Parkland Fuel Corporation (OTCPK:PKIUF) Q1 2020 Earnings Conference Call May 7, 2020 8:30 AM ET
Company Participants
Brad Monaco – Director-Capital Markets
Bob Espey – President and Chief Executive Officer
Darren Smart – Senior Vice President, Corporate Development and Interim Chief Executive Officer
Dirk Lever – Vice President-Capital Markets
Conference Call Participants
Michael Van Aelst – TD Securities
John Royall – JPMorgan
Steve Hansen – Raymond James
David Newman – Desjardins
Luke Davis – RBC
Ben Isaacson – Scotiabank
Kevin Chiang – CIBC
Derek Dley – Canaccord Genuity
Operator
Good morning, ladies and gentlemen, and welcome to Parkland Fuel Corporation 2020 Q1 Results Conference Call. [Operator Instructions] This call is being recorded on May 7, 2020.
I’d now like to introduce your host for today’s conference, Brad Monaco, Director of Capital Markets. You may begin.
Brad Monaco
Thank you. With me today on the call are Bob Espey, President and CEO; Darren Smart, Senior Vice President, Corporate Development and Interim CFO; and Dirk Lever, VP, Capital Markets. This call is webcast and I encourage listeners to follow along with the supporting slides. We will go through our prepared remarks and then open it up for questions from the investment community. [Operator Instructions]
During our call today, we may make forward-looking statements related to expected future performance. These statements are based on current views and assumptions and are subject to uncertainties which are difficult to predict. These uncertainties include, but are not limited to, expected operating results and industry conditions, among other factors. Risk factors applicable to our business are set out in our annual information form and management’s discussion and analysis.
We will also be discussing non-GAAP measures, which do not have any standardized meanings prescribed by GAAP. These measures are identified and defined in Parkland’s continuous disclosure documents, which are available on SEDAR or our website. Please refer to these documents as they identify factors which may cause actual results to differ materially from any forward-looking statements. Dollar amounts discussed in today’s call are expressed in Canadian dollars unless otherwise noted.
I will now turn the call over to Bob.
Bob Espey
Great. Thank you, Brad, and good morning, everyone. I hope everyone is staying safe and healthy, and we appreciate you taking the time to join us today to discuss our first quarter results. On our opening slide, we had a great picture submitted by one of our employees at the Burnaby Refinery of an Eagle soaring through the refinery, truly a remarkable shot.
I would like to start by thanking our refinery team for completing a safe turnaround under unprecedented conditions caused by the COVID-19 pandemic. The extra safety precautions the team had to employ resulted in understandable delays. But despite this, the refinery is now fully operational.
Since our last call in early March, a lot has changed. Reduced fuel demand due to COVID-19, commodity price volatility, and the Canadian dollar decline have impacted our operations as it has others’. Through these dramatic changes, the Parkland team has demonstrated the effectiveness of our risk management and the resilience of the underlying business to recalibrate quickly to the external environment. Our diverse portfolio and strong balance sheet not only see us set up to weather the current COVID-19 crisis but ensures we can be successful when the economy improves. I am proud of our team. Their commitment, hard work and dedication have demonstrated that our customers and communities can count on us to safely provide them with the essential products and services they rely on. Thanks to the entire Parkland team for their efforts.
Let me touch briefly on some key highlights from the quarter. Our organic growth initiatives delivered in the first 10 weeks of the quarter across all our marketing businesses despite a falloff in activity in the last couple of weeks of the quarter. We fully funded our capital program, acquisitions and dividends with cash from operations. We closed our Kellerstrass Oil acquisition in mid-February. With expected synergies coming quickly, the U.S. team has done a great job quickly integrating and adding value to the businesses we acquire. We acted quickly and decisively to maintain our balance sheet strength at the end of the quarter, entering Q2 with significant liquidity and debt to credit facility EBITDA of 2.9x.
We provide an essential service to our communities and are focused on keeping our teams and customers safe. Guided by health authorities, we’ve put in place additional safeguards to keep people safe from plexiglass, sneeze guards to rigorous sanitation and disinfection protocols. Through this pandemic, we have further strengthened our reputation as a reliable and trusted community partner. Our enterprise-wide fuel discount program to hospital workers and first responders has extended over $3.5 million of fuel discounts to these frontline heroes. We are providing the truck driving community with free hot showers, along with food and snack discounts at select cardlock and convenience store locations and are also supporting Canada’s food banks with fuel cards and healthy snack options. Over the past few weeks, the gratitude we’ve received from customers and communities has been overwhelming.
I’ll now pass over to Darren to go through the corporate financial results.
Darren Smart
Great. Thanks, Bob, and good morning, everyone. We delivered adjusted EBITDA of $191 million for the quarter compared to just over $300 million in Q1 of 2019. The primary difference was due to the Burnaby Refinery turnaround. During the turnaround, and as expected, we did not capture a refining margin, and we incurred additional operating expenses. Cash from operations was $258 million for the quarter compared to $136 million in Q1 2019 despite the lower adjusted EBITDA. Cash flow from operations was able to fund our CapEx, the Kellerstrass acquisition and cash dividends paid in the quarter. All in all, and given the environment, we are extremely pleased with the results and we live within our means.
On to Slide 6, we’ve provided some of our other corporate highlights. Our credit agreements allow us to normalize for the impact of the Burnaby Refinery turnaround when computing our total funded debt to credit facility EBITDA ratio, which came in under 3x and provides us with significant headroom relative to our 5x covenant. On a trailing 12-month basis, our adjusted dividend payout ratio was 40%. We closely monitor our payout ratio, and we’re comfortable at this level.
We’ve also highlighted our current liquidity and debt maturity ladder, and we are well positioned. We entered the quarter with approximately $1 billion of liquidity and exited with $900 million, all of this in a refinery turnaround quarter. On March 30, we highlighted $300 million of capital expenditure reductions and other cost-cutting measures primarily beginning in Q2 2020, in order to protect the strength of our balance sheet.
We have no debt maturing in 2020 and approximately 85% of our senior note maturities are 2024 and beyond, affording us significant flexibility. We will continue to ensure that our balance sheet remains strong and that we are well positioned to navigate challenging market environments.
I’ll now turn it back to Bob to discuss segment performance.
Bob Espey
Thanks, Darren. I’ll start with Canada. We have combined the Canadian Retail and Commercial segments, which now aligns with our U.S. and international operations, which also include Retail and Commercial operations. We had a great start to the year and are confident in the underlying ability to grow this business. We delivered adjusted EBITDA of $103 million, a decrease of $14 million from last year. The decrease was driven by lower fuel margins in the first part of the quarter, a warmer winter and reduced fuel demand in the second half of March due to COVID-19. Company C-store same-store sales growth was 0.4%, our 17th consecutive positive quarter as convenience operations have performed better than retail fuel.
The JOURNIE program was in its initial rollout phase when COVID-19 hit and has demonstrated strong membership enrollments and engagement. With reduced site traffic and additional safety measures, we paused the JOURNIE rollout plan, but look forward to continuing when retail traffic improves. Our commercial operations performed well, and we were particularly encouraged how – with how volumes held up in March. Our team continues to drive efficiency and win new business, particularly in industrial propane.
For our international operations, we delivered adjusted EBITDA of $67 million, a decrease of only $4 million compared to last year. We got off to a great start, demonstrating organic growth, capturing synergies and benefiting from an initially strong tourist season. We increased overall volumes by 31%, driven by our Wholesale, Aviation and Bunkering business. We have also seen a real benefit from collaboration with Tropic Oil in Florida, plus there are bright spots in our natural resource markets, offshore Guyana, particularly, which has continued into April.
Our U.S. segment delivered first quarter adjusted EBITDA of $18 million, reflecting double-digit percentage organic growth and the impact of our acquisitions in the last year. The U.S. team has done a great job of not just buying great businesses, but growing them once they add them to the portfolio. We have strength – we had strength in both volumes and margins in Q1. Our organic growth initiatives and national accounts development has exceeded plan, and we experienced very strong retail fuel margins in March. Of note, Tropic Oil had a record quarter for both volumes and EBITDA.
Finally, turning to supply. We delivered $39 million of adjusted EBITDA, lower than 2019, but in line with our 2018 results, which also had a refinery turnaround. I’m proud to say the refinery team successfully managed through the COVID-19 challenges while remaining healthy. It was a large and complex scope of work. Near the end, we had less people on-site and lower productivity due to additional safety measures, but are now up and running. We successfully executed our product import program during the downtime and kept our network supplied. During the turnaround, we also completed work that will help us expand our co-processing ability and maximize canola and tallow throughput rates.
Our integrated logistics business continues to perform, utilizing our capital-light infrastructure to find profitable supply opportunities across North America. The extent and duration of the pandemic is hard to predict, so we withdrew our 2020 adjusted EBITDA guidance. We do not have a time line to reinstate guidance but remain focused on driving value and being well positioned for when we eventually hit – exit this downturn.
To maintain the strength of our balance sheet, we also reduced our 2020 capital program by $300 million, which is now $275 million for the year. We invested $150 million in capital expenditures in Q1, so the remaining quarters will have a much lower spend intensity. The remaining capital projects in 2020 will focus on operational reliability and meeting regulatory obligations and high-return growth projects such as enhanced digital capabilities and select network development initiatives. Our growth capabilities remain intact and team’s ready to push forward when the time is right.
Wrapping up now on Slide 12. We wanted to provide a quick update on what we have seen on the ground since the quarter end. Overall, our portfolio has demonstrated remarkable resilience. We built an internal stress case to help position the business during the downturn and acted based on that. I am pleased to say that we are performing well relative to that case.
Relative to 2019, retail gas volumes in Canada were down approximately 40% in April and Commercial volumes of approximately 25%. C-store sales have held in extremely well and are only down marginally. We are stocking shelves with high-demand categories like groceries and other seasonal items, and the team is constantly adapting to the customers’ needs.
Excluding the impact of acquisitions, the U.S. segmented volumes have declined approximately 20%. The U.S. segment has fewer major urban centers in our areas of operation and a higher commercial weighting. When including the impact of acquisitions, we are still above prior year volumes.
International onshore volumes have declined approximately 40%, consisting of a 25% decline in the Commercial lines of business and 55% in Retail. Many countries in the international segments have extensive curfew measures and higher exposure to tourist activity. Overall, the impact of the volume declines has been partially offset by generally stronger per-liter fuel margins, which have been most pronounced in the U.S., followed by Canada. We have not really seen it in our international segment due to the increasing wholesale weighting and a portion of onshore volumes being regulated.
At the Burnaby Refinery, we are currently operating at approximately 75% utilization. We’ve shown our indicative crack spread chart on the right, which is currently quite volatile and lower than the trailing 3-year average, but still relatively strong to most North American refining markets. Important to note, the chart shows the illustrative 5-3-1-1 refinery yield. In response to lower jet demand, we have been able to reduce jet fuel to less than 10% of total refinery yield, which helps improve our captured refining margin. We’re also in a good position from a storage perspective, with low product inventories after completing the turnaround.
In challenging times, the resilience of our business shines through. We have a large geographical footprint, extensive product range and exposure to highly diverse markets. When you combine this with our entrepreneurial culture and strict financial discipline, I believe we are well positioned to navigate the pandemic and emerge as an even stronger company. Thanks to the entire Parkland team for a great quarter and a continued focus on safely supporting our customers and communities.
Thanks to those on the line for your support. We’ll now open the line for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from Michael Van Aelst with TD Securities. Please go ahead.
Michael Van Aelst
Hi, good morning. So I’d just like to start off by touching on some of the cost controls that you’ve put in place. Because clearly, we saw some good progress already in Q1 with cost down in most divisions. But you also mentioned that a lot of these measures that you’re taking are starting in Q2. So can you give us an idea as to whether these are focused more on OpEx and MG&A? And maybe give us some examples of some of the major steps you’re taking and how significant they could be.
Bob Espey
Yes. No, for sure. Again, the costs have been across – cost reductions have been across the business. And again, the other thing is we reduced the capital spend significantly. So on the cost reduction side, there is – in our operating business, there is a portion of our costs that are quite variable. And we really did see that kick in, particularly as volumes started to decline. The way in Canada, we’ve got our retailer model where there is a variable charge that goes to the retailers. As volume comes down, we see that come down. Our distribution fleet scales quite nicely to volume as our truck drivers are paid on an hourly basis, and we can quickly idle assets when the volume isn’t there.
So – and as we never ever planned for a decline of this nature, but we were quite surprised, or it was quite good to see how quick the business scaled naturally around the lower volume. And then on the overhead side, there are certainly opportunities as it relates to our capital growth projects to look at opportunities to reduce both costs and external costs and internal costs. And then on – and then the other thing is it did force us to look internally and make sure that we tightened up our systems and processes. And we’re able to take additional cost out, both internally and externally. We’ve worked a lot with our vendors, and they’ve also assisted us as we go through lower demand period here.
Michael Van Aelst
Are you able to give us any insight as to the mix of variable versus fixed costs?
Bob Espey
Yes, it’s difficult to isolate at this point.
Michael Van Aelst
Okay. And then just finally as a follow-up. Can you provide some insight as to the synergies that you’re achieving between Tropic and SOL because you did bring it up in a couple of places in the press release.
Bob Espey
Yes. So again, we’re really delighted with the Tropic acquisition and the team there. And we do want to thank the team for integrating into Parkland quickly. The main touch points with the Caribbean have been around two areas. One is the – supporting the shipping business and supplying fuel into vessels that – initially, that business at Tropic was very focused on Florida and the Miami harbor and specifically. But that account book or those customers were then also made aware of our capability in the
Caribbean and have expanded business to us in the various regions. So we basically picked up a lot of marine fuel business through Tropic in our international segment. The other areas, in area of lubricants, where we’re able to inventory – use Miami as a point where we can inventory product and then pull inventory out of local markets, and it just made us more efficient because we could utilize the existing trade flows into the Caribbean to reduce our inventory.
Michael Van Aelst
Great. Thank you.
Operator
Your next question comes from John Royall with JPMorgan. Please go ahead.
John Royall
Hey, good morning guys. Thanks for taking my question.
Bob Espey
Good morning, John.
John Royall
So in the U.S. business, does this environment present a chance for some attractively priced M&A, maybe where you’re seeing some distressed operators? Or is the margin environment so strong that you’re not really seeing that?
Bob Espey
I’ll let Darren answer that.
Darren Smart
It’s Darren here. Yes, no. So I think at the moment, everybody is quite focused on safe operations and protecting their customers and employees. So there really isn’t a lot of M&A activity happening in the market right now. That being said, as things improve, I do think that there will be opportunities again and we’ll be looking for situations where there’s good value.
John Royall
Great. And then international, the 55% decline you’re seeing on the Retail side, is there any sense for how much the tourism piece has been down? It may be hard to parse out, but just from a traffic perspective, I would think that tourism would be one of the last pieces to recover across your system. Is that a fair way to think about it?
Bob Espey
Yes. Certainly, tourism is way down. And the hardest hit segment has been our aviation business in that market. It’s hard to separate out how much of the activity at a retail level is driven through tourism versus local demand, and it would certainly vary by jurisdiction. But overall, as you can expect, tourism is off. And it certainly will impact a portion of the business. And again, recall that business segment’s into sort of three types of markets, one are the tourist-intensive markets, the other are the natural resource-intensive markets, where we really haven’t seen activity fall off. And in fact, in some markets, those are – that are levered more towards gold mining and oil. We’ve seen activity increase, so that’s been a nice offset. And then the third type of market, really is – it doesn’t have either the tourism or the natural resources. And again, those are being prudent, but we would expect those to bounce back to normal activity once the markets open up there.
John Royall
Great. Thank you.
Operator
Your next question comes from Steve Hansen with Raymond James. Please go ahead.
Steve Hansen
Yes. Good morning, guys. Thanks for the question and thank you for the color on the April status. I was just hoping – perhaps, the risk of being too granular, whether you could comment on the trends you’ve been seeing on just the past two to four weeks. Some of the reopening plans have started to roll out here. They’re obviously staged and varied by province or state, but a lot of these plans do appear to be gathering some momentum. I’m just wondering if that’s had any impact on your discernible volumes as yet?
Bob Espey
Yes, thanks, and great question. It’s – certainly in April, we did not see that. But coming in the May here and its early days, we are starting to see things gradually come back. And again, to your point, it depends on the jurisdiction. And now we expect that, over May, as restrictions get lifted, we do start to see demand, particularly in our retail segment, start to come back. Now it’s interesting, the one area that’s held in quite nicely through April is our convenience store business. So we were still getting good traffic there and some good strong sales.
Steve Hansen
Very helpful. And just maybe a follow-up to that. You mentioned earlier that the JOURNIE program has been temporarily stalled. Did you have a sense for what kind of metrics you want to see on the recovery of foot traffic before you sort of get that back and going?
Bob Espey
Yes. We would expect, if we start to see things come back, we should continue that rollout later in the quarter. It may not have the promotional intensity that we planned initially, but we can certainly roll it out and get it up and running in the remaining markets. And then once volume comes back more dramatically, we can apply the promotional activity that we planned.
Steve Hansen
Thanks for the color.
Operator
Your next question comes from David Newman with Desjardins. Please go ahead.
David Newman
Good morning, gentlemen.
Bob Espey
Hi, David.
David Newman
Hope you’re faring well in the circumstances. My first question is on the C-store, kind of further to Steve’s question. It’s been very, very resilient, and obviously, not seeing the downside that you would expect given what’s going on with the pumps. So in terms of merchandise offerings that you guys are now moving into the C-store, any permanent learnings that you’re getting out of this? And do you think that post the pandemic that there might be some customer stickiness that you guys are able to retain from those customers that are now going from the front court to the back court?
Bob Espey
Yes. As we look at our Retail business, so there have been some interesting changes. So we’ve seen the mix change. Our age-restricted products, such as tobacco, vape and beer are up considerably, grocery items, dairy, bread, staples, and then household items like toilet paper, garbage bags and cleansing products are doing very well. There’s been an offsets around car wash. Single-serve confectionery items are doing poorly. And we did halt fresh food and frozen hot beverage service in April.
We do expect to revitalize that once things start to open up. It’s interesting, changing formats. We’re seeing customers evolving to take larger home formats instead of single serve, for example, the large bag of chips versus small bags; a case of coke, versus a 600-milliliter bottle, and we are appropriately represented in those categories. And again, the format turned so quickly that we can revector the SKUs quite quickly to make sure that we’re meeting our customers’ needs.
And the other thing is our bundled offers and our private label SKUs are performing very well. And again, I would – our team has executed extremely effectively here, looking at SKUs in real-time, monitoring customer behavior in our supply chain and making sure that we’re reacting very quickly. So our team has done a great job. We also – delivery is also a popular item. We did launch a Skip the Dishes trial with our Triple O in BC. And it’s interesting, we’ve seen some really good uptake there.
David Newman
Get it to Ontario soon, Bob.
Bob Espey
Yes. And then we’re also exploring options to actually use Skip the Dishes for our C-store items. So again, as the pandemic pushes changes on us all, we’ve been able to react quite quickly and adjust our business to meet the needs – the evolving needs of our customers.
David Newman
And with all the puts and takes, is margin profile changed all that dramatically with mix?
Bob Espey
Again, the – certainly with the lower-margin items like cigarettes are up, and it’s early days to actually tell how the margin does shake out. But indications are, it would be similar to what we’ve seen in the past.
David Newman
Okay. And then second question for me is just on the refinery. There’s a minimum threshold, I think most refiners cite that it’s like 65%, 70% utilization, given sort of the hydraulic and process limitations that are involved. If you run it at that kind of minimum threshold, and it does look like you still have the ability to tanker some of the refined fuel that’s coming out of the refinery. If you ran the full quarter, that – a, is that the minimum threshold? And b, what would that imply for utilization for the full quarter? It looks like it could be 50% to 60%?
Dirk Lever
Yes. David, Dirk Lever here. With respect to the refinery, yes, we could run lower than 75%. I must say that, historically, we’ve never had to do that. So this is unprecedented times. But what we’re doing is looking forward. We’re looking at what our storage levels are, where we think demand is going to be. And we always have to plan a month ahead because you’re ordering crude in advance. So it’s always a forward look. So it’s not as if you can just shut a refinery off because you have crude being delivered to you. But the plan is to look – try and balance off what you think demand is going to be.
So you’re looking for the trends. You’re trying to factor in what you’ve got for storage availability, and we were very light on the storage at the very end. We drew down our inventories, knowing that we’re going to be up and running. So the idea then is to try and optimize based on what you – what the forward look is, and that’s what the refinery has been doing. Can we run lower than 75%? Yes, we can. But we’ve set ourselves up in a great position with low inventory levels that we could run, build up our finished inventory and then feather what we need to do as far as production goes as demand hopefully increases here with the opening up of the province.
David Newman
Very good. Thanks gentlemen. Stay safe.
Operator
Your next question comes from Luke Davis with RBC. Please go ahead.
Luke Davis
Good morning, guys. Just a follow-up to the last question. On the refinery, I’m wondering if you can frame out, Dirk, how much storage capacity you have on site. And how much of that is utilized on the refined product side specifically just in order to kind of buffer some market pricing volatility?
Dirk Lever
Yes. We’re about 2 million barrels of total storage, and think of that as probably 65% on the crude and 35% on the finished products, somewhere in those neighborhoods. We have more crude storage than finished product storage at the moment. But we also – we do have storage capacity that we utilize with the Trans Mountain. There is storage there. So we have two stages of storage for the crude.
Luke Davis
Got it. It’s helpful. Thank you.
Operator
Your next question comes from Ben Isaacson with Scotiabank. Please go ahead.
Ben Isaacson
Thank you very much. Just looking at your financials, it looks like you have about $2.7 billion of off-balance sheet unsecured guarantees on some commodity swaps. Can you talk about who those counterparties are? And has their financial profile or their creditworthiness changed over the last six or eight weeks given all the volatility?
Darren Smart
Yes, it’s Darren here. Thanks for the question. Yes. No, we continue to monitor all those counterparty exposures, and nothing significant has changed on that front at this point.
Ben Isaacson
Who are those counterparties? I mean just in general.
Darren Smart
Oftentimes investment-grade parties.
Ben Isaacson
Okay. And they’re upstream, is that correct?
Darren Smart
Yes, generally.
Ben Isaacson
Okay. And my follow-up question is, when you look at the core model, how many are there right now? And where do you think that’s going by the end of 2020? And I guess the reason why I’m asking is, with traffic volume down so much, how are the retailers holding up financially? Do they need your support or your balance sheet support financially? Are they getting into trouble?
Darren Smart
Yes. We have roughly 650 retailers. We look at these key partners for Parkland in interfacing with our customers. And our retailers are super dedicated to running the sites safely, effectively and providing outstanding customer service. The way we’ve helped our retailers are on a number of fronts. One is by adjusting store hours so that they can adjust their cost base appropriately. We’re generally a 24-hour operation. And as you can expect, with activity down, certainly, there’s an opportunity to reduce hours and not really impact sales. So that was – we’ve done that with the bulk of our retailers and helped them through that.
The other thing is we’ve also – they’re – particularly, they’re small businessmen and there are government programs available to assist, and we’ve helped them access those programs and apply for them so that they can push through this difficult environment. And most of our retailers are single-site operators, so they tend to be on-site and are operating the site.
Ben Isaacson
Is it possible that if some of those guys go under, you pull those stores back and make them a corporate store? Or is that another risk you see right now?
Darren Smart
That’s not a risk we see right now. Again, we’ve got some great retailers, and they really are great ambassadors for our brands. We do regularly change retailers out. People decide to move on or the performance isn’t there, and we do have a good candidate pool to draw on should that happen.
Ben Isaacson
Thank you very much.
Operator
Our next question comes from Kevin Chiang with CIBC. Please go ahead.
Kevin Chiang
Thanks for taking my question. Hopefully, everyone’s doing well. Just a couple for me here. Just on the competitive environment in Canada, I think you’ve highlighted the past few quarters some increased competition. Just wondering how that environment looks today or how you see it looking forward given how challenging the environment is. I expect maybe some of that irrational competition could exit the market, but any color there would be helpful.
Bob Espey
Look, the market’s there, it’s alive and competitive. I would say we have – and you saw it in the tail end of March with – when you look at the Kent’s, you can see the rack to retail margins. They certainly did widen out, and we saw that maintained through April. But again, the markets are – at an operating level, the competitive intensity varies by market, and we’re certainly seeing a healthy competitive market across the country.
Kevin Chiang
Okay. And maybe just – and I apologize if you mentioned this in your prepared remarks. Just within Elbow River, how exposed are you to crude by rail within that division? And is that a significant headwind we should be contemplating just given where oil prices are today?
Bob Espey
That – the beauty of the Elbow River business and the team there is their ability to react quickly. And certainly, as certain opportunities have fallen off, and we have seen, because of crude differentials and just lack of demand, that the amount of crude that we would have normally handled has come down. The team there has been able to look for other opportunities to deploy the assets and make sure that we’re continuing to move product. And we are seeing some parts of that area holding quite nicely, like our LPG business. But certainly the crude business, and to a lesser extent, the refined product business have come off somewhat.
Kevin Chiang
Thanks for the color. Stay safe everybody. Thank you.
Operator
Your next question comes from Peter Sklar with BMO Capital Markets.
Unidentified Analyst
This is Chang filling in for Peter. Just two quick questions. The first is that for the $300 million reduction in CapEx, can you guys give a little detail as to where that’s coming out of?
Bob Espey
Yes. It’s coming from across the business. We did – I would say, and for the most part, we’re delaying the capital. A large chunk of that would have been in Retail, around our retail rebuilds and NTIs, so we’ve slowed that down as we go through. The good news is a lot of that can be revitalized fairly quickly when things come back. The second area would be around some of our supply assets and some of the projects that we planned, again, to increase our storage and in our various markets. I would say that’s the other area that we’ve curtailed.
And then areas that we’ve kept a focus on are some of our internal projects, our systems, our investment in digital and our IT platform, which is really integral to our continued M&A once we come out of this. And it’s just continuing to make sure and push towards our ideal systems architecture. We had some cleanup work to do after a lot of the M&A we’ve done over the last few years. So it’s giving the team an opportunity to continue to push that and complete it.
Unidentified Analyst
Okay. And I think previously, last quarter, you mentioned that the tobacco segment within your C-store was north of 40% of the total merchandise sales, and that was pre coronavirus. So can you just kind of updated number given that age-restricted products are up considerably?
Bob Espey
I – that is correct. I can’t give you the exact mix at this point. Like everything, there’s lots of volatility. Generally, the – we’re seeing sales up across, as I’d indicated, all categories, except for car wash and – and yes, some of the single-serve items but the strongest is the age restricted, which is tobacco, vape and beer, that’s gone up.
Unidentified Analyst
Okay. Thank you.
Operator
[Operator Instructions] Your next question comes from Derek Dley with Canaccord Genuity. Please go ahead.
Derek Dley
Hi, guys. Just wondering if you could give us some color in terms of your split between urban – what you would define as urban and nonurban markets for your retail locations in Canada?
Bob Espey
Yes. Roughly, I would say, 40% is nonurban, and then 60% would be suburban and urban. So if you think GTA, that – Hamilton through to Oshawa Corridor, the GDRD, Montreal, those would be our largest urban exposures.
Derek Dley
Okay. And fair to say that nonurban is like – would it materially be outperforming urban in terms of just the decline that you’ve seen in volumes, I guess, for April, for example?
Bob Espey
Yes, it’s interesting. I would say volumes have held in better than in the nonurban markets. And yes. I mean, primarily, volumes have held in quite nicely in those markets, and that’s been an offset to further – to more decline in the urban markets. Now we expect the urban markets to spring back pretty quick here once things open up. What we’re seeing in other jurisdictions is people favoring their vehicles over public transit, and we would expect that trend to be in Canada as well. So that could be an offset, a positive offset.
Derek Dley
Yes. Sure. I mean would it be fair to say as well, I mean some of the industry data that we follow, and admittedly, this is more U.S. focused, kind of pointed to demand – or volume demand sort of bottoming and what looked to be the last week of April, maybe just the third – the end of the third week of April into the last week of April. Have you guys seen something similar?
Bob Espey
Certainly, as we get into May, it does look like things are trending marginally up. But again, we really haven’t seen restrictions come off in a major way. We will start to see that over the next couple of weeks. And again, I would expect to see that we see demand improve.
Derek Dley
Okay. Thank you very much.
Bob Espey
Great. Thanks, Derek.
Operator
There are no further questions at this time. Please proceed.
Bob Espey
Okay. Well, thank you very much. Thanks for your questions and look forward to catching up at the end of next quarter.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
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