EDMONTON, April 20, 2020 /CNW/ - AutoCanada Inc.
("AutoCanada" or the "Company") (TSX:ACQ) announced measures taken
to enhance financial resilience in response to evolving market
conditions due to COVID-19. These measures are designed to
address immediate challenges, while reinforcing the balance sheet
given the pandemic is expected to continue for an unknown period of
time.
"We are taking proactive steps that will enable us to withstand
the downturn and emerge even stronger and nimbler, while
continuing to prioritize the health and safety of our people and
customers with stringent distancing and cleanliness protocols
across our operations," said Paul
Antony, Executive Chairman of AutoCanada. "We also
substantially strengthened the Company over the last four quarters
in all key areas, including our management team, operations,
revenue mix, and balance sheet. While we expected these
efforts to put us on offense in 2020 and we started the year
strong, they've become foundational in my confidence that we will
navigate the challenges posed by COVID-19 effectively. I am
also highly confident in our team, which includes a seasoned group
of industry executives who have navigated complex environments
before."
The following items are captured in this update to our
stakeholders:
- Amendment to our senior credit facility agreement;
- Suspension of our dividend;
- Overview of cost management and other actions in response to
COVID-19;
- Operational update including selected preliminary Q1 2020
results and revenue impacts to date in April
2020; and,
- Timing of our Q1 2020 results and Annual General Meeting.
Amendment to our Senior Credit Facility
The Company has amended its senior credit facility agreement to
provide additional covenant headroom through to the end of Q2 2021.
AutoCanada received covenant relief for our Total and Senior Net
Funded Debt to Bank EBITDA and Fixed Charge Coverage Ratios with
staged covenant thresholds through to Q2 2021. Effective
July 1, 2021, all covenant thresholds
revert to their prior levels.
In addition, the amendment provides for a suspension of
curtailment payments under the floorplan facility through the end
of June 2020 and an extension of
repayments in respect of export vehicles.
Mike Borys, Chief Financial
Officer of AutoCanada, added, "We entered this downturn on the
heels of a recently completed refinancing of our debentures and
renewal of our senior credit facility. Our balance sheet was at its
strongest position in recent history, with a net debt leverage of
2.6x at the end of 2019. With the strong support of our lending
syndicate, we are able to continue to operate through these
challenging times. Further, AutoCanada's access to our $175 million revolver provides the Company with
ample liquidity as required."
Suspension of our Dividend
In response to the effects COVID-19 is having on the business
and the industry, the Board of Directors of the Company decided to
suspend the quarterly dividend until further notice. We
believe that this is a prudent decision to strengthen the Company's
balance sheet until the full economic consequences of COVID-19 are
better understood. This temporary suspension of our dividend
represents approximately $11 million
in annualized cash savings. The Company intends to reinstate a
dividend in the future when a greater degree of visibility and
normalcy returns.
Overview of Cost Management and Other Actions
The Company has taken the following additional actions to manage
through the COVID-19 situation, with a focus on preserving cash and
maintaining financial flexibility throughout this period of
uncertainty.
Employee Layoffs
- The Company has laid off approximately 1,700, or 40% of
AutoCanada's workforce to date. Management anticipates positive
cash and Adjusted EBITDA impacts to approximate $1.5 million per week. This is an unfortunate
consequence of the sudden reduction in business activity and we
anticipate hiring rapidly as business conditions improve.
- In addition, the Company will realize the benefit of reduced
compensation expenses associated with our variable cost
structure.
Discretionary Vendor and Landlord Expenses
- The Company has deferred, reduced or eliminated most
discretionary and non-essential operations and administrative
spending. A large portion of these expenses are related to
advertising costs. In addition, management has been working with a
number of vendors and landlords to reduce costs through this period
and/or defer payments on goods, services and rent beyond the second
quarter of 2020. This work remains ongoing. Management anticipates
positive cash and Adjusted EBITDA impacts from these initiatives to
be in excess of $10 million in Q2
2020.
Capital Expenditures
- The Company has reduced its growth and maintenance capital
spending to a minimum and expects to incur no more than
$10 million in total capital spending
in the year. As a reference point, total annual capital
expenditures have averaged $28
million over the last two years.
Suspension of Dividend
- As indicated earlier, the Board has determined it appropriate
to suspend our dividend during this period of limited visibility.
This temporary suspension of our dividend represents approximately
$11 million in annualized cash
savings, and approximately $8 million
for the balance of 2020.
Non-Core Asset Portfolio
- Management will continue to work to liquidate its portfolio of
non-core assets, valued at $15
million as at the end of 2019. During the first quarter of
2020, proceeds of $1.1 million were
realized on the sale of one of these properties.
Government Programs and Subsidies
- The Company expects to avail itself of all applicable
government subsidy and deferral programs in both Canada and in the U.S. Management continues to
monitor policy and filing instruction detail to all such programs
and expects to begin to realize some benefit in Q2 2020.
Board, Executive and Employee Compensation
- The Company's Executive Chairman, Paul
Antony, has voluntarily accepted a 50% reduction in salary
for Q2 2020 and the Board of Directors has also voluntarily
accepted a 50% reduction to their fees for Q2 2020. In addition,
the Company's executive management team has voluntarily accepted a
25% reduction in their base salaries for Q2 2020.
- The Company has also deferred all salary increases until
further notice.
Actions Related to Hedging
- The Company will take a charge of $1.8
million to Adjusted EBITDA in Q1 2020 to eliminate all
forward contract exposure associated with its export / cross-border
business. This was done to mitigate further risk of currency
fluctuations impacting available cash, particularly during a period
of limited cross-border activity.
- The Company has successfully restructured nearly one-third of
its interest rate swap portfolio which was established in late 2018
and early 2019. Subject to further interest rate fluctuation, this
action is expected to drive cash savings to the Company of
approximately $1.6 million over the
next twelve months ($1.2 million in
fiscal 2020).
Operational Update and Selected Preliminary Q1 2020
Results
Selected preliminary results for the three months ended
March 31, 2020 ("Q1 2020") are
highlighted below1:
- Q1 2020 revenue of approximately $721
million, representing a decrease of 2% over the same period
in 2019;
- Total net indebtedness (total indebtedness less cash on hand
and exclusive of IFRS 16 lease liabilities) was approximately
$173 million at the end of the
quarter; and,
- An increase in AutoCanada's same store used-to-new vehicles
sold ratio to 1.09 in Q1 2020 from 0.72 in Q1 2019.
In the latter part of Q1 2020 and into the start of Q2 2020, the
unprecedented effects of the COVID-19 pandemic on the markets we
serve resulted in a steep decline in our revenue. For the first two
weeks of April 2020 in both
Canada and the U.S., new and used
unit sales are down approximately 60% and 45%, respectively, as
compared to the prior year. In Canada, parts, service and collision repair
revenues are down in aggregate by approximately 33% as compared to
the prior year; in the U.S., these same segments showed a
year-over-year decline of approximately 58%, reflecting the more
restrictive 'shelter in place' orders imposed by Illinois.
As previously disclosed, we continue to operate in accordance
with local government orders regarding the operation of
non-essential businesses due to COVID-19. As such, AutoCanada is
providing service operations and limited sales in New Brunswick, Ontario and Illinois, service operations only in
Quebec, and full operations in the
balance of Canada.
Across all our operations, AutoCanada will continue to safely
support customers with their vehicle servicing and purchasing
requirements, and customers are encouraged to contact their local
dealership as needed.
Since the outset of COVID-19, the Company has carefully followed
the most current direction of government and related health
agencies in our policies and procedures across our operations. To
that end, we continue to implement stringent operating practices to
ensure cleanliness and distancing and overall employee and customer
safety, work from home protocols wherever possible, halting all
non-essential travel, and following established guidelines in the
event an infected employee is identified.
Timing of our Q1 2020 Results and AGM
AutoCanada will rely on exemptions recently granted by Canadian
securities regulatory authorities to postpone the filing of our
financial report for the first quarter of 2020, the associated
MD&A and related filings for the first quarter of 2020, all of
which it anticipates filing on Wednesday,
June 3, 2020 after the close of markets. The additional time
allows management greater perspective on our balance of year
outlook when reporting Q1 2020 results. The Company will hold a
conference call and webcast to discuss Q1 2020 results on
Thursday, June 4, 2020 at
7:00 am Mountain Time (9:00am Eastern). AutoCanada will hold its
annual general meeting on Thursday, June
25, 2020. Details of the Q1 2020 webcast will be
provided in a separate press release and details of the annual
general meeting will be provided in our management information
circular.
AutoCanada's management and other insiders are currently subject
to a trading black out that reflects the principles set out in
Section 9 of National Policy 11-207 of the Canadian Securities
Administrators and will remain subject to such black out until
after the Q1 2020 results are filed.
Mr. Antony continued, "We are taking the necessary and proactive
steps during this challenging economic environment to emerge with a
stronger operating framework. As noted previously, we entered this
downturn with one of the Company's strongest balance sheets in
recent history, combined with affirmed and strong relationships
with our lenders. With the initiatives taken to date to strengthen
our business, we have ample liquidity to sustain our operations
through a prolonged COVID-19 situation. We will continue to respond
according to market conditions as they evolve.
We will remain actively engaged in managing the business through
these unprecedented times and will exercise cost discipline while
continuing to maximize value for our stakeholders."
1The Company has not yet completed its
financial closing process for Q1 2020, and the selected unaudited
results provided above are preliminary estimates. Actual results
may differ materially from these estimates due to final
adjustments, review by the Company's auditors and other
developments that may arise between now and the time the financial
results are finalized. These estimates are not a comprehensive
statement of the Company's financial results for Q1 2020 and should
not be viewed as a substitute for full financial statements
prepared in accordance with International Financial Reporting
Standards, and these estimates are not necessarily indicative of
the results to be achieved for Q1 2020.
The Company's unaudited financial statements for Q1 2020 will
not be available until June 3, 2020.
The preliminary results provided in this press release constitute
forward-looking statements within the meaning of applicable
securities laws, are based on a number of assumptions and are
subject to a number of risks and uncertainties. Please see the
section below entitled "Forward-Looking Statements".
The preliminary results have been prepared by, and are the
responsibility of, management of the Company. The Company's
independent registered public accounting firm,
PricewaterhouseCoopers LLP, has not reviewed the preliminary
results nor have they performed any procedures with respect to the
preliminary results. Neither PricewaterhouseCoopers LLP nor any
other independent accountants express an opinion or any other form
of assurance with respect to the preliminary results.
About AutoCanada
AutoCanada is a leading North American multi-location automobile
dealership group currently operating 63 franchised dealerships,
comprised of 26 brands, in eight provinces in Canada as well as a group in Illinois, USA. AutoCanada currently sells
Chrysler, Dodge, Jeep, Ram, FIAT, Alfa Romeo, Chevrolet, GMC,
Buick, Cadillac, Ford, Infiniti,
Nissan, Hyundai, Subaru, Audi, Volkswagen, Kia, Mazda,
Mercedes-Benz, BMW, MINI, Volvo, Toyota, Lincoln, and Honda branded vehicles. In 2019,
our dealerships sold approximately 71,000 vehicles and processed
approximately 900,000 service and collision repair orders in our
1,047 service bays generating revenue in excess of $3 billion. Additional information about
AutoCanada is available at the Company's website at www.autocan.ca
and at www.sedar.com.
Forward-Looking Statements
Certain statements contained in this press release are
forward-looking statements and information (collectively,
"forward-looking statements") within the meaning of the applicable
Canadian securities legislation. We hereby provide cautionary
statements identifying important factors that could cause our
actual results to differ materially from those projected in these
forward-looking statements. Any statements that express, or involve
discussions as to, expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always,
through the use of words or phrases such as "will likely result",
"are expected to", "will continue", "is anticipated", "projection",
"vision", "goals", "objective", "target", "schedules", "outlook",
"anticipate", "expect", "estimate", "could", "should", "plan",
"seek", "may", "intend", "likely", "will", "believe" and similar
expressions) are not historical facts and are forward looking. In
particular, this press release contains forward-looking statements
with respect to, among other things, the impacts of the COVID-19
pandemic on our operations, financial condition and liquidity, the
reinstatement of our dividend, the impacts of our efforts to
preserve cash and maintain financial flexibility, the availability
of government subsidy and deferral programs, the timing of our Q1
2020 results and annual general meeting and AutoCanada's financial
results for Q1 2020.
The forward-looking statements included in this press release
are not guarantees of future performance and should not be unduly
relied upon. Readers are cautioned that forward-looking statements
are based on current expectations, estimates and projections that,
by their nature, forward-looking statements involve a number of
known and unknown risks and uncertainties, which could cause actual
results to differ materially from those anticipated and described
in the forward-looking statements. These known and unknown risks
and uncertainties include, but are not limited to: the impact of
the COVID-19 pandemic on our operations, financial condition and
liquidity and the duration of such impacts; potential changes in
the regulatory and legislative environment; political uncertainty
and instability in North America
and internationally and changes in political leadership in
North America and elsewhere;
volatility in interest and tax rates; operating risks inherent in
the automotive retail industry; and changes in general economic
conditions including the capital and credit markets.
Forward-looking statements involve estimates and assumptions
and are subject to risks, uncertainties and other factors some of
which are beyond our control and difficult to predict. Accordingly,
actual results or outcomes may differ materially from those
expressed in the forward-looking statements. In particular, in
presenting its forward-looking statements, AutoCanada has made
assumptions respecting, among other things the impact of the
COVID-19 pandemic on our operations, financial condition and
liquidity and the duration of such impacts.
AutoCanada cautions that the foregoing list of assumptions,
risks and uncertainties is not exhaustive. The Company's Annual
Information Form and other documents filed with securities
regulatory authorities (accessible through the SEDAR website at
www.sedar.com) describe the risks, material assumptions and other
factors that could influence actual results and which are
incorporated herein by reference. The forward-looking statements
contained in this press release speak only as of the date hereof
and AutoCanada assumes no obligation to publicly update or revise
them to reflect new events or circumstances, except as may be
required pursuant to applicable securities laws.
SOURCE AutoCanada Inc.