Earnings Call: Q2 2019

Nov 28, 2018

Morning. I would like to welcome everyone to this web conference presenting Eni Mata Sciences' Cote d'Ivoire's financial results for the Q2 of fiscal 2019. All lines will be kept on mute to prevent any background noise. After the presentation, we will answer questions that were forwarded to us beforehand by analysts. We would like to remind everyone that this webcast presentation will be available on our website for a 90 day period. Also, please remember that some of the issues discussed during this webcast might be forward looking statements, which are provided by the corporation with its usual caveats. These caveats of risks and uncertainties are outlined in our financial reporting. Therefore, our future results could differ from the information discussed today. Our financial results will be presented by Mr. Brian Hanish, President and Chief Executive Officer and Hector Coltesse, Chief Financial Officer. Brian, you may begin your conference. Thank you, Matthew, and good morning, everyone. Thanks for joining us for the presentation of our Q2 2019 results. I want to begin by hitting a few highlights of the quarter and then Claude will share more details. Starting off, we had strong performance really across the entire network this quarter. In particular, I'm pleased with year over year growth in the same store merchandise sales and the work of our teams to ramp up our promotional activities and marketing efforts focusing on traffic and growing our baskets across all the geographies contributed significantly to the solid results. The rebranding and remerchandising of hundreds of CSP sites to Circle K and to Couche Tard here in Quebec also helped the overall positive same store sales growth. Again, following that presentation, Claude will give us more details of the financials of the quarter. First of all, I'll touch on the convenience piece a little more deep. In the U. S, we saw an increase in same store merchandise revenue of 4.4% compared with the same quarter last year. There was very good performance in all the U. S. Businesses, including once again strong sales at the CFT sites. This is due to the success of our promotion and marketing initiatives across the network as well as improvements in product mixes in some of our geographies where we're testing a more targeted assortment. In Canada, same store merchandise revenues increased by 5.1%, contributing continuing an improving trend from the last quarters. Again, this is due to good promotional activity in the stores, the popularity of some of our new food programs, particularly our bakery program and higher taxes on cigarettes and tobacco products. I would also add strong performance of the CST sites that we rebranded to Couche Tard here in this market. In Europe, same store merchandise and service revenues increased by 4.6%. Denmark led the way in the region, particularly the rebranded shelf sites that we acquired 2 years ago. But all the European business units benefited from the success of our rebranding activities to Circle K. Positive traffic growth has been bolstered by seasonal promotional campaigns and the continued rollout improvement in our food program. I'd like to call out Poland, which in particular had a good results due to the launch of new products, but as well as a change in legislation that restricts grocery store hours on Sundays. We feel good about the momentum in the stores across the global network, in particular basket growth and the implementation of more effective promotional campaigns to drive sales. Results also reflect solid consumer trends and the confidence we're seeing across a lot of retail channels today. Shifting to fuel. In the U. S. Same store road transportation, fuel volumes increased 1.2% compared to same quarter last year. However, while U. S. Fuel margins were strong in the quarter, they were markedly lower compared to prior year quarter, which was impacted by volatility in demand and product prices caused by the hurricanes in Texas and Florida last year. In Europe, same store fuel volumes were up slightly with increase of 0.1%, while in Canada, same store road transportation fuel volumes decreased 2.2%. However, we improved the trend in this region compared to the Q1 of 2019, partly due to encouraging results in volume shifts from the new loyalty programs introduced at our Esso sites over the summer, and we continue to see improving traction in that with that program. Over the last several months, we've also increased the presence of our Circle K fuel brand in North America, especially in the Midwest and Southwest parts of the United States. We've now completed hundreds of fuel conversions to Circle K in the U. S. With 100 more to come by the end of the year. We feel by unifying the Circle K brand inside of our stores and our fuel islands, our goal is to increase brand awareness and have a more enhanced and easier shopping experience for our customers. And to touch on the acquisitions that we're working on integrating yet, We continue to say great work done with CST sites. As I noted earlier, this quarter we've had good same store merchandise results at CST stores. In Canada, the performance of our CST sites with same store merchandise showed very strong growth at 13%. In the U. S, our CST network had an increase of 4.9% on a same store basis, driven by the success of our rebranding initiatives, resets, changes in private label, makeup, impulse products and just a lot of little tactics that the BUs have done a great job implementing. In Texas, we scaled the Kalachi and Donut Bakery rollout. It's now at about 2 50 sites, it will be by the end of this year. And the stores where we have it, we've seen promising sales increases. We've also had nice performance of same store road transportation fuel volumes in our CST network, which posted growth of 2.1% this quarter, continuing deposit trend and improving results quarter to quarter, and we're excited as we work to continue to improve and rebrand the fuel offers on the CST locations, both with the Valero brand and with our Circle K fuel brand. We continue to realize impressive synergies related to the CST integration, which reached approximately $200,000,000 this quarter. Turning to the Holiday network. I just visited Holiday last week and feel good about both the cost synergies and the reverse synergy work with Holiday as we continue powering both food and operational improvement programs and begin tracking how they add value can add value to other parts of the network. Some examples include introducing Holiday menu items and other business units to North America, taking some of our Holiday's popular private label products and rolling them out across the United States by the end of this year and learning more about Holiday's promotional programs, market efficiencies and labor model disciplines with very detailed time studies that we feel we can bring to other North American divisions in a very structured and piloted manner. I want to focus on a couple of key categories that contributed to results in the quarter. In our U. S. Market, the basket growth this quarter is partially due to the growth of high affinity national bundling promotions that drove accretive sales in higher margin categories, namely snacks and confection. Similarly, our Lyft program, which we have in about 3,500 stores, serves as an interface to our tobacco club, but also has the ability to display unique consumer offers at the point of purchase. And we feel this continues to be a nice source of driving growth, and we're focused on expanding that program into the rest of North America. We again increased the number of unique customers enrolled in our Tobacco Club this quarter, and those shoppers enjoy a wide range of enhanced values on multi pack and multi can offerings across the entire tobacco category. Nonalcohol beverages were also a significant driver this quarter to our organic same store sales growth. Beverage gains were driven by all of our non carbonated soda categories, namely water, isotonic, energy drinks and strong growth in ready to drink coffees, reflecting both favorable volumes but also a lot of success with new innovation in new packaging. In the cold dispense beverage category, the momentum of our summer polo pop campaign carried into the Q2 with sales improvements across most of our geographies. Customers continue to respond well to our exclusive and unique Prosser flavors across North America, resulting in solid unit growth in that program. Through our strong partnerships with our supplier partners, we've been able to develop new exclusive flavors and collaborate on media campaigns to drive awareness of these new offers, resulting in increased trip to our stores. We also had a nice industry recognition this quarter with Circle K being named the cold dispense beverage innovator of the year. With the coffee program moving forward under a single Simply Great Coffee brand globally, we continue to see strong growth in Europe, and we made strides adjusting our offer here in the United States. We piloted a new bean to cup offer, which brews a fresh cup of coffee every time and is showing very promising results, and we're scaling up for larger rollouts more than 1500 stores this fiscal year. In our North American food program, the new culinary inspired signature hotdog program has proven to be very successful and will move to expand this rollout to initial 200 stores before the end of the year. And to support this effort, we're building a seasonal program that captures on trend on excuse me, on trend flavor innovations to continue to make this category exciting and new for our customers. And finally, car wash. It's been a great performer in recent quarters. We have over 2,100 car washes and we continue to see steady growth in the U. S. And Europe with our proprietary programs that have delivered very strong sales and margin growth in the category. During the quarter, we also maintained the expansion of our Circle K brand across the globe. We now have completed more than 4 1,050 stores in North America and more than 1800 stores in Europe. In Ireland, our last remaining market in Europe, we rebranded nearly 200 sites and we're progressing nicely on the plan to have 340 sites completed by the end of this year. Traffic in sales at the newly rebranded sites remain positive in all the main categories of fuel and merchandise. In the U. S, the focus this year has been on rebranding the CST sites. Starting in Texas, which is our biggest concentration of CST locations, we now have we will have 240 sites rebranded to Circle K by the end of December with a goal of 400 to be reached by the end of the fiscal year. So far, the majority of the sites rebranded are in the San Antonio market. The trends in those stores are better than the sites which have not changed over to Circle K yet. In the Arizona business unit, we are looking at over 360 stores to be rebranded to the new Circle K by the end of the fiscal year. In this market where Circle K already has a deep brand recognition, we have very good growth as our customers are familiar with our unique offers such as Polar Pop already in the store. The Rocky Mountain Business Unit is also continuing with its rebranding work in New Mexico, Colorado and El Paso of largely CSP locations. So I'll pause here and let Claude take us through more of our Q2 results in detail. Thank you, Brian. So ladies and gentlemen, good morning. We're happy to report for the Q2 of 2019 net earnings attributable to shareholders of the corporation of $473,100,000 or $0.84 per share on a diluted basis. Excluding certain items for both comparable periods, adjusted net earnings for the Q2 of fiscal 2019 would have been approximately CAD473 1,000,000 dollars compared with $455,000,000 for the Q2 of fiscal 2018, an increase of $18,000,000 or 4%. Adjusted diluted net earnings per share would have remained at CAD 0.84 dollars for the Q2 of fiscal 2019 compared with $0.80 for the corresponding period of fiscal 2018, an increase of 5%. Net earnings were $928,700,000 for the first half year of fiscal 2019, compared with $797,200,000 for the comparable period of fiscal 2018, an increase of 16.5%. Diluted net earnings per share are at $1.64 compared with 1.40 dollars the previous year. And excluding certain items to our net earnings of the first half year of fiscal twenty nineteen and fiscal twenty eighteen, net earnings are at $970,000,000 compared with $836,000,000 for the previous year, an increase of 16%. Adjusted diluted net earnings per share are at $1.72 compared with $1.47 for the first half of fiscal twenty eighteen, which is an increase of 17%. I will go over some key figures for the quarter. For more details, please refer to our MD and A, which is available on our website. During this most recent quarter, excluding CAPL's revenue as well as the net negative impact from the translation of our Canadian and European operation into U. S. Dollars, merchandise and service revenues increased by approximately $380,000,000 or 12.6%. This increase is attributable to the contribution from acquisitions, which amounted to approximately $251,000,000 as well as to organic growth driven by the successful traffic gain promotional activities. For the first half year of fiscal twenty nineteen, on the same basis, merchandise and service revenues increased by $1,100,000,000 or 19%. This increase is attributable to the contribution from acquisitions of approximately $835,000,000 into organic growth. For the Q2 of 2019, excluding CAPL's gross profit as well as the net negative impact from currency translation, merchandise and service gross profit increased by approximately €152,000,000 or 14.4 percent. This rise is attributable to the contribution from acquisition of approximately $85,000,000 and to our organic growth. Our gross margin increased by 1.1% in the United States to 34.3% due to the different product mix and synergies and increased and decreased, sorry, by 0.9% in Europe to 41.1% due to a different geographical mix. In Canada, our gross margin decreased by 0.9% to 33.7%, mainly as a result of the changes in our product mix as well as an increased taxes on tobacco products. During the first fiscal half of fiscal twenty nineteen, on the same basis, consolidated merchandise and service gross profit increased by $401,000,000 The gross margin was 33.9% in the United States, an increase of 0.7%. It was 41.8% in Europe, a decrease of 0.2%, while in Canada, it was 34.1%, a decrease of 0.7%. The road transportation fuel gross margin in the Q2 of fiscal 2019 was solid at $0.2188 per gallon in the United States, a decrease of $0.82 per gallon compared to the unusual high fuel margins of the same quarter last year as a result of volatility caused by the major hurricanes. In Europe, the road transportation fuel gross margin was at US0.875 dollars per liter, a decrease of US0.79 dollars per liter, mainly as a result of the negative impact from the translation of our European operations into European operations into U. S. Dollar. While in Canada, the road transportation fuel gross margin was at CAD0.842 per liter, a decrease of CAD0.22 per liter. The road transportation fuel gross margin in the first half of fiscal 2019 was $0.2229 per gallon in the United States, dollars 0.898 per liter in Europe and CAD0.867 per liter in Canada. While in store, our wage rate pressure continued to bring this quarter's growth in expenses to higher level than in the past, we continue to rigorously focus on controlling costs throughout our organization. As always, this cost control is due to our rigorous financial discipline and focus on increasing value to our shareholders. As a result, for the Q2, we were able to maintain growth in normalized operating expense to only 2.5 percent despite the wage pressures in certain of our region, a clear improvement over the trend of the Q1, outlining the effectiveness of our cost discipline in an inflationist environment. Excluding specific items described in more details in our MD and A, the adjusted EBITDA for the 2nd quarter and first half of fiscal twenty nineteen increased by $13,300,000 or 1.6 percent and by $195,500,000 or 12.6 percent respectively compared with the corresponding periods of previous fiscal year. The growth in EBITDA mainly came from the contribution from acquisition and organic growth, partly offset by lower fuel margins and by the net negative impact from currency translation. Acquisition contributed approximately $64,000,000 $207,000,000 respectively, while the variation in exchange rates had a net negative impact of approximately $18,000,000 $8,000,000 respectively. As at October 14, 2018, our return on equity remained strong at 24% on a pro form a basis, and our return on capital employed was at 12.1%, also on a pro form a basis. During the quarter, we've continued to generate significant free cash flow, allowing us to accelerate our deleveraging plan as evidenced by our adjusted leverage ratio of 2.79:one at the end of the quarter. Since the beginning of the year, we repaid close to $1,000,000,000 on our revolving unsecured operating credit. Our liquidity position remains strong. We had $620,000,000 in cash and approximately $2,100,000,000 available through our revolving credit facility, providing us ample flexibility to fund future investments. Yesterday, the Board of Directors declared a quarterly dividend of CAD0.10 per share for the Q2 of fiscal 2019 to shareholders on record as at December 6, 2018, and approve its payment for December 20, 2018. So thank you for your attention and now back to you, Brian. Right. Thanks, Claude. Before we conclude today and really as we approach the holiday season, I'm frequently reminded that our business is based on people, which are both our customers and our team members. So I wanted to touch on the devastating hurricanes, which once again affected our business units, our employees and our communities. This year, it was Hurricane Florence and Michael, which hit in September October. Although our business reported no significant damages or loss from these monster storms, I do want to acknowledge you meant work, courageous work from our employees who kept stores operating, served the communities they're in, even while many of them were impacted themselves. I had a chance to tour near Wilmington about 3 weeks ago and because the devastation is just hard to comprehend. I've heard so many stories from both our Coastal Carolina and South Atlantic business unit, the stores that were reopened with remarkable speed in order to provide the much needed fuel and supplies to our stranded residents, to trust customers and our first responders. From all of us at Circle K, I want to thank all of our employees for making us proud. While our employees and stores have not been affected by the recent deadly wildfires and wildfires in California, prayers go out to all of our customers who may be impacted. Our stores and employees are always ready to assist the Red Cross and provide support to our communities and first responders during these disasters. Finally, one last note. During the quarter, we made progress on 2 important initiatives to make our employees and our customers' lives easier. First, we had our initial launch of our new HR management system and payroll software to the majority of our U. S. Employees, which would create a much simpler, more engaging work experience and provides a platform for an enhanced training environment as we grow together. And we launched to 55,000 people 3 weeks ago and this launch was almost flawless. So very proud of the teams. And second, we moved full speed ahead on our scalability project, further integrating some of the accounting systems inherited from our acquisitions into 1 shared system, which is foundational to the vision of creating a more personalized offer. These multi team efforts will make us a more agile, innovative operator and better employer on our journey to become the world's preferred destination for convenience and fuel. So that concludes our presentation for today. We'll now answer the questions we received from analysts. Thank you, Brian. So our first questions come from Patricia Baker at Scotia Capital. First question, Cushar recently completed strategy work to set the plan for the next 5 years. I understand the goal is to continue to grow the company, but with a more balanced source of growth between organic growth and M and A growth. Can you talk about the key drivers of organic growth over the next 5 years? Yes. I'll take that one, Patricia. As we reflected on how do we double the company, it's clear that just because of our scale, organic growth has got to play a bigger role. And I'll break that down into really 4 big buckets. There's a lot behind this, a lot of very specific projects and plans, but it's a lot around retail capabilities. As we become bigger, we think it's about acting more local, using our data, using our segmentation to understand and tailor assortment, tailor pricing, tailor promotion on a much more local basis than we do today. It's about building more stores. The response we've had to both our NTIs and our remodels of existing sites have been very strong and we're very pleased with the results and returns that we're getting out of those projects. So it's ramping those up. It's about food. That's a conversation that we've had for a long time and we continue to enhance, I think, the capabilities we have internally to not only differentiate the offer, but provide offers that we can scale across a wide variety of geographies and a wide variety of store types, which is our reality. And then finally, I touch on customer journey. The experience of buying fuel and buying items in our stores largely has been unchanged since card readers were introduced 25 years ago. We think we're one of the companies that can and should play a role in reinventing and disrupting what that journey looks like. We've got a variety of projects underway that we think can significantly change how we interface with customers in the coming years. 2nd question. Q2 saw another quarter of notable same store sales in each of your markets. Can you walk through the specific initiatives driving these stronger trends in each market? Yes, 3 quarters ago, I think we were very clear that we were on driving traffic. And so when I look at the list and literally there are long list of tactics across the globe of what our business units are doing, It's not necessarily one single thing, but I'll call it a few big ones that I do think have helped move the needle. The lift product that we've got in about 3,500 locations, I think is a very unique tactical loyalty interface for us. And we're seeing good growth in the 2 clubs that we have and we have visions of broadening the offers using that tool and also rolling that tool out to the rest of North America as quick as we can. We've done for the first time a variety of national promotions both in Europe and in North America that have gotten some nice traction. We've seen some of our business units use gamification to engage our customers and generate a lot of excitement in their markets. Other tobacco continues to be strong, both in Europe and in North America, moist smokeless, JUUL here in the U. S, IQOS in a number of our markets, particularly in Europe. Then I mentioned earlier, alternative beverages. Just a lot of great innovation in that space and seeing strong consumer reaction to new products in line like BodyArmor. I did touch earlier also seeing strong results from the CFT rebranding, particularly in markets where the Circle K brands already existed like Phoenix and like Quebec. We've just seen strong double digit growth in those markets. So not one thing, a lot of little things that we're doing around the world to drive traffic and sales and baskets. Thank you. The next question comes from Irene Nattel at RBC Capital Markets. Can you please give us more color around category performance in Q2, contribution from new promotional strategies across categories, but also specifically contribution of tobacco and e cigarettes? And what is your outlook for the category in the U. S. In light of the recent FDA restrictions on the sale of e cigarettes in convenience stores? I mean, I think I touched on the first part, so I'll probably hit it a little bit again. So I'll focus on the second part, which is the e cigarette piece. So first and foremost, I'm excited at the consumer response we're seeing around the world to lower risk products, whether that be an IQOS in Eastern Europe or that be a product like JUUL that we've seen just tremendous success from here in the United States. I think that bodes well for the overall category in the coming years. Focusing on JUUL specifically, it's been a tremendous product, but probably too successful. It clearly ended up in the hands of too many underaged individuals. So I do applaud their move to remove flavors. I think it's the right thing to do. Internally, around making sure that we don't sell to underage consumers, whether that be alcohol, tobacco or anything else. And so our next step is collaborating with our partners to understand how we can bring reduced products to back into the stores, continue to offer innovation, but make sure those devices only end up in the hands of aged consumers. So again, overall, despite the short term bump, I think we're optimistic about the future of reduced risk and alternative tobacco products. 2nd question. On CFT synergies, you've reached to a $200,000,000 run rate on synergies after 16 months versus your 3 year target of $215,000,000 What would cause you to increase that synergy target? And where are you on holiday, both synergies and current estimates around reverse synergies and timeline to achieve those? Thank you, Irene. We are pleased with the achievement of synergies at CST right now. We're ahead of our plan in terms of timeline for achieving those synergies. And at this time, as Brian mentioned earlier, we feel comfortable to say that we will achieve or exceed our target and we will revise the target if we feel that we can materially exceed our target. We will update you if we think it's necessary to revise the original figure. For Holiday, on the relative side, the synergies were we are already achieving close the low end of the range that we disclosed at Investor Day. So the range, if you remember, was between €50,000,000 €60,000,000 And we are not disclosing the amount of reverse synergies, but we're really happy about the progress so far that we've made on the reverse synergy that we can generate with the acquisition of Holiday. Thank you Claude. The next questions come from Martin Landry from GMP Securities. The first question is a repeat on the CST synergy. So we'll move to the second question. With the current environment on low crude prices and low pump prices, can you discuss the impact these have on your in store traffic? First of all, the decline in crude and the associated product costs generally are very positive for us in the near term in terms of fuel margins and longer term for both fuel demand and premium fuel penetration. With regard to in store behavior, I liken fuel prices to a tax on consumers, particularly our lower and middle income consumers. So lower prices, which will follow the lower product costs, in my mind, equal lower tax, which creates more disposable income for these customers that obviously is available for them to spend in our stores and others. So the overall lower is better for us. Thank you. The next two questions come from Derek Dley at Canaccord Genuity. Can you discuss what is behind the robust CST growth both in Canada and the U. S. In terms of merchandise same store sales? So a year ago, there was a lot happening in CST world, both here in Quebec and in or in Canada and also in the U. S. We had hurricanes in Texas. We had a lot of reset activity. We are ramping up the rebranding both in the fuel and in the store. So a lot of noise in those numbers. This year, I think we're reaping the benefit of a lot of that work. We've certainly gotten more competitive on some of our key commodities in certain areas. We've also adjusted the mix significantly. I think we've done a lot better job with impulse products. So again, as I mentioned last quarter, it's not one thing, it's a lot of little things. And then I would say on top of that, the rebrand to Circle K and Couche Star, particularly in the markets where we the brand exists has generated very, very strong results. So again, after a number of quarters prior to our acquisition of negative traffic, negative sales, negative gallons, we're very pleased to be showing strong results on both fuel and merchandise in both countries. Your operating expense, as well, has been impressive in light of recent acquisitions and growth. Can you comment on some of your cost containment initiatives? Thank you, Derek. So as we feel in parts of our network pressure on wages and also availability of manpower, we continue to put a lot of effort on optimizing our cost base. So we're using multiple strategies to counterbalance these effects. We have a lot of initiatives in flight, so proper labor allocation at store, process automation also in store and also in shared services. We're using artificial intelligence in some areas and constantly re questioning the organization and structure throughout the company. We also continue to use Circle K Brand and use our scale where it makes sense to leverage our size and technology to reduce our cost base. And I think Brian referred to it a great initiative also that's going to allow us to reduce some of our costs in the future is Workday, our new payroll and HR management system that we just implemented. The next questions are from Peter Sklar at BMO Capital Markets. We're going to touch on the first one as the second one has been already covered. So can you quantify how hurricanes, Florence and Michael impacted U. S. Fuel volume and merchandise sales? So Peter, Brian alluded to it a bit earlier. It's really difficult to quantify the effect of a hurricane. They are affecting the network in multiple ways with the store closure, but also with large movement of population getting away from the storm. Last year, hurricane disruption had major impact on significant part of the network in repercussions all over North America. This year, the corridor of the storms were not as impactful to the network and the national disruption on supply was very limited. So the teams worked very hard to put back the stores in service as soon as possible, and we're able to limit the impact of the hurricane. And therefore, there was no material impact on the financial results this quarter. Thank you. The next questions come from Jim Durran at Barclays. We'll skip the second question as it was already covered. So first question was, can you provide us with an update on any progress with the Holiday Foodservice menu set? So just to kind of set expectations, we're 9 months in for the Holiday acquisition as of the end of the quarter. So it is premature to comment on results. What we can tell you is that we do believe Holiday's approach is applicable across a broad array of our stores. The existing commissary does have spare capacity, so we'll certainly be tapping that as part of our pilots. We're also in the process of identifying and having conversations with other potential partners. As we looked at our capabilities, our store configurations, the effects of labor pressure, wage pressure, we feel that production off-site of the majority of our products and limiting that to assembly and reheat is a solid model for us and Holiday's demonstrated that. So we hope in the next couple of quarters to have 6 pilots up and running in various parts of the U. S. And Canada. Next questions were from Keith Howlett at Desjardins Bank Securities. We already covered the second question, so we'll focus on the first one. Could you review your MTI pipeline by geography? And when you expect to reach a target of 200 new store openings annually? What are the economics of NPI sites and what is the track record in terms of when those stores reach profitability? Which categories of products experienced the greatest sales lift from the expanded store footprint of 4000 to 5000 Square Feet? We continue to be very pleased with our NCI performance. They do take a year to ramp. So post a year, we generally feel they're accretive to return on capital employed. Our goal is to double our production of NTIs in the next 3 to 4 years. And the timing of that ramp up may vary a bit depending on the geography. Today, we're seeing tremendous cost pressure in some of the, particularly the Sunbelt markets, just with the boom of economic activity and contractors and land prices have just escalated significantly. So we try to be prudent while at the same time pushing forward where we think we can deliver the right returns. In terms of products, the biggest impact is on food and beverages, where we have significantly more capacity to display those products, to offer innovation, particularly in the beverage space. And then I would say fuel is another one that stands out. These stores do 50%, 60% and even higher than our overall network average. So again, very pleased and building the capabilities to ramp up in additional geographies, but also going to be careful in those markets where we're seeing very high cost and trying to bring our procurement scale to bear as well to try to optimize out costs on those programs as well. Next questions were from Vishal Shreedhar at National Bank Financial. The second one on e cigarettes is already has already been covered. So we'll focus on the first one. Can you provide us with an update on the effective tax rate looking forward using the current business profile and new Sweden terminal tax rate? So the reduction of tax rate in Sweden had a net tax benefit effect on the reevaluation of our deferred income tax balance. So it was a one time, but also there's a decrease in the rate. So we continue to see the range of the tax rate for future quarters between 17% 19%. Next two questions are from Michael Van Aelst at TD Securities. First question is with U. S. C store expected to be banned from selling the fast growing flavored e cigarettes, can you discuss the impact you would anticipate on your U. S. Same store sales? Do you anticipate similar legislation in Canada or Europe? Yes. I think our focus, 1st and foremost, as I said before, is making sure we're not contributing to the issues. I think our channel does a very solid job of managing age restricted sales, and we don't think that's a significant part of this problem. So we don't support any FDA moves to favor one channel over another. In terms of other products, we're launching JUUL and other similar products here in Canada, I think for the holidays in January. It sounds like IQOS may be opened up in the United States in the near future and we're seeing strong results in some of our countries in Europe of alternative products. So again, we continue to be optimistic, but our focus today is making sure that we're collaborating with those suppliers and making sure that those products end up in the hands of aged customers, not underage customers. In terms of legislation potentially banning those, I can't speculate on the likelihood of that. 2nd question. Can you discuss some of the things you have done that have allowed you to slow the rise in controllable SG and A growth from 3.6% in Q1 to 2.5% in Q2. And do you see the potential to return this SG and A growth back to back down below 2% in the coming quarters? Thank you, Michael. So we've answered the first part of the question earlier on the different initiatives in flight to reduce or optimize our cost base. But as far as the second part of the question, we continue to aim at increasing costs at a lower rate than current inflation. So that's always been our goal and it's part of our D and E. And we're deploying a lot of effort throughout the organization to do so. So however, as you know, we are not giving any guidance on the future. The next questions are from Chris Lee at Macquarie Securities Group. It's been almost a year since you highlighted at the Investor Day on using Norway as a laboratory for new formats and concepts in the context of increasing DAG penetration. Can you provide an update on what you have learned so far? For Norway specifically, how has the fuel and merchandise business performed relative to your expectations? So your question is timely. I'll actually be in Norway starting on Monday for a deep dive into this issue. I think to date, we've dealt a pretty good understanding of the charging occasions, the frequency that people charge at home, at work or shopping occasions and then in our stores. Where we've had what we do have chargers, we've installed cameras at a number of those sites. So we start to learn systematically what these customers are doing while they're charging. And how do we take advantage of that? And so in terms of that, we've launched really enhanced food programs at a number of those sites. We think we can make that shopping experience even more relevant with the additional time that they've got. In terms of how we're being impacted, I think it's in line with expectations. We're seeing pressure largely isolated to the urban centers where we've seen the highest EV penetration and largely on the B2C side, the business to us to consumer. If you remember in Europe, our business is split almost equally 50% consumer, 50% B2B, not seeing the B2B impact at all and not seeing rural impacted. So again, it's largely in line with what we've expected to see. And we're also focused in the context of this trend and adding a significant number of chargers, both high speed and normal 50 kilowatt to the network this coming year. So very engaged and learning a lot, we think. 2nd question. Cristalart, as a target of delivering a 15 percent return on capital employed. It was at 12.1% in the most recent quarter. What are the key drivers to achieve that target And how long will it take? So over longer periods of time, I think we've got a 15% return if I look at a 5 year and a 10 year. But recent returns have been pressured by 2 large acquisitions that I'm happy to say have a lot of great real estate inside of those. But as we continue to increase our EBITDA, our profitability and exceed synergy targets, we'll increase the return on capital employed. Furthermore, we're coming out of the strategy work and establish goals for the next 5 years. We also believe the proper capital allocation and strong organic growth will fuel the increase in return on capital. Stronger productivity per site will be driven by multiple projects that we've discussed previously like food, coffee, personalized merchandising initiatives, new category development will also help us generate stronger returns. We're also looking diligently at divestments of lower performing assets or markets as we've always done to make sure that the capital we use is maximized. Thank you. The last two questions came from Mark Petrie at CIBC. The first one was largely around tobacco and e cigarettes and was already covered. So the second question was, can you please update us on the rollout of your various prepared food models across the U. S. Network, including your plans for rolling out central commissaries? Also, how would you describe the company, the landscape in your market for prepared food? I'll take that. I've already touched on holiday, so I'll just talk about some of the other initiatives. We largely over the last year and a half or so completed the rollout of fresh bakery to majority of our sites, both in Canada and the U. S, and we do have fresh bakery in every site in Europe. Coffee, I touched on the bean to cup. We're excited about the pilots where we've shown strong double digit cup growth, reduced labor, reduced spoilage. So as I mentioned, we're committed to rolling that out to 1500 sites by the end of this year. We believe we have the right approach in most stores that provide quality food, but not making it at site, assembling and heating it. So back to that, the learnings from Holiday, we think they're very applicable and we're targeting we have 6 pilots up and running in the next 6 to 9 months. So a lot happening in the food space, but I'm excited about the opportunities to learn from holiday success over the years. In terms of competitiveness, food is very competitive. You see the results of the QSRs, the sit down, quick casual dining restaurants. I mean, there's a lot of competition in this space. We feel good there's some macro trends that really create opportunities for the convenience channel. There's clearly a trend towards less formal meals, clearly a trend toward more snacking and that's more snacking on the go. And younger consumers are more open to our channel. So we think the opportunity is there and we're seeing success in certain parts of our network and certainly some of our competitors are generating success. So it's a goal we continue to have, and we'll push toward success in that area. Thank you, Brian. So these were all the questions we had. Thank you very much for your attendance today. Have a good day. All right. Thanks, everyone. Thank you. Thanks. This concludes today's conference call. You may now disconnect.