million year-over-year due to acquisitions, and continued growth on nonfuel sales, driven by the convenience store initiatives discussed earlier. Commercial adjusted EBITDA grew by $23 million year-over-year due to acquisitions and strong propane volume growth, mainly in the first half of 2018. The supply adjusted EBITDA grew by $401 million, again due to the Chevron acquisition and items already discussed. While the Q4 number benefit from our working capital agreement was approximately $50 million on its own, there were some losses across the first 3 quarters of 2018, so the full year number was approximately $20 million. Parkland USA adjusted EBITDA grew by $12 million due mainly to organic growth and incremental adjusted EBITDA from the Rhinehart acquisition. This deal closed back in August of 2018. Corporate adjusted EBITDA expenses increased by $52 million, primarily due to the larger size of the business. This remains a focus for us. We will maintain a disciplined approach to our cost management to ensure the benefits realized throughout the business performance outpace our corporate expense. I will now turn the call back over to Bob, so he can take you through some of the KPIs for the quarter. Bob?
Thanks, Mike. Our KPIs continue to track strong. In Retail, our C-Store same-store sales growth continues to set the bar at 10.3% for the fourth quarter. The increase were both in Western and Eastern Canada and are attributable to the initiatives I mentioned earlier. We are really benefiting from the OTR retrofits and private label push across all merchandise categories. Net unit operating costs were higher in the 12 months ended December 31 due to the different operating models in the Ultramar assets we spoke about previously. Our goal is still to drive this down over time as we roll out our retailer model in the Ultramar network. On the Commercial side, gas, diesel and propane volumes were up slightly, mainly due to the slowdown in Western Canada and fewer heating degree days in the fourth quarter. We are making progress on the cost side. However, as you can see in the TTM operating ratio, which is the ratio of operating costs and MG&A to adjusted gross profit, that number came down by 1.6 percentage points, driven by cost control initiatives. Refinery utilization was just under 88% this quarter, which needs a bit of explanation. We actually operated very well, but strategically made some decisions to reduce crude throughput in light of high land price for the uncontracted portion of our line space. This was the right economic decision, but you can see the impacts to the generic utilization number. We also processed some bio-fuels in the quarter, canola and tallow, which don't get caught in the calculation. This was an exciting test for us, which was successful and sets us up with even more optionality here in the future. I will now turn the call back to Mike, who will take us through Parkland USA and a number of corporate KPIs. Over to you, Mike.
Great. Thanks again, Bob. Turning to Parkland USA, Wholesale and Retail volumes are up 34% and 75%, respectively year-over-year, primarily due to the Rhinehart acquisition noted. The deal closed in August, so we had a full quarter of contribution in Q4. The trailing 12-month operating ratio improved by 4 percentage points to 70.8%, again, reflecting our commitment to successfully implement cost control measures while driving business growth. Aside from the acquisition, the base business is performing very well here, too, and experiencing strong margins in the quarter. Looking at our corporate KPI. On a consolidated basis, corporate marketing and general and administrative expenses as a percentage of Parkland's adjusted gross profit tracked as planned at 5.5% versus 4.8% the year prior. On a full year basis, this number was essentially flat compared to 2017, reflecting the additional scale of our business and investment in capabilities. Our adjusted dividend payout ratio improved to 23% for Q4 due to higher cash flow available for distribution in proportion to higher dividends declared. This was obviously directly linked on the standard quarter in the supply side that we talked about earlier. Excluding the impact of acquisition integration and other costs, Q4 adjusted distributable cash flow per share increased by about $0.81 year-over-year to $1.14 per share. Our total funded debt to credit facility EBITDA ratio for the trailing 12-month period remain very strong at 2.47x, but this is obviously prior to the SOL acquisition, which closed subsequent to year-end. We expect to be pro forma, a number of approximately 3.2x as we realize the benefit of that EBITDA contribution and potential synergies. We expect this to remain within our comfort range and improve with excess cash flow generation. Our third quarter recordable injury frequency measure for the 12 trailing months decreased to 1.62 compared to 2.04 in 2017. TRIF provides meaningful information in evaluating our performance and in providing a safe working environment. Safety is a key part of our culture at Parkland and is at the forefront of all we do. I'll now flip back to Bob to wrap up with our guidance.
Thanks, Mike. Our guidance for the year is $960 million, plus or minus 5%. We are assume refining margins in line with the 5-year historical average, which is obviously lower than what we realized in 2018. The certainty around -- with uncertainty around curtailment and product pricing, we think that this is prudent. We will update the Street as the year plays out. We had some onetimes in 2018, which we don't expect to continue in 2019, which totaled approximately $30 million. This includes the benefit from supply initiatives we discussed in Q1 2018. We are excited to have the new SOL business in the portfolio, and welcome the SOL team to Parkland. And we really like what we see so far, both with the business and with the team that has joined Parkland. I'd like to end by once again thanking the Parkland team for their hard work and dedication to produce yet another great quarter for Parkland, and also for their ongoing focus on safety. This concludes the formal portion of the call. We will now take questions from our analysts and institutional shareholders. Operator, please open up the line to questions.
[Operator Instructions] Your first question is from Sabahat Khan.
Just a commentary earlier on the U.S. side and looking at opportunities there. You said you are looking at things that may potentially increase to your supply advantage. I guess, could we take that to mean that you're looking for opportunities across retail, commercial as well as supply? Or do you have a focus for the U.S. that's a little different?
It's Bob Espey. In terms of our expansion into the U.S., as we've discussed previously, we're focusing on what we call the Mid-Continent, Rocky Mountain geographies, which are contiguous to Western Canada, where we can export diesel and gasoline into that market when it makes sense. I mean, we will still be predominantly a buyer from local refiners. But on the margins, we'll move product into the market. I would say in terms of focus, what we -- the businesses that we've been focusing on there tend to be a mix of retail, commercial and wholesale. A great example of that is Missouri Valley Petroleum business we bought, a small business. Actually 2 examples: 1 is Rhinehart, a larger business, which expanded our geography in -- down south, both into Utah and into Colorado, which has a very strong retail network that markets under the Harts brand, large, modern, convenient stores with lots of fuel capacity. And then also a Wholesale business, and in this case, a lubricants business, with Missouri Valley Petroleum, a smaller business, which is in North Dakota and really complements our Farstad business there, again, a mixture of Retail and Wholesale in that case. So again, generally, the business that we're buying have retail, commercial and wholesale in the mix, tends to swing, depending on the particular business that we buy. But proportionately, we'll continue to grow in roughly the same proportions we have today.
All right. And then, I guess, on the commentary earlier around comps from last year, are you able to share maybe some commentary on the expected cadence of your 2019 EBITDA, maybe even by half? So you have that $30 million comp from Q1 of last year, and I guess, some of the curtailment recently on Alberta may impact earlier in the year. So are you able to comment maybe on how much of this EBITDA could be maybe H1 weighted versus H2 at all?
Yes. Thanks, Sabahat. It's Mike here. Just a general comment. I mean, we tend not to provide quarterly guidance. We tend to like to refer everybody to our annualized number. And you do make a couple of good points though. I think one of the key differences that everybody can think about is last year, in Q1, we did have a turnover. We had a onetime benefit of about $30 million that came into the quarter during that time. And so in this quarter, if you think about it, we are doing some maintenance work at the refinery, but really not to the extent you would have seen last year. And so more consistent performance throughout the quarter in the refining side. And as far as the rest goes, again, we try not to provide -- we try to provide as many details we can to our KPIs and the indicative craft. But as far as forecasting on a quarterly basis, we like to vector everybody to the annualized number. And last year, I think, is also a good reference point given that we had a full year of both the Chevron or the RBC business and the Ultramar business. And so I think that will give you a good indication as well.
Great. And then just one last one for me. On the -- just the guidance within the context of IFRS 16, I guess, when you report Q1 numbers, would you provide it both under IFRS 16 and sort of without it? Or should we go ahead and try to take a stab at what that could mean for Q1 ahead of your results? Just thinking in terms of forecast relative to reporting under the new standard.
Sure. Yes, thanks for the question. And just for the rest on the call, I mean, IFRS 16, essentially what it does is it moves leasing expense out of OpEx into depreciation and amortization. So it will be a move essentially between, call it, EBITDA and below EBITDA. And yes, so to your question, we'll provide a lot of transparency around what that looks like, because the cash flow nature of that movement, right. And so you can look to us. We have not included it in our guidance for clarity, but you can look to us to provide clarity on that as we get into Q1 and how we define our performance in terms of EBITDA, yes, with and without IFRS 16.
Your next question is from Vishal Shreedhar.
Just wanted to understand on the retail side why the gross profit dollars in the retail side for the nonfuel was, call it, tepid on a year-over-year basis despite the strong same-store sales growth. And if you could just give me some help on -- if you adjust for COCO to CORO conversion, would that gross profit dollar -- would that number have grown?
Yes. No, that's a very good question. So yes, as we do the transition from COCO to CORO, it does erode our nonfuel gross profit, but it also reduces our OpEx within the segment. So I mean, if you look at puts and takes there, you can see that our gross profit grew due to the strong same-store sales growth. And now we're pushing ahead on a -- and originally, with the Ultramar business, we projected a 3-year implementation of the CORO model and really pleased with the progress that the Ultramar team has made on that. And we're at 50% after a year, and should fully implement it by the end of this year, which will provide better transparency on a year-over-year basis.
Okay, that's helpful. But if I could just drill down a little bit deeper. So we're converting stores, COCO to CORO, as you noted. And aside from superior anticipated growth with the COROs stores, that I think you've indicated in the past, we didn't really see -- I didn't really see the offset on cost this quarter, but I did see the fuel margins go down as indicated. I did see the gross profit dollars in merch go down. So as you go through these conversions, how would the shareholder benefit? Does it lower assets and eventually higher EBITDA? Like, how should we think about that?
Yes, maybe I'll take a little bit of stab at that for you, Vishal. I think the key there is right now, we are in a bit of transition. And so when we move from one model to the other, what we tend to represent in nonfuel is our share of the nonfuel margin with the retailer. In an employee model, you would show it differently. And so because we're in transition, I think there's 2 factors there to think about: One is the transition. As we move, like Bob described from both models, you will see the reduction in OpEx. You'll see a change in our nonfuel margin. But we also have a dealer business as well blended in there. And so as we reflect those numbers in our financials, you'll see -- should be hard to discern between the 2. But we'll provide a little bit more clarity in terms of performance on that. And then I think, as Bob mentioned, as you see us complete those conversions, you'll start to see the comparable number year-over-year. Right now, it's a bit of a blend, and that does make it a little bit more difficult. And so we do share in the nonfuel margin with the retailer, but we see the reduction offset in the OpEx. And so that will cause you a little bit of grief as we work through that transition period. Overall, when we separate -- and it's not information that we provide this quarter only because of the way that we reflect this in our financials. Overall, though when we track net sales, overall sales certainly receives some great performance in both sales on the nonfuel side and margin, before we share it with the retailer.
Okay. And just moving on to the refinery side here. In your disclosure material, you indicated that you processed some alternative products, tallow and I think canola was another one. Just wondering why, in such as a favorable environment for that refinery, did you switch to other products? And so that's number one, why did you switch? And number two, you gave us a utilization number, which only reflected crude. So is there some sort of more holistic utilization number you can give us just around modeling purposes?
Yes, look, let me just -- we'll answer this in 2 parts. So let me just kick off, and then I'll turn it over to Dirk Lever, who is VP Finance in our supply area, and he can follow up. I would say -- so the tallow and canola oil is part of a partnership that we have with the province of BC, where we're developing a technology where we can process bio-fuels directly through the refinery and essentially produce a molecule that's not blended, but has a bio component. So that's very advantageous to the business. And obviously, it's part of our initiatives to continue to drive the business around reducing carbon. And this is a great way to facilitate that, and do it in a way that produces, let's say, a molecule that's manufactured with a bio component. It was a trial that we ran, which is really insignificant from a utilization perspective. I'll turn it over to Dirk, and he can fill you in on the economics of the facility, how this impacted it and also why we chose to reduce some of our throughput because of the pipeline.
Sure. Thanks, Bob. And Vishal, the testing of the bio-fuels, that was planned long in advance. So when the time came, the bio-fuels had arrived. Just think that we are trying to make a compliant barrel for sale in the British Columbia marketplace. This will help us in the future as we will not have to blend in expensive -- other types of bio-fuels that we'd have to import. So the economics for this make a lot of sense for us. And then on the utilization front, really, the -- we're using what was called as a simple utilization rate, which only measures crude as an input. If you think about the latter part of Q4, we had very wide differentials. About 80% of our line space is contracted at a fixed price. The other 20% is on a competitive bid situation. We just decided it made a lot more economic sense on that 20% to bypass running the crude through there. We actually had some middle distillates that we ran through the back end of the refinery. So our output was strong. This was absolutely the right economic decision. You can see that in the results, and we stick to a simple utilization rate. When we speak to our engineers, they use some more complex computations. The utilization rate for them was extremely high, and they're very happy with the end results.
Your next question is from David Newman.
Just first of all on SOL, it seems like you're sort of taking a bit of a pause for business continuity and then tackling synergies over time. So maybe just give us sort of an idea as to a time line on when you might start digging away at that. Any initial conversations with refiner partners? And did I notice that you opened up a facility in Houston now, maybe on the supply side to Elbow River. And how that might tie in. So maybe just a comment on synergies and the Houston opening and all that.
So let me start with SOL. I would say we're -- we did close the transaction here early in the year and are delighted to welcome SOL team to Parkland. The business has a very strong team and a very strong operating discipline within it. I would say, in terms of -- so our initial impressions of the business are it's well run and, as I like say, there are no surprises up or down at this point. The -- and as we've always articulated, when we do look at businesses, we look at them at a high level as scope or scale. This is a scope transaction where we're in a new jurisdiction. So the focus on synergies is really focused around supply. And as we get into the business, it's obviously an area that we'll look at to work with the team there to optimize their supply. And as contracts start to roll off, that will give us an opportunity to look at reconfiguring the supply system under the business to provide some advantage. We expect that to start this year, but the full benefit of that to start to be felt towards the end and into next year. The other thing we look at is on operating improvements in the business. And again, we believe that our operations team, particularly in the Retail, Commercial side, we can work with the SOL team and look for opportunities to improve the business. That takes a bit longer. That's sort of into the next year. And then finally, on the back office, they've got a very good ERP, and it runs very well. And certainly, we're still doing some work in Canada on our own systems, so we wouldn't look to consolidate the systems side until well into next year or the following year.
Got it. And then just on Houston, Bob, what's your -- you opened the office down there. Seems kind of interesting from an Elbow River perspective. Maybe you can start using your supply procurement and physical assets advantage. Kind of anything down there?
Well, so as we continue to grow our business throughout North America and down into the Caribbean, we are touching more and more suppliers that are based in the Houston market. So we have opened a supply office there to support both the U.S. business. The [ Doug Hawk ] is growing quite successfully in 2018, and we continue to see growth there and also the Caribbean business. We felt that we needed to have a presence in Houston, which is basically the heart of that Gulf Coast refining hub, and start to develop relationships there and work our supply.
Makes sense. And then on the first quarter, you've got a turnaround underway, and I think you gave a $200 million maintenance CapEx for the year. So maybe, just in terms of the first quarter, what do you sort of anticipate, with one of the 2 units being down for a period of time, what the utilization for the full quarter might come in at? And does the maintenance guide, does that anticipate the actual dollars related to the turnaround of the facility in the first quarter?
David, it's Dirk here. This is we would rate this as a fairly small turnaround as far as dollars go. It's well underway. The interruption on the utilization is minimal compared to what we've seen in the past. Utilization rates today, you can see the impact of it, but it's not material. I would say it would be similar to what we saw the utilization rate in Q4. And as far as the dollar quantum goes, a lot of these things -- the turnaround, when you start to take some of the equipment apart, you see what the conditions are in, then you get a better sense of what the costs are. But we can tell you that it's running a little bit under budget. It seems to be on time, but they do factor in about a 10% flex in there for unknowns, but you get the final results fairly soon. But everything so far has been pointing very positive on this turnaround.
Okay. And I know you guys don't really -- the growth CapEx that your -- what are your plans for '19 in terms of growth CapEx and new to industry sites and those sorts of things kind of factored in?
Yes. Again, we don't generally give guidance on that because our growth CapEx is always limited by the opportunities that are available to us. I would say we are planning an Investor Day later in the quarter, where we'll provide -- shed some more light on that. I would say our growth CapEx primarily falls into -- on the organic side, into 2 areas: One is the Retail side, where we are continuing to work on the network, which includes refurbishments, rebuilds and new-to-industry sites. And we see good opportunities in the marketplace to do that. We are investing in the Burnaby facility, particularly on the storage side, where we continue to make investments there that will benefit the enterprise. Those are the 2 big areas here as we go forward. And then on the Commercial business, it's tanks and trucks as we continue to grow that business in Canada. The U.S., we, again, as opportunities present themselves in that market, we would see investing in businesses around our operating area to increase scale within those markets.
Next question is from Michael Van Aelst.
I guess just to start, can you -- are you able to estimate how much above the -- how much the EBITDA contribution was from -- in 2018 from having above-average crack spreads if we're to try to normalize the 2019 EBITDA for your, kind of, average crack spreads?
Michael, it's Dirk here. We don't give the details on that, so I think we'll pass on that question. Thank you.
Yes, but I think the best way to look at it is that indicative spread, Michael, just to give you a sense of magnitude. But...
All right. On the same-store sales of 10.3%, obviously, an extremely high number. And you did talk about some of the drivers. But can you go into a little bit more detail as to like what were the key drivers to get it up to that level? So that we can get a sense of kind of the sustainability and the runway remaining at somewhat elevated levels, at least.
Yes, look, I'm really pleased with the efforts of both our marketing and operations teams and the results that they were able to drive. I would say this is -- and we've seen this repeatedly as we bought networks. That certainly, in the initial phases of that, there's opportunities to drive some good same-store sales growth. We certainly budget much lower than that, recognizing that -- just making sure that as we continue to push through these changes, realizing that you do reach a point where you can't sustain this. On the other hand, we do have -- we are in the infancy of a lot of our programs, which are starting to take over from the initial improvement to again, follow through what I would call just good, robust marketing programs. So the private label, we've now tested our loyalty in 2 markets, our mobile loyalty, called Journie. Which again, early days. But indications are that, that will continue to drive conversion, which is one of the big opportunities for us. And then on the inside, the other initiatives that we have is continuing to refine merchandising and make sure that we're relevant to what consumers want within their local markets. So those initiatives have -- are continuing to drive remarkably strong comps that, I would say, we should expect to see certainly robust numbers in 2019. Maybe not to a 10% level, but certainly mid-single digits here as we go through the year.
Okay. And when you look at some of those programs, like private label, you said you got 20 products at select locations so far. And you're going to add another 20 products in 2019. But when we look at -- like, can you give us an idea or like percentage of stories that those first 20 have been rolled out to?
Yes, to the first 20 have been rolled out to about 3/4 of the sites, so we still have another quarter left. And then by the end of next year, all of our sites will have the private label -- company sites fully implemented.
And the other 20...
The other thing that's still proving advantageous is when we rebrand On the Run. We're consistently seeing lifts in those sites beyond our business case.
And what's the pace of conversions expected to be in 2019?
So I believe we were at 170 at the end of 2019. And another -- that's a good question on the exact number that we're planning for 2019. We'll get back to you on that. I think the plan is to roughly double it, but let's confirm that, Michael.
Your next question comes from Derek Dley.
This is Alex on the line here for Derek. I think I just have one quick question here. So same-store fuel volume was really strong during the quarter, same-store fuel volume at retail that is. Are you able to confirm that and like maybe elaborate on what was driving that this quarter?
Yes, a couple of things. One is -- and as folks that have been following us are aware, we've been investing in our marketing capability. And we did, in the last half of the year, the last year, we created a position around a fuel category manager. And that team has done a remarkable job and just working the promotional side to make sure that our offer is relevant at a street level. And we've seen some impact of that. And the other thing is execution at the street level, where our operations team just make sure that we are focused in on local markets and making sure that our profit composition is attractive within those markets. Now that team, again, in it's infancy, is doing a lot of great work on the branding side. And we expect to continue to see robust performance in that area.
Your next question is from Kevin Chiang.
Maybe just turning to maybe just some of the questions I'm hearing on the call and around the refinery. Like, this is the second quarter I would argue something's kind of popped up that I don't think a lot of people were expecting. So you had the working capital, and you guys went through a great explanation there, so that's helpful. If I recall in Q3, you had a little bit of noise around towing costs that I don't think was expected as well. So I'm wondering when you take a step back, do you think it makes sense to resegment your supply division, given the number of businesses that are embedded within there, just to provide a little bit more granularity? Or at least, maybe to dampen some of the volatility that we have seen in the past couple of quarters?
Kevin, it's Dirk Lever here. I would say that, given the fact that the organization itself has grown quite significantly, that we'll keep the supply division as it is with the parts in it. I think if you look at them, they are all part of our overall supply strategy, which is key to our organization. So I think we will keep it that way. When it comes to things like surprises, they're a lot easier for us in the rearview mirror as there was a lot of volatility within Q4 and then we could see what was happening by the time the end of the quarter ran along. A lot of the change that you were referring to, particularly in the differentials, that happened within the last few weeks of December with the announcement by Notley. So we weren't planning for that either at the beginning of the quarter. So I think we'll just keep our -- the way it is. And if something unusual comes out and who knows, I can't think of anything more. But we'll do everything we can to relay that and explain it like we've done with the intermediation gain.
That's helpful. And just maybe my second question here. Obviously, congratulations on your ability to identify a big chunk of the synergies from that $180 million -- called out $100 million with your Q4 results. One, I'm wondering why the $180 million wouldn't get bigger over time given how quickly you're realizing some of these synergies. And then maybe as I take a step back, when you acquire North American assets now, are you finding it -- the integration process is coming faster so the -- how those synergies cascade through your earnings have accelerated? Because I think in the past, you've always talked about having a 3-year process and it takes about 1/3, 1/3, 1/3. Is it more front-end loaded now? Like is your experience been that it's more front-end loaded now?
I would say it depends on the size of the acquisitions, so the larger ones, again, do take time and they need to be done thoughtfully so that we don't erode value. The smaller ones, we can integrate much quicker, particularly what I would call a tuck-in. The time frame there is months, rather than years.
Okay. And just the overall size or just maybe using this one as an example. You've obviously been achieving synergies faster. Just wondering why the total pie wouldn't be getting bigger as well, given how fast you're seeing some of the stuff come through?
I guess I am not following the question specifically. As we -- are you talking about the U.S.? Or...
No, no, you've talked about -- like, yes, I guess the CST, Chevron deal are, in aggregate, $180 million of synergies. You've gone from $65 million or like $50 million to $65 million identified in 2018. Now it's $100 million identified in '18. So it seems like you're finding more things to -- that are low-hanging fruit as it relates to the integration. I'm wondering why the total size of that synergy pie isn't also commensurately growing as well.
Yes. No, that's a good question. First, lots of hard work to get the stuff, so I don't want to underplay that. But -- and the team does work incredibly hard to make sure that we integrate effectively. I would say as -- look, as always, we are -- we want to make sure that before we go out with guidance on synergies, that we've got a clear sightline to them. And at this point, we're -- the $180 million is -- we have a clear sightline to that. If that changes, we'll update the Street accordingly. So again, if you look back on the businesses that we purchased, particularly CST and Chevron, the $180 million on the initial EBITDA base is a remarkable achievement from our perspective.
No, that's a fair point. And maybe just lastly for me, just more of a clarification question. So you have included some of the headwinds in terms of, I guess, some of the refinery headwinds in the first quarter here in the guidance you provided for '19. But your overall guidance assumes that the Burnaby Refinery margin sits at the 5-year average even with the, I guess, the hedge positioning in the first quarter, which I guess assumes that the margins will be above average as we get through the year. So one, is that the right way I should be thinking about it? And then two, assuming we don't have this issue pop up next year, would that suggest that these refinery margins are structurally higher, if I think about 2020?
Yes, look, it's always difficult to predict, right. One of the 12 weeks we wouldn't have predicted that curtailment would come in. So -- and I also think the -- it would be interesting to see how the curtailment is managed. Our view is that's very difficult to do, and we are seeing that as certain restrictions are put into the system, other areas open up. So it's a bit like trying to hit a gopher in a field, right. So the -- I would say back to the refining performance, look, last year was an exceptional year, a year that we would have never have predicted when we bought the facility and certainly not something that anybody should bank on, on a going-forward basis. I would say where we've guided the Street to is still well above our investment case for that facility, so we're delighted with the performance of the facility, both from a safety -- a reliability perspective and a profitability perspective. I will let Dirk also add commentary regarding where potentially what the facility can do this year.
Yes, Kevin. It's actually a good question you're asking. And I would point to -- we're seeing the same forward markets that you guys do, and we model off the same information. We're looking for differentials to go back to kind of normal levels near the end of the year. That's certainly what the forward markets are indicating. And if you think of the 5-year average that we are benchmarking against that also now includes 2018, so there has been a little bit of a lifting from where it was, the 5-year average 3 years ago, so you're right. And we are looking and hoping for a little bit better crack spreads in the later half of the year. And if you roll to 2019, remember, we've got a major turnaround. So we'll see a disruption in Q1 of 2019 that -- you'll have to factor that into your numbers.
2020.
Or sorry, 2020.
Actually, and maybe just a clarification point on that. Maybe I'm just splitting hairs here. When I look at your guide, $960 million, plus or minus. You've talked about a pro forma of $1 billion in 2020. You're basically at the doorstep. I'm just wondering, does that -- is that turnaround, shall we be thinking of that turnaround being the reason why it's not just $1 billion? Like it's not a -- you're not just out there saying it should be $1 billion of EBITDA in 2020, that we should be contemplating some costs that run through there in the fourth quarter that might check that number back a little bit temporarily?
Sure, Kevin. Well, there's -- there will be 2 things, Kevin, that will happen in Q1 of 2020. There will be the turnaround, so there's costs. And we can't determine today how much of them are going to be capitalized and how many are going to be expensed, just because the nature of the rules of capitalizing of cost. But there'll be utilization that will be down because you've got to partially shut down the refinery for that turnaround. So I think what you should be looking at is sort of an exit run rate to kind of where we're guiding to. And we'll have a lot better visibility as to what the crack spreads look like as we get closer to that. The Canadian markets are fairly illiquid when it comes to the forward markets, yes, when you're looking at Canadian products. So it's not bad for the -- a year out. Once you start to get to 2 years out, there's not a lot of liquidity there. So as we start to get closer to 2020 and the liquidity picks up in the forward market, I think we'll get a little bit better vision of what it's going to look like. This time next year, hopefully, we've reported again record results. And hopefully again, we can give you some guidance.
Your next question is a follow-up from Vishal Shreedhar.
Just a few quick ones here. Off the top in the script, I heard I think I heard management say -- and this may be splitting hairs here. But I think management, I heard them say EBITDA guidance in 2020 of above $1 billion. And in your investor deck, it says approximately $1 billion. Did they -- did you, in fact, revise guidance for 2020?
No. No, it is approximately.
Okay. And I know you -- another quick one here. I know you hinted on the U.S. side that acquisitions remain topical. But on the Canada side and the international side as well, can you comment in general regarding the acquisition pipeline? What you see? And given all the activities that you have underway right now, if management has the capacity, either via your personnel and your team or financial capacity to make deals? And if so, do you see them tuck in or large in size?
We don't generally comment on the forward view. I would say we are a consolidator and core to our strategy, it's one of our pillars, is to acquire prudently and integrate effectively. And in over 30 acquisitions, I think we've demonstrated discipline in what we acquire. We have passed at times on high-profile acquisitions because we couldn't find value with those. We do -- we are always active in the space looking at opportunities and don't project what's imminent within it. I would say from a financing perspective, if you look at our cash flow last year, and you carve out our change in working capital and our M&A cost, the cash that we generated in excess of our growth and maintenance CapEx, we plowed into our U.S. business and growing that. And we see it as a very effective use of that capital and generated some good high-quality opportunities for us. From a capacity perspective, the great news is that as we grow, we bring on additional talented people that can help us both grow the business organically and integrate into the businesses. I would say the -- both in the U.S., we've added great skills there. And that team can run and integrate businesses without drawing on the Canadian team. And down in the international business, SOL grew through acquisition, so they're very experienced at acquiring and integrating. So the beauty of the business that we have is that, we are not only expanding our supply reach across multiple jurisdictions, but we are picking up talent that can continue to help us acquire and integrate.
Your next question is a follow-up from Michael Van Aelst.
I just want to circle back on this $49 million supply gain that you talked about. And I mean, I think I pretty much understand it, but I keep getting e-mails from some -- for people that are still, I guess, questioning it because of the -- some of the comments made on the call or questions on the call. So can you just be -- just clearly state whether that $49 million, is this something that you think investors should be looking to take out? Or is this just simply the other side of the hedge and, therefore, you lost on the long position, you won on the short position. And then if oil prices had gone the other way, it just would have been reversed, but the consolidated EBITDA still would have been the same?
Yes, it's a great question, Michael. And I think you have characterized it pretty well there. I think, keeping in mind that for the first 3 quarters of 2018, we didn't see dramatic price changes in the underlying commodity market. And so it was basically the same effect. But in Q4, there was quite a pronounced decline in the commodity price. And because of that effect, you're exactly right. We're long on the commodity while we bring it to the refinery and process it and run it through the channel. And the effect of this facility is an offset to the higher price. And it keeps -- I think of it as basically it's almost like a forward that matches our products 30 months -- 30 days out to the market price. And so -- and you're exactly right in characterizing it. If we saw a very sharp price increase in the period, you'd probably expect the opposite effect. But these things tend to work themselves out. So we saw $49 million in the quarter, but on a full year basis, it was net $20 million, which is really not an overly material amount when you think of the consolidated business.
But -- so this is -- would you characterize this as simply your method of hedging the business? And -- but it doesn't really qualify for hedge accounting so you have to call it out?
Yes, I think we just wanted to provide clarity around it. Because I think in some respects, it is roughly hedging the inventory, but it's not hedging the crack spread, right. So just for clarity and then just providing certainty around the product price as we look forward a month out once we've processed it and taken it to market. So -- and you're right on hedge accounting. So we're just trying to make sure that people understand the nature of that net adjustment in the quarter, which was exceptional because of the price -- underlying price change.
And just final question just on the same-store volumes. I mean, that 3.5% is an unexceptional growth rate for Retail volumes in a market that's not growing. So at the same time, we do see -- you did bring up the competition in Québec and Alberta. How do you know that you guys aren't creating that competition somehow by taking share? Is there a hint in the market that can kind of reassure you of that?
I would look at that number on a distributed basis, and it really isn't significant across the regions. And we did see gains across regions. So -- and in terms of the competitive environment, I always say as a business, we focus on the fundamentals. So the KPIs, both in volume, the same-store sales volume, merchandise and getting our unit operating cost down, and that ensures we're competitive in any pricing environment, and we can push through that. So always very difficult to -- it's very difficult on a national basis to isolate specific competitive factors and say that they're going to continue or that they're representative on the market as a whole.
Yes, Michael, just a quick follow-up, too. You had a question around the OTR conversions. And maybe just a good segue, our disclosure here, we had approximately 175 On the Run and Marché Express conversions. And that's NTIs and retrofits. In 2019, for clarity, our target is about 100 more sites, which will focus largely on the Ultramar in the east and Chevron in the west.
And your next question is from David Newman.
Not to beat a dead horse, but just on the $49 million, I would think that, that should be a wash over time as reflected in your full year $20 million. And is this just the case that the long position loss was more than overwhelmed by the short position gain because of timing differences?
It's really -- think of it as a match, David. I mean, it's really just -- that's a realized, so it's matched to the inventory and cost of goods sold across the purchases. And so it does reflect the flow through, but I think it's just the magnitude of the change in the quarter. I would say we continue to evaluate that method as well. And so if we were to change any methodology around this stuff, just so that everybody understands, we'll speak to it if we do anything different on that side as well. Pretty unique for the quarter, though. And you're right, the $20 million on a full year basis is really not overly material. But when you do see that in one particular quarter, it's something that we want to be transparent and clear about.
Got it. And this -- out on intermediation, obviously, it's a volatile environment in Elbow River. Any sense on how you're able [ arb ] the markets? Because it would appear that the pricing differences between markets look supportive. And any sense on how that could shake out in 2019? And I assume that's a functional, so the volatility.
So David, it's Dirk here. Yes, Elbow River Marketing is a -- I mean, their specialty is logistics for moving of product to either by rail or truck. And because they own product for a period of time, they're always looking to effectively match their long position with the paper short to lock in a spread. And so when you've got volatile markets, one would think, oh, it's really easy. But their contracts tend to be longer term in nature, rather than just one-off particular trades. So as the year goes on and the opportunities present themselves, they're locking in longer-term contracts. Particularly when you are dealing with producers and refiners at the other end, and they are matching the 2 parties together, they tend to be longer-term plays that they're working on as opposed to short term. But clearly, when you've got opportunities in the marketplace, they are all over it. I think of them very much as an aggregator of -- on the rail front because of their expertise in rail where smaller companies have not got that in-house. So they are in a very unique position to be able to work with producers and refiners and match parties together and effectively close long distances through their logistics capabilities. And they're looking to lock in their spreads. So they're always looking at how they can lock in a spread, especially since they are subject to time risk. They take the time risk out through taking a short position, along with their physical long, and netting out a spread that will reward them for the time and effort of their work.
Excellent. That's great. And then final one for me, I promise guys, just on the retail margins. Obviously, the level of competitiveness in certain markets was higher, like Montréal and Alberta. Maybe just give us a sense on how that, with the dynamics of the market are today. And was this a bit of an and anomaly that pressured the retail margins in the quarter?
Again, David, the answer I gave to Michael are very similar, right. So I mean, the retail market is a very transparent marketplace from a pricing perspective, and our aim is to always be competitive within that. And I think what we focused on fundamentally is good marketing programs and execution of those, making sure that our same-store sales growth is robust, and at the same time reducing our breakeven cost, which is new walk, so that we can be competitive in any pricing environment. I would say difficult to predict or even what the competitive landscape is, because it does -- it is very dynamic, and it does change very quickly across the country.
Your next question is a follow-up from Sabahat Khan.
Just one quick follow up on the CapEx guidance. On just going into the quarter, we're looking for a bit of a lower number, I think, on the SOL acquisition. It was mentioned about USD 35 million for maintenance. Just wanted to get color on, is there some new projects you identified? Or is this kind of $200 million range for maintenance in line with what you were expecting kind of going into the year?
Yes, thanks, Sabahat. Yes, and we did disclose approximately $200 million. And that is, as you reflected, inclusive of the SOL business, what we see as the initial CapEx. And so there's a bit of CapEx that Dirk highlighted earlier, just working through some maintenance around the refinery. And so that basically would say that we would be in that, call it, about a $160 million to $170 million range on that legacy Ultramar, Chevron and historic business with the balance going into SOL. So that's about where we see it trending this year on an annual basis, yes.
We have no further questions. You may proceed.
Great. Thank you. Appreciate everybody listening in. Look forward to connecting at the end of next quarter.
Thank you very much.
Ladies and gentlemen, this concludes today's conference call. We thank you for participating, and ask that you please disconnect your lines.