Uni-Select Inc. first quarter results showed sales for the Canadian Automotive Group segment were up 2.2%, fuelled by an organic growth of 4.9% and acquisitions, but international pressures offset this performance.

“The solid performance of the Canadian Automotive Group and the benefits of the Performance Improvement Plan (“PIP”) were offset by the challenges faced in the first quarter from ongoing margin pressure at FinishMaster U.S. and from the uncertainty created by Brexit on The Parts Alliance business,” indicated André Courville, former Interim President and CEO.

“With regards to FinishMaster U.S., we initiated the implementation of the PIP by integrating 3 stores in the first quarter. By the end of 2019, we fully expect to have realized an annualized run rate cost savings of $10 million at FinishMaster U.S. mainly from store consolidation, organizational optimization and spending reductions. These various initiatives should lead to improved results in the second half of 2019.

In the UK, the uncertainty surrounding Brexit will continue to present some headwinds in upcoming quarters, but we believe that volumes may improve as customers adjust to a new economic reality,” concluded Mr. Courville.

“The Strategic Alternatives review is following its course. Included in the process is the implementation of the Performance Improvement Plan, which is on track. All options remain open and we are not in a position to provide any further update at this time.

As planned, interim President and CEO, André Courville is relinquishing his duties to make way for a new, permanent CEO. As announced earlier this week, we are pleased that Brent Windom has been appointed President and CEO of Uni-Select Inc., effective May 1st.

Eric Bussières, currently Chief Financial Officer of Uni-Select Inc., is also appointed Executive Vice President and Chief Financial Officer, while Me Louis Juneau, currently Chief Legal Officer and Corporate Secretary, is named Chief Legal and Administration Officer and Corporate Secretary, both effective immediately.

OPERATIONAL OVERVIEW

Network evolution During the first quarter, Uni-Select opened three greenfields, integrated four company-owned stores as part of the PIP and added one company-owned store through a business acquisition. In addition, to optimize its logistical processes, the Corporation has integrated three smaller distribution centres into two larger ones, permitting increased competitiveness and efficiency.

These new distribution centres were operational during the first quarter of 2019.

Performance Improvement Plan

In January 2019, the Board of Directors and Management initiated the development of a broad performance improvement and rightsizing plan for the FinishMaster U.S. segment with the objective of realigning its operations to address changing market conditions, including ongoing consolidation by national accounts and pricing pressures.

This plan, which is expected to generate additional annualized costs savings of $10.0 million by the end of 2019, through the consolidation of company-owned stores (approximately $5.0 million), optimization (approximately $4.5 million) and spending reductions (approximately $0.5 million). The company-owned stores to be integrated are expected to produce marginal sales erosion since the strategy is to transfer sales activities to nearby locations, optimizing the logistical processes and costs efficiency.

The 25/20 Plan and the FinishMaster U.S. segment performance improvement and rightsizing plan combined together are now referred to as the PIP. Through this plan, the Corporation expects to generate annualized cost savings of $35.0 million by the end of 2020, of which, $21.4 million has been realized as at March 31, 2019. The total cash cost of implementing the PIP is expected to be $13.5 million, mainly for severance, consulting fees and moving costs.

The Corporation is also expecting to write down certain assets for approximately $4.0 million, mainly for the FinishMaster U.S. segment. During the current quarter of 2019, the Corporation recognized restructuring and other charges totalling $6.5 million, of which, $2.7 million is non-cash for the write-down of assets.

During the quarter, the Corporation reduced its workforce and integrated four company-owned stores. In addition, to optimize its logistical processes, the Corporation has integrated three smaller distribution centres into two larger ones, permitting increased competitiveness and efficiency. These new distribution centres were operational during the first quarter of 2019.

FIRST QUARTER RESULTS

Consolidated sales of $420.0 million for the first quarter included a foreign currency conversion impact amounting to $12.6 million or 3.0% compared to the same quarter last year. Consolidated organic growth for the quarter was $10.5 million or 2.5%.

The Canadian Automotive Group and the FinishMaster U.S. segments generated organic growth of 4.9% and 3.1% respectively, while The Parts Alliance U.K. segment had a softer quarter and reported a negative organic growth of 1.0%.

The Corporation generated an adjusted EBT and adjusted EBT margin of $7.1 million and 1.7%, respectively, compared to $14.2 million and 3.4% in 2018. This variance is mainly attributable to pricing pressure and evolving customer mix in the FinishMaster U.S. segment as well as to a reduced sales volume in The Parts Alliance U.K. segment, impacting buying conditions. Furthermore, the opening of greenfields is affecting the margin until reaching the optimized operational level.

These elements were partially compensated by timing of volume rebates from the Canadian Automotive Group segment, by overall savings realized from the PIP and by a superior fixed costs absorption in relation to consolidated organic growth.

The net earnings (loss) and adjusted earnings were respectively $(1.3) million and $5.1 million, compared to $10.4 million and $12.1 million in 2018. Adjusted earnings decreased by $7.1 million compared to the same quarter last year, due to a lower adjusted EBT and a change in the proposed U.S. tax regulations announced in December 2018.

Segmented First Quarter Results

The FinishMaster U.S. segment is reporting organic growth for a fourth consecutive quarter. Sales are up 1.6% from the same quarter in 2018, resulting from organic growth of 3.1%, partially offset by the impact of a different number of billing days.

This performance is attributable to the sales team efforts on driving growth by developing business volume and the on-boarding of new customer accounts. EBT was $3.7 million, compared to $15.4 million for the corresponding quarter of 2018. Adjusted EBT was $9.0 million or 4.4% of sales compared to $15.4 million or 7.7% of sales for the same quarter last year, a decrease of 330 basis points attributable to the pressure on the gross margin from the combination of an evolving customer mix and pricing pressure.

These elements were partially compensated by an improved absorption of fixed costs related to organic growth and by the benefits from the PIP.

Sales for the Canadian Automotive Group segment were $113.1 million, compared to $110.7 million in 2018, an increase of 2.2%, fuelled by an organic growth of 4.9% and by the contribution of business acquisitions, exceeding the effect of the Canadian dollar on its conversion to the US dollar.

The organic growth is partially attributable to timing in sales of paint body and equipment. EBT for this segment was $2.7 million compared to $0.2 million in 2018. The adjusted EBT was $3.5 million or 3.1% of sales, compared to $0.2 million or 0.2% of sales, an impact of 290 basis points strengthened by timing of volume rebates and by the performance of the company-owned stores, stimulated by the optimization initiatives recently implemented.

The Parts Alliance U.K. segment recorded sales of $102.4 million, a decrease of 0.6% compared to the same quarter last year, once adjusted for the effect of the British pound on its conversion to the US dollar.

This variance is attributable to a negative organic growth of 1.0%, impacted by lower sales of electrical products as a result of a mild winter in contrast to a hard winter last year, by the loss of a sales contract in the last quarter of 2018 as well as by the uncertainty of the Brexit, offsetting the contribution of business acquisitions. EBT and adjusted EBT for this segment was $2.3 million or 2.3% of sales, compared to $7.3 million or 6.6% of sales for the same quarter last year, a decreased of 430 basis points, mainly due to a lower volume of sales, which impacted the buying conditions and reduced the fixed costs absorption.

In addition, the adjusted EBT margin is impacted by the recent investments in greenfields and the opening of a distribution centre. Greenfields are expected to affect the EBT margin until reaching the optimized operational level, which may vary between 12 and 24 months.

DIVIDENDS

On May 2, 2019, the Uni-Select Board of Directors declared a quarterly dividend of C$0.0925 per share payable on July 16, 2019 to shareholders of record as at June 30, 2019. This dividend is an eligible dividend for income tax purposes.

OUTLOOK

The information included within this section contains guidance for Uni-Select in 2019, excluding any potential impact from the review of strategic alternatives. The Corporation recognizes that certain factors and uncertainties have impacted results for 2018 and will continue to provide a prudent view of 2019 guidance.

Uni-Select guidance maintained, adjusted for IFRS 16

• Consolidated organic sales growth 1.25% – 3.25%
• Consolidated adjusted EBITDA margin 7.5% – 8.5%
• Consolidated adjusted EBT margin 2.5% – 3.5%
• Tax rate 23.0% – 25.0%

The above-mentioned information is related to the 2019 financial year and may differ from quarter to quarter due to seasonality.

As well, Uni-Select anticipates investments between $25.0 million and $30.0 million in 2019 on right-of-use assets relative for vehicle fleet, hardware equipment, software and others.

These figures exclude additions from right-of-use assets for real estate. For 2019, on a consolidated basis, we anticipate revenues to increase modestly and profitability to decrease, mainly due to the FinishMaster U.S. segment.

More specifically, the overall results from the Canadian Automotive Group segment are expected to be more favourable when compared to last year, considering the planned integration of some company-owned stores and distribution centres as well as the contribution of the 18 company-owned stores from the acquisition in November 2018 of Autochoice Parts and Paints Limited.

For The Parts Alliance U.K. with the current uncertainty surrounding Brexit, we now expect 2019 to remain somewhat under pressure for the remainder of the year. We will, however, continue to optimize our network and selectively open greenfield company-owned stores to foster our presence in the UK market. As for the FinishMaster U.S. segment, 2019 is expected to remain a challenging year since the benefits related to the PIP should start to materialize in the second part of the year. Our guidance for 2019 takes these factors and uncertainties into consideration.

CONFERENCE CALL REPLAY

Uni-Select hosted a conference call to discuss its first quarter results for 2019 on May 2, 2019, at 8:00 AM Eastern. A recording of the conference call will be available from 11:00 AM Eastern on May 2, 2019, until 11:59 PM Eastern on June 2, 2019. To access the replay, dial 1 855 859-2056 followed by 5476329. A webcast of the quarterly results conference call is also be accessible through the “Investors” section at uniselect.com where a replay will also be archived.