Uni-Select Inc. reported its financial results for the fourth quarter and the year ended December 31, 2019, with Canadian results figuring strongly as the Performance Improvement Plan impact takes hold.
“2019 was a transformational year and we are on the right track. We are pleased with the outcome of the PIP realizing $31.9 million in annualized savings in 2019 and reaching a total of $50.6 million in annualized savings at the end of 2019. The transformational steps undertaken over the past years have been necessary to stabilize the three business segments, enabling the corporation to initiate a culture of continuous improvement in its operations and to capitalize on growth opportunities,” said Brent Windom, President and Chief Executive Officer, Uni-Select Inc. and President and Chief Operating Officer, Canadian Automotive Group.
Uni-Select Inc. Reports 2019 Fourth Quarter and Full Year Highlights and Financial Results:
- Sales down 1.5% in constant currency to $412.6 million in Q4 and up 1.1% in constant currency to $1,739.6 million for 2019, driven by the organic growth(1) from the Canadian Automotive Group of 2.4%;
- EBT(1) of $(51.5) million for Q4 and $(17.4) million for 2019; adjusted EBT(1) of $5.4 million for Q4 and of $40.7 million for 2019;
- EPS of $(1.17) for Q4 and of $(0.47) for 2019, adjusted EPS(1) of $0.11 for Q4 and $0.73 for 2019;
- $8.2 million and $31.9 million in annualized savings realized respectively during the fourth quarter and 2019 in relation to the Performance Improvement Plan (“PIP”).
Unless otherwise indicated all amounts are expressed in thousands of US dollars, except per share amounts and percentages.
UPDATE ON THE PERFORMANCE IMPROVEMENT PLAN
During 2019, the Corporation realized annualized savings of $31.9 million, bringing the total annualized savings to $50.6 million since the inception of the plan in 2017, exceeding the targeted outcome. During 2019, the Corporation streamlined its workforce and integrated 41 company-owned stores. In addition, to optimize its logistical processes, the Corporation 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. These initiatives resulted in the recognition of restructuring and other charges totalling $17.5 million for the year, of which $5.9 million was non-cash relating to the write-down of assets.
Consolidated sales of $412.6 million for the fourth quarter decreased by 1.6% compared to the same quarter last year, reflecting soft markets in all three segments and resulting in a negative consolidated organic growth of 1.1% for the quarter. Sales were also impacted by the erosion of sales arising from the integration of company-owned stores, which represented 0.8% of the decline. A total of 14 company-owned stores were integrated during the fourth quarter, bringing the total number of store integrations to 41 at December 31, 2019.
Uni-Select generated a negative EBT of $51.5 million for the quarter, which was impacted by special items for the impairment loss on goodwill of $45.0 million related to its operations in the United Kingdom, restructuring and other charges related to the PIP of $5.0 million, as well as charges for the review of strategic alternatives. Once adjusted, EBT and EBT margin were $5.4 million and 1.3% respectively, compared to $7.1 million and 1.7% in 2018. The decrease of 40 basis points is mainly attributable to the contraction of the gross margin resulting from an evolving customer mix in the FinishMaster U.S. segment as well as a lower volume of sales recorded during the quarter impacting buying conditions and fixed costs absorption. The recent opening of greenfields in the U.K. also affected the adjusted EBT margin. However, overall savings realized from the PIP during the quarter, as well as lower professional fees, partially compensated for these unfavourable items.
The benefits from the PIP were more significant during the quarter, reducing the variance of the adjusted EBT margin when compared to last year and previous quarters.
Net loss and adjusted earnings were respectively $(49.4) million and $4.6 million, compared to $(2.4) million and $5.4 million in 2018. Adjusted earnings decreased by $0.8 million compared to the same quarter last year, mainly due to a lower adjusted EBT and a different income tax rate.
Uni-Select generated free cash flows(1) of $24.1 million for the quarter, compared to $7.8 million for the same quarter last year, an increase of $16.3 million, mainly explained by a lower level of corporate tax installments and investments in capital expenditures during the current quarter.
Segmented Fourth Quarter Results
The FinishMaster U.S. segment reported sales of $198.3 million, a decrease of 2.5% compared to 2018, affected by the erosion of sales resulting from the integration of company-owned stores and a negative organic growth of 1.2%. The segment experienced a softer quarter, facing an aggressive competitive landscape and softness in the refinish market.
This segment reported an EBT of $7.4 million, and once adjusted for special items related to the PIP, EBT was $9.3 million, an improvement of 8.8% compared to 2018. The adjusted EBT margin increased by 50 basis points from 4.2% in 2018 to 4.7% for the current quarter, benefitting from significant savings realized from the PIP, as well as from lower professional fees and bad debt expenses, more than offsetting the gross margin unfavourable impact resulting from the evolving customer mix. The FinishMaster U.S. segment showed, for the first time in 2019, an improvement in EBT compared to 2018, reaping the benefits of the execution of the PIP.
Canadian Automotive Group
Sales for the Uni-Select Canadian Automotive Group segment were $122.3 million, a similar level than the corresponding quarter of 2018, with the contribution of business acquisitions and the promotion of private brand sales compensating for the negative organic growth of 1.4% due to timing differences in sales of paint, body and equipment. Special items recorded in relation to the PIP negatively impacted profitability. Once adjusted for these special items, EBT and EBT margin were respectively $3.6 million and 3.0%, compared to $6.5 million and 5.3% in 2018. The decline of the adjusted EBT margin, compared to the same quarter in 2018, is due to a higher level of annual performance rebates and reversal of short-term and long-term compensation that were recorded last year. However, the current quarter benefitted from savings related to the PIP.
The Parts Alliance U.K.
Sales for The Parts Alliance U.K. segment were $92.0 million. Once adjusted for the effect of the British pound on its conversion to the US dollar, sales decreased by 1.3% compared to the same quarter last year. This performance is mainly attributable to an erosion of sales of 0.8% resulting from the integration of six company-owned stores during the quarter, as well as to a challenging macroeconomic climate and a $0.1 million, EBT for this segment was $0.3 million or 0.3% of sales, compared to $1.2 million or 1.2% of sales for the same quarter last year. The variance is mainly due to a lower volume of sales, reducing the absorption of fixed costs. In addition, the adjusted EBT margin was affected by recent investments in the expansion and optimization of the network, which are expected to reach their optimal productivity levels within 12 to 24 months after their openings. The accretive initiatives, as part of the PIP, optimizing the network of company-owned stores and streamlining the organizational structure, are providing more flexibility to face softness in the market.
TWELVE-MONTH PERIOD RESULTS
Uni-Select consolidated sales were $1,739.6 million for the twelve-month period, representing an increase of 1.1% on a constant currency basis, when compared to the same period last year. This growth is principally attributable to the contribution of business acquisitions of 0.8% and organic growth of 0.5%. For the twelve-month period, the Canadian Automotive Group and the FinishMaster U.S. segments, respectively reported organic growth of 2.4% and 0.5%, offsetting the negative organic growth of 1.9% at The Parts Alliance U.K. segment.
Consolidated EBT of $(17.4) million for the twelve-month period of 2019 was impacted by special items for the impairment loss on goodwill of $45.0 million related to the U.K., a net gain on the disposal of the ProColor program of $18.8 million, restructuring and other charges related to the PIP of $17.5 million and charges related to the review of strategic alternatives of $9.8 million. Once adjusted, consolidated EBT and EBT margin were $40.7 million and 2.3% respectively, compared to $64.4 million and 3.7% in 2018. This variance is mainly explained by pricing pressure and evolving customer mix in the FinishMaster U.S. segment, the opening of greenfields in the U.K., as well as higher borrowing costs, in relation to the debt level. These elements were partially compensated by overall savings related to the PIP.
A net loss of $(19.8) million was recorded for the year 2019, affected by the special items mentioned above. Once adjusted, earnings were $30.8 million, compared to $51.5 million in 2018.
Uni-Select generated free cash flows of $105.7 million for the year, an increase of $25.8 million compared to last year, resulting from a lower level of corporate tax instalments, partially offset by larger payments of interest on long-term debt.
Segmented Twelve-Month Period Results
The FinishMaster U.S. segment reported sales of $830.8 million, similar to last year and reflecting organic growth of 0.5%, attributable to increased national business and price increases which offset the erosion of sales resulting from the integration of company-owned stores. Once adjusted for special items of $9.4 million related to the PIP, EBT and EBT margin were $43.3 million and 5.2%, compared to $57.8 million and 7.0% for the corresponding period of 2018. The decrease of the adjusted EBT margin is mainly related to the gross margin affected by an evolving customer mix and pricing pressure. These factors were partially compensated by savings realized from initiatives as part of the PIP and a lower bad debt expense, a direct effect of continuous collection efforts.
Canadian Automotive Group
The Uni-Select Canadian Automotive Group segment reported sales of $516.1 million, a growth of $24.5 million or 4.8% on a constant currency basis, compared to the same period in 2018, supported by organic growth of 2.4% and the contribution of business acquisitions of 2.2%. Organic growth is attributable to initiatives focused on customer service and additional volume from current growing customers. EBT for this segment was $39.2 million, compared to $16.5 million in 2018, benefitting, in particular, from the net gain on the disposal of the ProColor program amounting to $18.8 million. Excluding this net gain and other special items related to the PIP, EBT increased by 27.8% to $25.3 million for 2019, from $19.8 million in 2018. As well, the adjusted EBT margin increased by 100 basis points to 4.9% from 3.9% last year, benefitting from an improved performance of company-owned stores, stimulated by the optimization of initiatives recently implemented as part of the PIP, as well as additional volume of sales.
The Parts Alliance U.K.
Sales for The Parts Alliance U.K. segment were $392.7 million for the twelve-month period. Once adjusted for the effect of the British pound on its conversion to the US dollar, sales decreased by 1.6% compared to the same period last year. This variance is mainly attributable to a negative organic growth of 1.9%, affected by a challenging macroeconomic climate, a prolonged period of uncertainty surrounding Brexit and the loss of a sales contract, offsetting the contribution of business acquisitions. EBT for this segment was affected by special items recorded during the year in relation to the PIP. Excluding these special items, adjusted EBT was $3.1 million or 0.8% of sales, compared to $19.2 million or 4.6% of sales for the same period last year. The variance is mainly related to a lower volume of sales, impacting rebates and the absorption of fixed costs. In addition, the adjusted EBT margin was impacted by recent investments in the expansion and network optimization, which are expected to reach their optimal productivity levels within 12 to 24 months after their openings. These factors were partially compensated by savings realized from initiatives as part of the PIP.
On February 19, 2020, Uni-Select declared the first quarterly dividend of 2020 of C$0.0925 per share, payable on April 21, 2020, to shareholders of record as of March 31, 2020. This dividend is an eligible dividend for income tax purposes. During the year 2019, the Corporation paid dividends of C$0.37 per share or $11.9 million.
Uni-Select hosted a conference call to discuss its 2019 fourth-quarter results on February 19, 2020, at 8:00 AM Eastern.
A recording of the conference call will be available from 11:30 AM Eastern on February 19, 2020, until 11:59 PM Eastern on March 26, 2020. To access the replay, dial 1-855-859-2056 followed by 8894534. A replay of the live webcast of the quarterly results conference call will also be accessible through the “Investors” section of our website at uniselect.com