Uni-Select Inc.
TSX : UNS

Uni-Select Inc.

July 30, 2014 11:24 ET

Uni-Select Announces Improved Q2 2014 Financial Results

- $479 million in sales (up 0.5% or 2.9% organically)

- $30 million in EBITDA ($31 million in adjusted EBITDA, up 7%)

- $0.73 in EPS ($0.77 in adjusted EPS, up 7% and 15% when converted into Canadian dollars at C$0.84)

- Announcement of a change in the organizational structure, creation of a COO position

BOUCHERVILLE, QUÉBEC--(Marketwired - July 30, 2014) -

Unless otherwise indicated in this press release, all amounts are expressed in US dollars.

Uni-Select Inc. (TSX:UNS), a major automotive aftermarket product distributor with activities across North America, today reported continued sales, EBITDA and net earnings growth, along with improved profitability for the second quarter ended June 30, 2014.

Overall sales grew by 0.5% and 2.9% organically. EBITDA and net earnings came in well above last year as the second quarter of 2013 was impacted by restructuring charges of $35.2 million related to the implementation of the Action Plan. Notwithstanding those charges, adjusted EBITDA grew by 6.8% this quarter, resulting in an adjusted EBITDA margin of 6.5%, up 5% over the same period last year. Adjusted earnings also grew 6% over the corresponding period last year.

"While the sales growth recorded in the second quarter was softer than expected, we are pleased with our overall performance and more particularly with our continued ability to lower costs and improve profitability, which are key drivers of our long-term growth plans. The implementation of the Action Plan remains on schedule and continues to yield important benefits that will make Uni-Select an even more competitive and sought-after distributor across North America", said Richard G. Roy, President and Chief Executive Officer of Uni-Select.

"Looking ahead to the second half of Fiscal 2014, our primary focus will be on accelerating organic sales growth while maintaining or improving our momentum across all key performance metrics, including sales programs, supply chain, customer service and banner programs. We will also continue to focus on initiatives that will enable us to remain the partner of choice for independent wholesalers and strengthen our leadership position in the automotive aftermarket product distribution sector," added Mr. Roy.

"Also, I am pleased to announce that the Board of Directors approved a change in our organizational structure with the creation of a new position of Chief Operating Officer who will report to me. We will be able to introduce the new COO shortly," said Mr. Roy.

(In thousands of US dollars, except per share amounts) SECOND QUARTER SIX-MONTH PERIOD
2014 2013 2014 2013
Sales 478,690 476,176 891,767 897,996
EBITDA 29,681 (7,394 ) 48,283 8,534
Adjusted EBITDA 31,306 29,320 52,142 46,631
Adjusted EBITDA margin 6.5 % 6.2 % 5.8 % 5.2 %
Restructuring charges and others - 35,180 - 35,180
Net earnings (loss) 15,532 (9,295 ) 23,920 (3,151 )
Adjusted earnings 16,470 15,561 26,193 22,556
Earnings (loss) per share 0.73 (0.43 ) 1.12 (0.15 )
Adjusted earnings per share 0.77 0.72 1.23 1.05

SECOND QUARTER RESULTS

(All percentage increases and decreases represent year-over-year changes for the second quarter of 2014 compared to the second quarter of 2013, unless otherwise noted.)

Uni-Select recorded an increase in overall sales of 0.5% to $479 million in the second quarter of 2014, resulting from organic growth of 2.9% and revenue derived from recent acquisitions which offset sales lost from store closures, the impact of the declining Canadian dollar and one less billing day in Canada. Sales of the US operations reached $343 million, up 1.1% over last year, with an organic growth 1.3%. Canadian operations delivered $136 million in sales in the same period, a slight decrease over 2013 mainly due to the impact of a lower Canadian dollar. Canadian organic growth reached 6.8%, resulting from successful sales initiatives and the recruitment of new customers.

EBITDA for the second quarter reached $30 million, compared to negative $7 million last year. Results for the second quarter of 2013 included $35.2 million in restructuring charges and expenses related to the development and deployment of the enterprise resource planning system. Adjusted EBITDA grew by 6.8% while the adjusted EBITDA margin increased by 5% to 6.5% compared to 6.2% last year. The increase was mainly due to Action Plan related savings of $3.8 million. Organic growth improved fixed cost leverage whereas tighter control on expenses also contributed to the increase. These positive items were partially offset by unfavorable distribution channel and customer mix.

SIX-MONTH PERIOD RESULTS

(All percentage increases and decreases represent year-over-year changes for the six-month period of 2014 compared to the six-month period of 2013, unless otherwise noted.)

Uni-Select recorded a decrease in overall sales of 0.7% to $892 million for the first six-month period of 2014. Sales lost from store closures, combined with the declining Canadian dollar exceeded the 2.3% organic growth and the impact of recent acquisitions.

Sales of the US operations reached $654 million, down 0.2% compared to last year, with an organic growth 1.1%. Canadian operations delivered $238 million in sales in the same period, a 2.0% decrease over 2013. Canadian organic growth reached 5.8%.

EBITDA reached $48 million, compared to $9 million last year. 2013 results were impacted by the items previously outlined. Adjusted EBITDA grew by 11.8% while the adjusted EBITDA margin increased by 11.5% to 5.8% compared to 5.2% last year. The increase was mainly attributable to the same factors as those mentioned in the quarter. Savings derived from the Action Plan accounted for $9.4 million and were partially offset by higher utilities caused by weather conditions across North America during the first quarter.

Since the beginning of the year, the Corporation generated $54 million in cash from operating activities, of which $38 million were used to reduce indebtedness. As of June 30, 2014, the Corporation's outstanding net debt stood at $260 million, down 6.5% from December 31, 2013.

As mentioned above our results are presented in US dollars. Once converted to Canadian dollars, adjusted earnings per share totals $0.84 for the 2014 second quarter, up 15% compared to $0.73 in 2013. For the six-month period ended June 30, adjusted earnings per share converted to Canadian dollars amounts to $1.35 compared to $1.07 in 2013, up 26%.

DIVIDEND

Uni-Select's Board of Directors declared a dividend of C$0.15 per share payable on October 21, 2014 to shareholders of record on September 30, 2014. This dividend is an eligible dividend for tax purposes.

CONFERENCE CALL

Uni-Select will host a conference call to discuss its 2014 second quarter results on July 30, 2014 at 3 PM (EDT). To join the conference, dial 1 866 696-5910 followed by 4101473.

A replay of the conference call will be available until 11:59 PM on August 6, 2014. To access the replay, dial 1 800 408-3053 followed by 8003408.

ABOUT UNI-SELECT

Founded in 1968, Uni-Select is a major distributor of replacement parts, equipment, tools, accessories, paint and related products for motor vehicles in North America. Leader in the Canadian industry, Uni-Select is the 5th largest distributor and the leading independent distributor of automotive paint and related products in North America. With its 5,500 employees, Uni-Select efficiently services a wide network of independent installers and wholesalers, including over 6,600 which operate under one of its banner programs in North America. Uni-Select is headquartered in Boucherville, QC and its shares are traded on the Toronto Stock Exchange (TSX) under the symbol UNS.

FORWARD-LOOKING INFORMATION

The information provided in this press release includes some forward-looking information, which includes certain risks and uncertainties, including risks relating to the implementation of the Action Plan resulting from the strategic review process, which may cause the final results to be significantly different from those listed or implied within this news release. For example, the foregoing estimates of cost and inventory reductions may be considered forward-looking information and are based upon certain key assumptions, including (i) the closure, sale or consolidation of the number of stores and distribution centres, and related reduction of headcounts, as planned and within the timeframe contemplated by the Action Plan and (ii) the timely completion of all other components of the Action Plan as planned. Uni-Select cautions that assumptions used to prepare the foregoing estimates, although reasonable at the time they were made, may prove to be incorrect or inaccurate. The foregoing factors could therefore cause the actual cost and inventory reductions to be derived under the Action Plan to differ materially from the amounts set forth in the foregoing estimates. For additional information with respect to risks and uncertainties, refer to the Annual Report filed by Uni-Select with the Canadian securities commissions. The forward-looking information contained herein is made as of the date of this press release, and Uni-Select does not undertake to publicly update such forward-looking information to reflect new information, subsequent or otherwise, unless required by applicable securities laws.

ADDITIONAL INFORMATION

The Interim Management's Discussion and Analysis, the unaudited interim financial statements and the accompanying notes for the Second Quarter of 2014 are available in the "Investors" section on the Corporation's website at uniselect.com as well as on SEDAR at sedar.com. The Corporation's Annual Report may also be found on these websites as well as other information related to Uni-Select, including its Annual Information Form.

Action Plan Financial Executive Summary

Internal strategic and operational plan (Action Plan) announced on July 11, 2013

Announced on July 11, 2013 Realized
(in millions of US$) 2013 2014 2015 TOTAL 2013 1st quarter 2014 2nd quarter 2014 Since implementation (1)
(June 30, 2014)
Sales erosion $ 20.0 $ 45.0 $ 5.0 $ 70.0 $ 13.1 $ 11.7 $ 10.9 $ 35.7
Cost savings $ 10.0 $ 15.0 $ 5.0 $ 30.0 $ 13.0 $ 5.6 $ 3.8 $ 22.4
Restructuring charges and others
Recorded 36.0 - - 36.0 35.2 - - 35.2
As incurred 4.0 5.0 - 9.0 4.1 1.8 1.7 7.6
Inventory reduction $ 8.0 $ 22.0 $ 10.0 $ 40.0 $ 4.2 $ 9.0 $ 5.4 $ 18.6
Capital expenditures $ 7.0 $ 9.0 - $ 16.0 $ 2.4 - $ 0.2 $ 2.6

(1) 13-month period

NON-IRFS FINANCIAL MEASURES

The information included in this press release contains certain measures that are consistent with IFRS. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore, unlikely to be comparable to similar measures presented by other entities.

(1) Organic growth - This measure consists of quantifying the increase in pro forma consolidated sales between two given periods, excluding the impact of acquisitions, sales and disposals of stores, exchange-rate fluctuations and when necessary, the variance in the number of billing days. Determining the rate of organic growth, based on findings that Management regards as reasonable, may differ from the actual rate of organic growth.

(2) EBITDA - This measure represents net earnings excluding finance costs, depreciation and amortization, equity income and income taxes. This measure is a financial indicator of a corporation's ability to service and incur debt. It should not be considered by an investor as an alternative to sales or net earnings, as an indicator of operating performance or cash flows, or as a measure of liquidity, but as additional information.

(3) Adjusted EBITDA margin - The adjusted EBITDA margin is a percentage corresponding to the ratio of adjusted EBITDA to sales.

(4) Adjusted EBITDA, adjusted earnings and adjusted earnings per share - Management uses adjusted EBITDA, adjusted earnings and adjusted earnings per share to assess EBITDA, net earnings and net earnings per share from operating activities, excluding certain adjustments, net of income taxes (for adjusted earnings and adjusted earnings per share), which may affect the comparability of the Corporation's financial results. Management considers that these measures are more representative of the Corporation's operational performance and more appropriate in providing additional information. These adjustments include, among other things, the non-capitalizable costs related to the development and implementation of the ERP system, costs related to the closure and disposal of stores, as well as restructuring charges and others.

(5) Free cash flow - This measure corresponds to the cash flow from operating activities according to the statement of cash flows adjusted for the following items: changes in working capital items, equity income and acquisitions of property and equipment. The free cash flow excludes certain variations in working capital items (such as trade and other receivables, inventory and trade and other payables) and other funds generated and used according to the statement of cash flows. Therefore, it should not be considered as an alternative to the Consolidated Statement of Cash Flows, or as a measure of liquidity, but as additional information.

(6) Total net debt - This measure consists of long-term debt, including the portion due within a year (as shown in note 12 to the Interim Consolidated Financial Statements) net of cash. Debentures are excluded from the long term debt.

Reconciliation of non-IFRS measures

The following table presents a reconciliation of EBITDA and adjusted EBITDA.

Second quarter Six-month period
2014 2013 % 2014 2013 %
Net earnings 15,532 (9,295 ) 23,920 (3,151 )
Adjustments:
Income tax expense (recovery) 3,968 (7,950 ) 4,047 (9,221 )
Equity income (795 ) (949 ) (1,296 ) (1,507 )
Depreciation and amortization 7,751 6,771 15,347 14,315
Finance costs, net 3,225 4,029 6,265 8,098
EBITDA 29,681 (7,394 ) 48,283 8,534
Restructuring charges and others - 35,180 - 35,180
Expenses related to the development and deployment of the enterprise resource planning system (ERP) (1) - 829 414 1,790
Expenses related to the network optimization and to the closure and disposal of stores (2) 1,625 705 3,445 1,127
Adjusted EBITDA 31,306 29,320 6.8 52,142 46,631 11.8
Adjusted EBITDA Margin 6.5 % 6.2 % 5.8 % 5.2 %
(1) Mainly include costs related to data conversion, employee training and deployment to various sites. Last deployment was made in December 2013.
(2) Primarily consist of handling and freight expenses required to relocate inventory.

The following table presents a reconciliation of adjusted earnings and adjusted earnings per share.

Second quarter Six-month period
2014 2013 % 2014 2013 %
Net earnings (loss) attributable to shareholders, as reported 15,532 (9,295 ) 23,920 (3,151 )
Restructuring charges and others, net of taxes - 23,926 - 23,926
Expenses related to the development and deployment of the enterprise resource planning system (ERP), net of taxes - 511 247 1,107
Expenses related to the network optimization and to the closure and disposal of stores, net of taxes 938 419 2,026 674
Adjusted earnings 16,470 15,561 5.8 26,193 22,556 16.1
Net earnings (loss) per share attributable to shareholders, as reported 0.73 (0.43 ) 1.12 (0.15 )
Restructuring charges and others, net of taxes - 1.11 - 1.11
Expenses related to the development and deployment of the enterprise resource planning system (ERP), net of taxes - 0.02 0.01 0.05
Expenses related to the network optimization and to the closure and disposal of stores, net of taxes 0.04 0.02 0.10 0.03
Adjusted earnings per share 0.77 0.72 6.9 1.23 1.05 17.1

The effect of the declining Canadian dollar was $0.02 on earnings per share for the quarter and $0.03 for the six-month period.

UNI-SELECT INC.

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(In thousands of US dollars, except per share amounts, unaudited)Three-month periods ended June 30, Six-month periods ended June 30,
2014 2013 2014 2013
Sales478,690 476,176 891,767 897,996
Purchases, net of changes in inventories338,174 333,910 626,610 625,679
Gross margin140,516 142,266 265,157 272,317
Employee benefits73,347 74,645 142,102 149,082
Other operating expenses37,488 39,835 74,772 79,521
Restructuring charges and others- 35,180 - 35,180
Earnings (loss) before finance costs, depreciation and amortization, equity income and income taxes29,681 (7,394)48,283 8,534
Finance costs, net3,225 4,029 6,265 8,098
Depreciation and amortization7,751 6,771 15,347 14,315
Earnings (loss) before equity income and income taxes18,705 (18,194)26,671 (13,879)
Equity income795 949 1,296 1,507
Earnings (loss) before income taxes19,500 (17,245)27,967 (12,372)
Income tax expense (recovery)
Current5,202 5,456 8,203 4,756
Deferred(1,234)(13,406)(4,156)(13,977)
3,968 (7,950)4,047 (9,221)
Net earnings (loss) attributable to shareholders15,532 (9,295)23,920 (3,151)
Earnings (loss) per share basic0.73 (0.43)1.12 (0.15)
Earnings (loss) per share diluted0.72 (0.43)1.12 (0.15)
Weighted average number of common shares outstanding basic (in thousands)21,264 21,465 21,264 21,482
Weighted average number of common shares outstanding diluted (in thousands)22,573 21,465 22,566 21,482

UNI-SELECT INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands of US dollars, unaudited)Three-month periods ended June 30, Six-month periods
ended June 30,
2014 2013 2014 2013
Net earnings (loss)15,532 (9,295)23,920 (3,151)
Other comprehensive income (loss)
Items that will subsequently be reclassified to net earnings (loss):
Effective portion of changes in the fair value of cash flow hedges (net of income tax of $35 and $59 for the three and six-month periods ($60 and $47 in 2013))(85)(162)(158)129
Net change in the fair value of derivative financial instruments designated as cash flow hedges transferred to earnings (net of income tax of $48 and $88 for the three and six-month periods ($97 and $195 in 2013))116 215 238 481
Unrealized exchange gains (losses) on the translation of financial statements to the presentation currency(5,307)6,501 (37)11,320
Unrealized exchange gains (losses) on the translation of debt designated as a hedge of net investments in foreign operations9,497 (9,089)300 (15,862)
4,221 (2,535)343 (3,932)
Items that will not subsequently be reclassified to net earnings (loss):
Remeasurements of long-term employee benefit obligations (net of income tax of $529 and $1,193 for the three and six-month periods ($794 and $1,160 in 2013))(829)2,157 (3,222)3,154
Total other comprehensive income (loss)3,392 (378)(2,879)(778)
Comprehensive income (loss) attributable to shareholders18,924 (9,673)21,041 (3,929)

UNI-SELECT INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Attributable to shareholders
(In thousands of US dollars, unaudited)Share
capital
Con-
tributed
surplus
Equity
component
of the
convertible
debentures
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
equity
Balance, December 31, 201288,563 3921,687384,902 8,661 484,205
Net loss- --(3,151)- (3,151)
Other comprehensive income (loss)- --3,154 (3,932)(778)
Comprehensive income (loss)- --3 (3,932)(3,929)
Contributions by and distributions to shareholders:
Share repurchases(397)--(1,565)- (1,962)
Dividends- --(5,429)- (5,429)
Stock-based compensation- 835-- - 835
(397)835-(6,994)- (6,556)
Balance, June 30, 201388,166 1,2271,687377,911 4,729 473,720
Balance, December 31, 201387,271 1,3321,687394,716 3,749 488,755
Net earnings- --23,920 - 23,920
Other comprehensive income (loss)- --(3,222)343 (2,879)
Comprehensive income- --20,698 343 21,041
Contributions by and distributions to shareholders:
Share repurchases(25)--(123)- (148)
Dividends- --(5,434)- (5,434)
Stock-based compensation- 674-- - 674
(25)674-(5,557)- (4,908)
Balance, June 30, 201487,246 2,0061,687409,857 4,092 504,888

UNI-SELECT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US dollars, unaudited)Three-month periods ended June 30, Six-month periods
ended June 30,
2014 2013 2014 2013
OPERATING ACTIVITIES
Net earnings (loss)15,532 (9,295)23,920 (3,151)
Non-cash items:
Finance costs, net3,225 4,029 6,265 8,098
Depreciation and amortization7,751 6,771 15,347 14,315
Restructuring charges and others- 35,180 - 35,180
Income tax expense (recovery)3,968 (7,950)4,047 (9,221)
Other non-cash items1,490 (618)5,291 (147)
Changes in working capital items20,793 12,167 12,290 11,425
Interest paid(2,164)(2,805)(5,287)(7,732)
Income taxes recovered (paid)(3,672)1,919 (7,708)1,187
Cash flows from operating activities46,923 39,398 54,165 49,954
INVESTING ACTIVITIES
Net business acquisitions2,209 (448)(17,577)(1,401)
Balances of purchase price198 (136)36 (252)
Advances to merchant members(6,728)(3,775)(10,496)(6,883)
Receipts on investments and advances to merchant members1,944 1,781 3,994 4,257
Acquisitions of property and equipment(1,960)(2,056)(3,464)(6,508)
Disposals of property and equipment221 307 361 483
Acquisitions and development of intangible assets(3,242)(3,281)(4,243)(4,009)
Cash flows used in investing activities(7,358)(7,608)(31,389)(14,313)
FINANCING ACTIVITIES
Increase in long-term debt11,621 4,752 44,034 201,691
Repayment of long-term debt(48,659)(33,886)(61,714)(229,499)
Merchant members' deposits in the guarantee fund(21)36 95 (467)
Share repurchases(148)- (148)(1,962)
Dividends paid(2,369)(2,704)(5,044)(5,443)
Cash flows used in financing activities(39,576)(31,802)(22,777)(35,680)
Effects of fluctuations in exchange rates on cash2 (3)- (5)
Net decrease in cash(9)(15)(1) (44)
Cash, beginning of period65 93 57 122
Cash, end of period56 78 56 78

UNI-SELECT INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(In thousands of US dollars, unaudited)June 30,Dec. 31,
20142013
ASSETS
Current assets:
Cash5657
Trade and other receivables256,494220,942
Income taxes receivable18,06016,883
Inventory504,760532,045
Prepaid expenses12,95111,417
Total current assets792,321781,344
Equity investments, other investments and advances to merchant members24,83436,855
Property and equipment52,33649,494
Intangible assets134,303140,598
Goodwill195,906184,449
Deferred tax assets10,75213,151
TOTAL ASSETS1,210,4521,205,891
LIABILITIES
Current liabilities:
Trade and other payables352,534341,429
Provision for restructuring charges and others10,19615,185
Dividends payable2,9922,598
Current portion of long-term debt and merchant members' deposits in the guarantee fund5,0124,667
Total current liabilities370,734363,879
Long-term employee benefit obligations24,65119,561
Long-term debt254,736273,165
Convertible debentures47,16946,829
Merchant members' deposits in the guarantee fund7,0636,988
Derivative financial instruments781890
Deferred tax liabilities4305,824
TOTAL LIABILITIES705,564717,136
EQUITY
Share capital87,24687,271
Contributed surplus2,0061,332
Equity component of the convertible debentures1,6871,687
Retained earnings409,857394,716
Accumulated other comprehensive income4,0923,749
TOTAL EQUITY504,888488,755
TOTAL LIABILITIES AND EQUITY1,210,4521,205,891

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