Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Sunoco LP | a8kdivestmentsupdate.htm |
| EX-99.2 - EXHIBIT 99.2 - Sunoco LP | westtexasdivestmentupdate.htm |
| EX-99.1 - EXHIBIT 99.1 - Sunoco LP | jointpressrelease.htm |
INVESTOR
PRESENTATION
December 2017
FORWARD-LOOKING STATEMENTS
2
Some of the statements in this presentation constitute “forward-looking statements” about Sunoco LP (“SUN”, “we”, “our, and “us”) that involve risks, uncertainties
and assumptions, including, without limitation, statements regarding SUN’s proposed sale of a majority of its convenience store locations to 7-Eleven, Inc. (the “Retail
Divestment”), the expected future performance of SUN (including expected results of operations and financial guidance), and SUN’s future financial condition,
operating results, strategy and plans. These forward-looking statements generally can be identified by use of phrases such as “believe,” “plan,” “expect,” “anticipate,”
“intend,” “forecast” or other similar words or phrases in conjunction with a discussion of future operating or financial performance. Descriptions of SUN’s and its
affiliates’ objectives, goals, targets, plans, strategies, costs, anticipated capital expenditures, expected cost savings, potential acquisitions and related financial projections
are also forward-looking statements. The following factors, among others, could cause actual results and events to differ materially from those expressed or implied in
the forward-looking statements we make in this presentation: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of
the asset purchase agreement; (2) the inability to complete the Retail Divestment in a timely manner or at all, including due to the failure to obtain necessary regulatory
approvals required to complete the transactions contemplated by the asset purchase agreement; (3) the risk of not fully realizing expected synergies in the timeframe
expected or at all; (4) the risk that the proposed Retail Divestment disrupts current plans and operations, increases operating costs, results in management distraction and
the potential difficulties in maintaining relationships with customers, suppliers and other third parties and employee retention as a result of the announcement and
consummation of such transactions; and (5) the outcome of any legal proceedings instituted against the company following announcement of the Retail Divestment and
transactions contemplated thereby.
These statements represent present expectations or beliefs concerning future events and are not guarantees. Such statements speak only as of the date they are made,
and we do not undertake any obligation to update any forward-looking statement.
We caution that forward-looking statements involve risks and uncertainties and are qualified by important factors that could cause actual events or results to differ
materially from those expressed or implied in any such forward-looking statements. For a discussion of these factors and other risks and uncertainties, please refer to
SUN’s filings with the Securities and Exchange Commission (the “SEC”), including those contained in SUN’s 2016 Annual Report on Form10-K and Quarterly Reports
on Form10-Q which are available at the SEC’s website at www.sec.gov.
Investor Relations Contact Information:
Scott Grischow Derek Rabe, CFA
Senior Director, Treasury & Investor Relations Senior Analyst, Investor Relations & Finance
(214) 840-5660 (214) 840-5553
scott.grischow@sunoco.com derek.rabe@sunoco.com
3
2017 – LAYING THE FOUNDATION FOR THE FUTURE
● Continued strength in wholesale margins along with an upswing in retail margins drove improvement
in key financial metrics
• Decreased leverage from 6.5x as of 12/31/16 to 5.6x as of 9/30/17
• Increased LTM cash coverage from 0.98x as of 12/31/16 to 1.04x as of 9/30/17
• Reduced capital spend by 34% in maintenance and 55% in growth from 2016 actual to 2017 guidance levels
• Withstood two major hurricanes in key markets with minimal damage / business downturn
● Change in strategic focus from convenience stores to fuel logistics and distribution
• In April, announced divestiture of the majority of company-operated retail operations to 7-Eleven which
includes a long-term, take-or-pay fuel supply agreement
• This transformational transaction serves as the basis for SUN’s path forward
• Initiated the exit of company-operated locations in West Texas
• Organizational transformation
• Leadership
• Cost structure
4
7-ELEVEN: CLOSING ON TRACK
● Key deal terms on April 6, 2017
• $3.3 billion for ~1,110 company-operated convenience stores
• ~2.2 billion gallons through a 15-year fixed-rate, take-or-pay fuel supply agreement
• Additional 500 million gallons over the first four years
● 7-Eleven, Inc. and Sunoco LP are jointly committed to closing the value-creating transaction. The
companies believe the transaction to be in the latter stages of the regulatory approval process with the
Federal Trade Commission. Subject to completion of the regulatory process and customary closing
conditions, 7-Eleven and Sunoco expect closing to occur in January 2018
● We believe any regulatory or contractual modifications to the April 6th deal terms will have an
immaterial impact on coverage and leverage goals
• Regulatory and contractual modifications could include: results of FTC review, real estate and other consents,
and hurricane damage
• Sunoco’s multi-channel fuel distribution operations allow for redeployment of these sites
• Distributors, dealers and commission agents
• Use of the various fuel distribution channels allows SUN to balance cash proceeds with retained EBITDA
resulting in improving leverage and coverage ratios
WEST TEXAS: DEFINED VALUE-CREATING PATH
● A signed agreement with a proven operator for the 207 West Texas sites as a commission agent
• The conversion of sites is expected to occur in Q1 2018
• Commission agent is a proven and profitable channel within our current fuel distribution portfolio
● Key elements of commission agent model
• Commission agent operates retail locations
• Generates stable rental income through SUN’s continued ownership of real estate
• Captures a material portion of fuel margin less a commission to the agent
• Provides optionality for future asset sales
• Commission agent model operations are included in previously announced 50% reduction in overhead
● Opportunity to capture upside of West Texas growth via commission agent terms
● Delivers on coverage (~1.1x) and leverage (~4.5-4.75x) goals
• Significant EBITDA retention and immediate accretion to distributable cash flow and distribution coverage
• The commission agent model was developed early in the West Texas sales process as a high-value alternative
to an asset sale
• Proved to be the best option based upon the analysis of balancing EBITDA retention and after-tax
cash proceeds
• Combined with the 7-Eleven transaction, allows for debt reduction, redemption of preferred equity and
repurchase of common units
5
6
GUIDANCE ON THE NEW BUSINESS MODEL
Operating
Expenses
G&A
Expenses
Cents Per
Gallon
Maintenance
Capital
Growth
Capital
~$325 million ~$140 million 8.0 to 9.5 range ~$40 million ~$90 million
• The 7-Eleven
transaction
eliminates a
majority of field
level employee
support,
insurance costs,
and store
operations
• We expect to
reduce operating
expenses by
approximately
70%
• With the
elimination of
the back office
support required
to run company
operations, we
expect to reduce
G&A by ~50%
• Wholesale
margins have
historically been
consistent but
above our 6 to 8
guidance range
• Taking into
account the new
business model
with a significant
fixed-fee
contract, we are
raising the range
to 8.0 to 9.5
CPG
• The retention of
the West Texas
sites under a
commission
agent model
results in a ~$5
million increase
from previous
guidance of $35
million
• The exit of the
retail business
eliminates new-
to-industry
builds
• Growth capital
will be focused
on profitably
growing
wholesale
volumes
7
KEY INVESTMENT HIGHLIGHTS OF THE NEW BUSINESS MODEL
Significant
Economies Of
Scale
Portfolio Of
Stable Income
Streams
Runway Of
Diversified
Growth
Lean Capital
And Expense
Structure With
A Disciplined
Financial
Strategy
Attractive Fuel
Distribution
Sector
1
2 3
45
8
SIGNIFICANT ECONOMIES OF SCALE TO THRIVE IN AN
ATTRACTIVE FUEL DISTRIBUTION SECTOR
● Fuel distribution sector remains robust
• Fuel distribution margins have been attractive and stable
• 2016 U.S. gasoline demand was highest on record at 9.3 MBD
● SUN is well positioned to capitalize on sector opportunities
• Scale: Over 8 billion gallons a year
• Purchase the majority of fuel at bulk and sell at branded prices
• Brand Power and Options: Continue to sign up new Sunoco-branded dealers and distributors
• Also one of largest distributors of Exxon, Chevron and Valero brands in U.S.
• Fragmented industry provides acquisition opportunities on a foundation of organic growth
● Focus on fuel distribution makes SUN a compelling investment in a rising, flat or declining fuel
demand environment
• Rising
• Higher fuel demand equates to more gallons sold and more opportunities
• Flat or Declining
• Growing excess of U.S. refining capacity provides support for fuel distribution…we are short in a long
market
• Fragmentation provides synergetic acquisition opportunities and allows SUN to further increase our
market share
1 2&
Other
Income
~15%(1)
Rental
Income
~15%(1)
Wholesale
Fuel
Income
~70%(1)
PORTFOLIO OF STABLE INCOME STREAMS
9
Portfolio of Diversified Channels
• 7-Eleven: 15-year take or pay
• Dealers
• Commission agents
• Distributors
• Aloha fuel sales
• Commercial accounts
• Transmix operations
• Terminals
3 0.0¢
4.0¢
8.0¢
12.0¢
1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16 3Q'16 4Q'16 1Q'17 2Q'17 3Q'17
Wholesale margins(1) show stability over the past ~3 years
Average: 9.1¢
Minimum: 8.3¢
Rental Income
• SUN leases, or subleases, locations to third-party operators
• Stable, long-term income
Other Income
• Includes merchandise income, franchise revenue, credit card services, and ethanol processing
~ %
o
f
G
ro
ss
P
ro
fi
t
(1) Adjusted for impact of retail divestitures and the commission agent arrangement
10
LEAN CAPITAL AND EXPENSE STRUCTURE WITH A DISCIPLINED
FINANCIAL STRATEGY
Maintain
Disciplined
Leverage Profile
Distribution
Coverage
Balanced
Financing
Strategy
Capital And
Overhead Light
Model
Liquidity
Target
~4.5x – 4.75x
Leverage Ratio
Target ~1.1x
Distribution
Coverage
Invest In Projects
That Support
Leverage And
Coverage Targets
Maintain Cost
Efficient Model
Through
Growth
Maintain Credit
Facility
Availability And
Secured Capacity
• Expect leverage
to reach target
range post
transaction
closing
• Maintain leverage
within the target
range on a go
forward basis
• Expect to
maintain current
distribution level
on a go forward
basis
• Projects evaluated
using a ~50/50
capital structure
• Investments must
be NPV positive
and accretive to
distributable cash
flow while
maintaining
leverage
• Maintenance
capital
requirements
reduced by
~50% for 2018
• G&A costs
reduced by
~50% for 2018
• Reduced reliance
on secured debt
provides greater
financing
flexibility
• Monitor credit
facility capacity
and access to
capital markets
4
11
RUNWAY OF DIVERSIFIED GROWTH
Grow Core
Fuels Logistics And
Distribution Business
Manage
Organic Growth
Expand Into
Adjacent Sectors
• Consolidation opportunities in
a highly fragmented sector
• The sector trades at reasonable
acquisition multiples
• Leverage scale to quickly
realize material synergies
• Utilize multi-channel strategy
to optimize returns on
acquired assets
• Obtain incremental business
from existing customers
• Leverage Sunoco brand as well
as other major fuel brands to
sign up new customers
• Diversify into adjacent sectors
to drive further income
stability
• Capitalize on current large fuel
distribution business to realize
synergies through acquisition
of logistics assets (e.g., product
terminals)
5
A long runway of growth while maintaining a disciplined financial strategy within our coverage
and leverage targets
12
Appendix
13
WEST TEXAS STORE STATISTICS
Geographic Composition
Real Estate Composition
Total
Sites
Midland/Odessa 33
Texoma 24
San Angelo 45
Lubbock/High Plains 56
Permian - Other 38
Abilene 11
Total 207
Owned 138 67%
Leased 69 33%
Total 207