Uni-Select Inc. reported its financial results for the second quarter ended June 30, 2017 on July 26.
“We are very pleased with the improved performance in our Canadian business on both sales and EBITDA. We are seeing strong performance from our Independent customers as well as our BUMPER TO BUMPER and FINISHMASTER corporate stores in all regions. Commercial customers represent more than 90% of our business, and our growth initiatives are positively impacting our performance. FinishMaster USA is highly focused on growth for all customer segments to overcome the product line changeover headwinds. Our industrial product and customer initiative is showing strong early signs of success.” said Henry Buckley, President and Chief Executive Officer of Uni-Select.
“As we expect to close The Parts Alliance acquisition in August, we are excited to welcome all the new team members and customers of The Parts Alliance business in the UK. This will be a substantial new runway for profitable growth at Uni-Select,” added Buckley.
Second quarter results
Consolidated sales for the second quarter were $340.3 million, a 5.1% increase compared to the same quarter last year, driven by the sales generated mainly from recent US business acquisitions, adding sales of $33.7 million or 10.4% as well as by the organic growth of 6.2% in the Canadian Automotive Group. The consolidated organic sales of -2.8% were affected, as expected, by the product line changeover in the FinishMaster US segment. Without this impact, the consolidated organic growth would have been approximately 2.1%.
The Corporation generated an EBITDA and EBITDA margin of respectively $29.5 million and 8.7%. Once adjusted for net charges related to The Parts Alliance acquisition, adjusted EBITDA was $32.5 million or 9.5% of sales for the quarter, compared to $29.7 million or 9.2% of sales in 2016. The EBITDA margin increase of 0.3% is the result of optimized buying conditions, lower stock-based compensation in 2017 as 2016 expenses were impacted by a share price appreciation as well as by a reduction in commissions and bonuses to align with the level of sales. These factors were partially offset by a lower absorption of employee benefits and fixed costs in relation to the organic growth and by a different revenue mix.
Net earnings and adjusted earnings were respectively $13.7 million and $16.6 million. Adjusted earnings decreased by 1.0% compared to the same quarter last year, and were impacted by additional amortization on customer relationships and finance costs related to recent business acquisitions.
As at June 30, 2017, the total net debt stood at $189.3 million, representing a decrease of $9.7 million compared to March 31, 2017. Funded debt to adjusted EBITDA ratio (1improved to 1.69 from 1.82 as at March 31, 2017, a result of the net debt decrease and a growing adjusted EBITDA.)
Segmented results
FinishMaster US recorded sales of $209.5 million, up 6.6% from the same quarter in 2016, strengthened by the recent business acquisitions representing a growth of $29.8 million or 15.2%. The product line changeover impacted sales by approximately 8.0%. EBITDA for this segment was $24.0 million, compared to $24.3 million last year. EBITDA margin decreased by 0.9% and is resulting from lower absorption of fixed costs related to the organic growth. FinishMaster US is progressing in the development and execution of the new industrial growth program. Organic growth initiatives are in place to focus on each customer segment. Expanding geographic coverage continues with the opening of two greenfield stores. Additionally, mergers and acquisitions’ synergy plans are being executed, and seven locations were consolidated during the quarter.
Sales for the Canadian Automotive Group were $130.8 million, compared to $127.3 million in 2016, an increase of 2.8%, a direct result of the organic growth of 6.2% as well as the performance of the recent business acquisitions. The impact of the declining Canadian dollar on its conversion to US dollars penalized sales by 4.5%. The distribution centres and both BUMPER TO BUMPER and FINISHMASTER corporate stores reported a positive organic growth, a result of the concerted efforts and initiatives of the management and sales teams. The EBITDA margin increase of 1.6% compared to 2016 is mainly related to improved gross margin and lower information technology expenses. These factors were compensated by a different revenue mix and ongoing investments required in relation to the corporate store initiative. Once the integration of the corporate stores and the implementation of the new point of sales systems will be completed, additional synergies and efficiency are expected.
Six-month period results
Consolidated sales for the six-month period were $637.5 million, a 8.5% increase compared to the same period last year, driven by the sales generated mainly from recent US business acquisitions, resulting in additional sales of $78.3 million or 13.3% as well as by the organic sales of 3.1% from the Canadian Automotive Group that overcame its loss of an independent member. The consolidated organic sales were affected, as expected, by the product line changeover in the FinishMaster US segment. Without this impact, the consolidated organic growth would have been approximately 0.7%.
The Corporation generated an EBITDA of $52.7 million, while adjusted EBITDA amounted to $55.6 million, representing an increase of 8.1% compared to the same period last year. Adjusted EBITDA margin decrease of 0.1% is mainly attributable to lower absorption of employee benefits and fixed costs in relation to the organic growth and a different revenue mix, which were partially compensated by optimized buying conditions and lower information technology expenses.
Net earnings and adjusted earnings were respectively $24.7 million and $27.6 million compared to $28.3 million last year. Additional amortization on customer relationships and finance costs related to recent business acquisitions explain the decrease in adjusted earnings.
Segmented results
FinishMaster US recorded sales of $409.2 million, up 10.6% from the same period in 2016, strengthened by the recent business acquisitions representing a growth of $70.9 million or 19.1%. The product line changeover impacted sales by approximately 7.8%. EBITDA for this segment reached $47.3 million, up 5.1% from 2016. EBITDA margin decreased by 0.6%, the result of a reduced absorption of fixed costs related to the organic growth. FinishMaster US pursued the expansion of its network during the six-month period of 2017, enlarging its footprint and reinforcing its position in major markets.
Sales for the Canadian Automotive Group were $228.3 million, compared to $217.9 million in 2016, an increase of 4.8%, driven by the organic growth and the recent business acquisitions. This segment generated a positive organic growth in both its distribution centres and corporate stores, despite the loss of an independent member at the beginning of the year. The EBITDA margin remained constant compared to 2016.
Subsequent event
On July 25, 2017, the Corporation entered into an amended and restated credit agreement. The agreement provides for a $125.0 million upsize in the unsecured long-term revolving credit facility as well as a new unsecured term facility in the principal amount of $100.0 million, for a total maximum principal amount of $625.0 million. The revolver upsize portion and the term loan are made available only for purposes of financing the acquisition of The Parts Alliance and will be cancelled in the event the acquisition does not proceed to completion.
Appointment of director
Uni-Select announced the appointment of George E. Heath as a director of the Corporation effective immediately. As President of the Global Finishes Group at Sherwin-Williams until his retirement in 2015, Heath is a broad-gauged commercial leader with deep and relevant coatings experience both in North America and abroad.
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