THE POWER OF
TEAMWORK
2018 ANNUAL REPORT
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97
Three-Year Financial Highlights
Uni-Select at a Glance
Message from the Chair
Message from the CEO
FinishMaster U.S.
Canadian Automotive Group
The Parts Alliance U.K.
Empowering Our Team Members for the Road Ahead
Financial Performance
Management’s Discussion and Analysis
Consolidated Financial Statements
Shareholder Information
THREE-YEAR FINANCIAL HIGHLIGHTS
(In thousands of US dollars, except per share amounts, percentages and otherwise specified)
OPERATING RESULTS
Sales
EBITDA (1)
EBITDA margin (1)
Special items
Adjusted EBITDA (1)
Adjusted EBITDA margin (1)
Net earnings
Adjusted earnings (1)
Free cash flows (1)
COMMON SHARE DATA
Net earnings
Adjusted earnings (1)
Dividend (C$)
Book value per share
2018
2017
2016
1,751,965
1,448,272
1,197,319
104,940
110,752
106,848
6.0%
14,589
7.6%
6,780
8.9%
(746)
119,529
117,532
107,628
6.8%
36,497
51,473
79,902
0.86
1.22
0.3700
12.36
8.1%
44,616
55,097
95,660
1.06
1.30
0.3625
12.25
9.0%
58,265
58,638
107,093
1.37
1.38
0.3350
11.19
Number of shares outstanding
42,387,300
42,273,812
42,214,178
Weighted average number of outstanding shares
42,253,987
42,261,423
42,434,956
FINANCIAL POSITION
Working capital
Total assets
Total net debt (1)
Total equity
Return on average total equity (1)
Adjusted return on average total equity (1)
256,365
254,581
1,540,570
1,496,389
418,703
523,882
7.0%
9.1%
417,909
517,977
9.0%
10.8%
191,458
980,616
111,973
472,362
12.8%
12.9%
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2018 MD&A for further details.
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2018 ANNUAL REPORT UNI-SELECT
UNI-SELECT AT A GLANCE
Uni-Select is a leader in the distribution of automotive refinish and industrial paint and related
products in North America, as well as a leader in the automotive aftermarket parts business in
Canada and in the U.K. Uni-Select is headquartered in Boucherville, Québec, Canada, and its shares
are traded on the Toronto Stock Exchange (TSX) under the symbol UNS.
47%
United States
29%
Canada
24%
United Kingdom
57%
United States
22%
Canada
21%
United Kingdom
$1,751,965
CONSOLIDATED SALES
(in thousands of US dollars)
$104,940
EBITDA (1) (2)
(in thousands of US dollars)
(1) This information represents a non-IFRS financial
measure. Refer to the “Non-IFRS financial measures”
section of the 2018 MD&A for further details.
(2) Once adjusted for special items: $119,529.
Note: Percentages exclude corporate offices and others
2018 ANNUAL REPORT UNI-SELECT 2
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2018 ANNUAL REPORT UNI-SELECT
UNITED STATES
CANADA
UNITED KINGDOM
• 5 distribution centers
• 9 distribution centers
• 2 distribution centers
• 209 company-owned stores
• 1,100+ independent customer
• 27 independent customer
• 6,800+ installer and collision
repair customers served
locations served
locations served
• 75 company-owned stores
• 184 company-owned stores
• 1,800+ team members
• 16,000+ installer and collision
• 23,000+ installer and collision
repair customers served
repair customers served
• 1,350+ team members
• 3,000+ team members
CONSOLIDATED DATA
16
Distribution
Centers
1,127
Independent Customer
Locations Served
46,200
Installer and Collision Repair
Customers Served
468
Company-owned
Stores
6,000+
Team
Members
3
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2018 ANNUAL REPORT UNI-SELECT
MESSAGE FROM THE CHAIR
As a fellow shareholder, I believe Uni-Select can and will do better. 2018 was a year
of decisive action with the objective of improving results and restoring value for
our shareholders. The overall results for 2018 were not the ones we wanted and we
have moved quickly to address that. We had some bright spots in 2018, such as the
performance of The Parts Alliance acquisition under the Uni-Select umbrella, and
we had some challenges with the results of the Canadian Automotive Group being
mixed and FinishMaster U.S. ending the year with significant margin compression in
the fourth quarter.
In September 2018, the Board of Directors made management changes and announced the formation of
a Special Committee of independent members of the Board to oversee a review of strategic alternatives.
As a result of these management changes, André Courville, previous Chair of the Board, took on the role
of Interim President and Chief Executive Officer of the Corporation. He thus stepped down as Chair while
remaining a member of the Board. I was appointed Chair of the Board and Richard G. Roy replaced me as
Chair of the Audit Committee.
In light of changing market conditions impacting the paint refinish market, the Board of Directors, in
collaboration with Management, initiated an in-depth review at FinishMaster U.S. during the fourth
quarter. A broad Performance Improvement and Rightsizing Plan was developed with the objective of
realigning the business model to adapt to a new market reality and positioning the business for long-term
success. This initiative is expected to yield annual savings of $10.0 million. It has been combined with the
25/20 Plan announced in late 2017 and will now be referred to as the “Performance Improvement Plan”
with targeted annualized savings of $35.0 million for the Corporation as a whole.
The Board of Directors, through its Special Committee and in collaboration with its advisors and
Management continue to actively review, analyze, explore, and evaluate a comprehensive range of
alternatives with the goal of maximizing value for our shareholders. As we said at the outset of this
process, we have not set a definitive schedule and continue to work diligently.
As the Corporation progresses with the strategic alternatives review, the Board of Directors also
initiated a search for a permanent President and CEO of Uni-Select with the appropriate experience
and expertise that would be expected and that are required to lead and support the management team
in the achievement of the improvements identified within the business. As a search like this does take
time to complete, it is being performed in parallel with the strategic alternatives review and all scenarios
relative to that process remain under consideration. In fact, the Board believes that appointing the right
permanent CEO for Uni-Select will enhance our ability to pursue and execute on our strategic alternatives.
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2018 ANNUAL REPORT UNI-SELECT I would like to sincerely thank our employees for their dedication and hard work, our customers
and suppliers for their loyalty and confidence and our shareholders for their ongoing support and
understanding in this transitory time for the Corporation. It is our employees’ daily hard work and
commitment, alignment behind our strategy and dedication that enables us to focus on the future. We
appreciate our customers’ business, their faith in us and in our services. We are grateful to our suppliers
for their loyalty and unwavering support. Finally, I offer my sincere gratitude to our shareholders for your
confidence, your patience and above all for your trust. I am fortunate to be surrounded in our boardroom
by a group of experienced directors and I would also like to thank my fellow members of the Board for
their dedication, advice and valuable contributions to the Corporation. Uni-Select has a proud 50-year
tradition and is known for its people, dedication and service. We will move forward together to continue
to serve our customers and enhance shareholder value.
The Board made
necessary leadership
changes and initiated
a strategic alternatives
review process.
Michelle Cormier
Chair of the Board
BOARD OF DIRECTORS
Michelle Cormier (1) (2) (3)
Chair of the Board
Operating Partner
Wynnchurch Capital
Canada, Ltd.
Montréal, Québec
Canada
André Courville
Interim President and Chief
Executive Officer
Uni-Select Inc.
Montréal, Québec
Canada
Jeffrey I. Hall (1) (3)
Corporate Director
Oakville, Ontario
Canada
George E. Heath (2) (3)
Corporate Director
Chagrin Falls, Ohio
United States
Robert Molenaar
Interim Vice President
Reorganization
FinishMaster, Inc.
Noordwijk
The Netherlands
Richard G. Roy (1)
Corporate Director
Verchères, Québec
Canada
Dennis M. Welvaert (1) (2) (3)
President, Welvaert
Business Solutions, LLC
Leander, Texas
United States
David Bibby (3)
Global eCommerce and
Digital Technology Leader
Finning International Inc.
Vancouver, British Columbia
Canada
Michael Wright (1) (2)
Corporate Director
Stratford-Upon-Avon, Warks
United Kingdom
(1) Member of the Audit Committee, chaired by Richard G. Roy
(2) Member of the Corporate Governance and Nominating Committee, chaired by Michelle Cormier
(3) Member of the Human Resources and Compensation Committee, chaired by Jeffrey I. Hall
2018 ANNUAL REPORT UNI-SELECT 5
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2018 ANNUAL REPORT UNI-SELECT MESSAGE FROM THE CEO
THE POWER OF TEAMWORK
2018 was a year like no other for Uni-Select. In September, the Board made
Management changes and initiated a comprehensive strategic alternatives review
process. I accepted to take on the role of Interim President and CEO, working in close
collaboration with the three experienced and talented Presidents who continue to
run our business segments in Canada, the U.S. and the U.K., and remain focused on
operational excellence.
While we certainly faced challenges throughout the year, we generated higher sales and adjusted EBITDA(1),
primarily related to The Parts Alliance acquisition and cost savings from our 25/20 Plan. Our adjusted
EBITDA margins(1) nevertheless remained under pressure in the U.S. at FinishMaster. More specifically,
in 2018, we delivered consolidated sales of $1.8 billion, up 21.0% over last year, primarily as a result of
the full-year contribution from The Parts Alliance U.K. segment and the strength of organic growth(1) in
all three business segments. EBITDA(1) and EBITDA margin(1) were $104.9 million and 6.0% respectively
compared to $110.8 million and 7.6% last year. Adjusted EBITDA(1) was up 1.7%, to $119.5 million,
while adjusted EBITDA margin(1) was down to 6.8% from 8.1% last year. The year-end results met our
previously communicated ranges for 2018 guidance on organic growth(1) and adjusted EBITDA(1). While
our performance in the third quarter did meet expectations, a disappointing fourth quarter impacted our
results for the year.
WORKING TOGETHER TO IMPROVE PERFORMANCE
In November, to further drive efficiency, we expanded our 20/20 cost savings initiative and renamed
it the 25/20 Plan, referring to our goal of generating at least $25.0 million of annualized recurring cost
savings by 2020. At the end of 2018, $18.7 million in annualized cost savings had already been realized
since the start of the program in the third quarter of 2017.
IMPLEMENTING THE PERFORMANCE IMPROVEMENT AND RIGHTSIZING PLAN
AT FINISHMASTER TO ADAPT TO NEW MARKET REALITY
While FinishMaster U.S. progressively returned to positive organic sales(1) growth in 2018, overall results
were disappointing. Margins were significantly under pressure from a greater proportion of business
derived from National Accounts and Multi-Shop Operators (“MSOs”), and pricing pressures in the various
refinish activities due to heightened competition. In light of these changing market conditions, we initiated
an in-depth review along with the development of a broad Performance Improvement and Rightsizing
Plan. This initiative is being led by Rob Molenaar, a Uni-Select Board member who has significant
industry-specific and restructuring expertise, and is expected to generate an additional $10.0 million in
annualized cost savings by the end of 2019.
The 25/20 Plan and the FinishMaster U.S. segment Performance Improvement and Rightsizing Plan
combined together will now be referred to as the “Performance Improvement Plan” of the Corporation,
with targeted annualized savings of $35.0 million.
EXCELLENT FIRST YEAR OF CONTRIBUTION FROM THE PARTS ALLIANCE
The bright spot in our year was the contribution from The Parts Alliance acquisition. We are very pleased
with the performance of our third pillar in its first full year under the Uni-Select family. It generated sales
of $418.2 million, including organic sales(1) growth of 5.3%, exceeding our initial expectations. It also
generated an EBITDA margin(1) of 6.5%. Excluding special items, adjusted EBITDA margin(1) was 6.8%,
slightly short of our expectations when adjusting for the opening of company-owned stores. In fact, during
the year, it opened thirteen company-owned stores thereby expanding its market coverage in the U.K.
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2018 MD&A for
further details.
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2018 ANNUAL REPORT UNI-SELECT
We realized $18.7 million
in annualized cost savings
since the beginning of
the Performance
Improvement Plan.
CONTINUING TO OPTIMIZE OUR NETWORK IN CANADA
In Canada, while our sales increased year-over-year, our margins remained relatively stable as we
continued to optimize our company-owned store and distribution network. During the year, we continued
to roll out Bumper to Bumper and deploy our point-of-sale system, PartsWatch. These temporary
investments are putting pressure on our margins and will reach into 2019. As with any strategy execution
some adjustments must be made along the way. This year we consolidated six stores, sold one store
and are in the process of consolidating two distribution centers into a larger one. We plan on continuing
to optimize our store and distribution footprint in the upcoming year. Finally, at the end of the year, we
acquired Autochoice Parts & Paints Limited, with 18 stores, which significantly expands our footprint in
the Atlantic region.
BALANCED APPROACH TO CAPITAL ALLOCATION
In 2018, we generated $94.6 million of cash flow from operations which was essentially used for capital
expenditures, including intangibles, customer investments, acquisitions and dividends. During the year
we also amended and extended our credit agreement by one year to a total term of five years, at similar
financial costs, providing us with greater flexibility to manage our working capital in the current market
reality. Our deleveraging objective is to bring the ratio down to 2.5x by 2021.
2019 OUTLOOK
2019 will be a year filled with its own set of challenges. The strategic review process is ongoing and we
are all working together to truly become a sales-driven organization, focused on operational excellence.
We will execute our Performance Improvement Plan across all business segments. More specifically, in
our U.S. operations, we will focus on executing our Rightsizing Plan to generate $10.0 million in annualized
cost savings by the end of 2019. In our Canadian operations, we will integrate our latest acquisition, while
continuing to optimize our store and distribution network. In The Parts Alliance U.K. segment, we will
focus on continuing to build our footprint through the opening of company-owned stores. Given these
undertakings, we expect 2019 organic sales(1) growth to be in the range of 1.25% to 3.25% and our
adjusted EBITDA margin (1) to be in the range of 5.75% to 6.75%.
I would like to extend my deepest appreciation to our employees for their dedication and hard work in
an environment that was not always easy in 2018. I would also like to thank our customers and suppliers
for their continued support. Lastly, I would like to thank the Board members for their confidence, as we
demonstrate the power of teamwork and drive the business forward.
André Courville
Interim President and CEO
(1) This information represents a non-IFRS financial
measure. Refer to the “Non-IFRS financial measures”
section of the 2018 MD&A for further details.
2018 ANNUAL REPORT UNI-SELECT 7
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2018 ANNUAL REPORT UNI-SELECT
FINISHMASTER U.S.
Who We Are
Largest North American distributor of automotive refinish and industrial paint and
related products, operating in the United States
$830.0M
Sales
$74.3M
EBITDA (1) (2)
1.4%
Organic Growth (2)
9.0%
EBITDA Margin (2) (3)
1,800+
Team
Members
5
Distribution
Centers
209
Company-owned
Stores
30,000+
Customers
2018 Year
in Review
ON THE ROAD TO RIGHTSIZING OPERATIONS
“2018 was a challenging year both in terms of top line growth and margins. The market consolidation at the
collision repair shop level is driving increased competition for distributors. As planned, organic sales growth
returned positive progressively during the year, but at a slower pace than anticipated.”
Chris Adams
President and COO
FinishMaster, Inc.
(1) Once adjusted for special items: $76.0 million.
(2) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section
of the 2018 MD&A for further details.
(3) Once adjusted for special items: 9.2%.
2018 KEY HIGHLIGHTS
• Returned to positive organic sales
growth
• Chris Adams named new President
and COO and addition of two other
executives
• Lower margins driven by evolution
of customer mix and pricing
pressures
• Increased competition driven by
market consolidation
• Launched value-added services to
improve body shop profitability
• Opened two company-owned
stores in Oregon and California
• Consolidated five company-owned
stores in New Jersey, California,
Texas, Georgia and Michigan
• Opened 5th distribution center in
Grand Prairie, Texas, to serve the
Dallas-Fort Worth Metroplex
2018 ANNUAL REPORT UNI-SELECT 8
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2018 ANNUAL REPORT UNI-SELECT
Market
Conditions
The overall business fundamentals remain strong. However, the consolidation trend among collision
repair shops continues, which is leading to the shrinking of the traditional market. As a result, the
growing proportion of multi-shop operators is driving increased competition.
~30%
Market share
276.1 MILLION
Light vehicle registrations
11.7 YEARS
Average age of car park
17.6 MILLION
New car registrations (2016)
3.2 TRILLION
Total miles driven has
increased for five
straight years
$2.7 BILLION
Addressable automotive
paint and related products
market
11.0 MILLION
of the 15.0 million covered
car accidents that are
repairable (4.0M total losses)
Sources for market data (all figures are from 2017 unless otherwise noted): U.S. Department of Transportation, Federal Highway
Administration, National Automobile Dealers Association, Automotive News and Romans
Outlook
“2019 will be a year of transformation. Given our disappointing
performance in the fourth quarter and to adapt to the undergoing
changes in the market, which we believe are structural in nature, we
have developed a broad Performance Improvement Plan to realign
FinishMaster U.S. to address changing market conditions, while
enhancing and accelerating the optimization of the cost-to-serve
model. By the end of 2019, we expect this Plan, which consists
of consolidation of company-owned stores, optimization, margin
recovery and spending reductions, to generate $10.0 million in
cost savings on an annualized basis.”
Chris Adams
President and COO, FinishMaster, Inc.
2019 PRIORITIES
• Align our cost-to-serve model to the new market reality
• Execute the Performance Improvement Plan
• Ramp-up our industrial paint segment
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2018 ANNUAL REPORT UNI-SELECT CANADIAN AUTOMOTIVE GROUP
Who We Are
A leader in the distribution of automotive aftermarket parts, tools and equipment,
industrial and safety, paint and related products in Canada
$503.8M
Sales
$28.6M
EBITDA (1) (2)
0.5%
Organic Growth (2)
5.7%
EBITDA Margin (2) (3)
1,350+
Team
Members
9
Distribution
Centers
75
Company-owned
Stores (4)
1,100+
Independent
Customer Locations
2018 Year
in Review
A TEAM-LED TRANSFORMATION
“2018 was a transition year for our Canadian operations as we continued to strengthen the foundation for the
future. We continued to strategically expand our company-owned store model and grow our partnership with our
independent members by rolling out standardized branding and systems. We are on the right track, although this
process is taking longer than initially anticipated. Our sales for the year were higher, however, our EBITDA margin(2)
was somewhat impacted by these ongoing investments. In parallel, we started the optimization of our network
by consolidating some stores and distribution centers. Finally, we are excited about the strategic acquisition we
made at the end of the year which will expand our footprint in the Atlantic region.”
Brent Windom
President and COO
Canadian Automotive Group
(1) Once adjusted for special items: $32.0 million.
(2) This information represents a non-IFRS financial measure. Refer to the
(3) Once adjusted for special items: 6.3%.
(4) 65 Bumper to Bumper and 10 FinishMaster.
“Non-IFRS financial measures” section of the 2018 MD&A for further details.
2018 KEY HIGHLIGHTS
• Acquired Autochoice Parts &
Paints Limited, which operates
18 company-owned stores in the
Canadian Atlantic region
• Continued expansion of
Bumper to Bumper and
FinishMaster brands
• Ongoing deployment of
point-of-sale system PartsWatch
• Started optimization of
company-owned store network;
consolidated six company-owned
stores in Quebec and Western
Canada
2018 ANNUAL REPORT UNI-SELECT 10
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2018 ANNUAL REPORT UNI-SELECT
Market
Conditions
Overall demand trends in the Canadian market remain favorable, with modest growth, based on
continued increase in the total number of vehicles on the road and in distances driven.
~20%
Market share
26.7 MILLION
Light vehicle registrations
10 YEARS
Average age of car park
1.985 MILLION
New car registrations
16,000KM (2015)
Average KM driven per car
(up 6% from 2014).
C$2.67 BILLION
Addressable warehouse
distribution segment for
the automotive aftermarket
parts market
+20,000
Unique combinations of
engines and body styles on
the road today
Sources for market data: DesRosiers Automotive Reports Market snapshot (December 2018), 2017 Outlook Study-AIA Canada,
Yearbook 2017 Canadian Collision Repair Industry – AIA Canada
Outlook
“2019 will be another year of transition to our company-owned
store model and to grow our strategic independent member model.
We will continue to roll out our Bumper to Bumper and FinishMaster
brands, while pursuing the deployment of our PartsWatch system.
In addition, our network optimization will see further consolidation
in our company-owned stores and distribution centers.”
Brent Windom
President and COO, Canadian Automotive Group
2019 PRIORITIES
• Continue to roll out Bumper to Bumper and FinishMaster
brands
• Complete the deployment of the point-of-sale system,
PartsWatch
• Further consolidate our company-owned stores and
distribution centers
• Execute Performance Improvement Plan
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2018 ANNUAL REPORT UNI-SELECT THE PARTS ALLIANCE U.K.
Who We Are
A leading distributor of automotive aftermarket parts in the U.K. and Ireland
$418.2M
Sales
$27.1M
EBITDA (1) (2)
5.3%
Organic Growth (2) (3)
6.5%
EBITDA Margin (2) (4)
3,000+
Team
Members
2
Distribution
Centers
184
Company-owned
Stores
27
Independent
Customer Locations
2018 Year
in Review
PUTTING THE PEDAL TO THE METAL
“2018 was our first full year under the Uni-Select umbrella. Our performance was excellent with a standalone
organic sales growth(2) of 6.0%, of which 2.9% was generated by the opening of company-owned stores, and
an EBITDA margin(2) of 6.5% or 6.8% once adjusted for special items, including the impact of the opening
of company-owned stores estimated at 40 bps. We extended our market coverage with the opening of
13 company-owned stores, continued to drive processes to improve efficiency and integrated recent acquisitions.”
Peter Sephton
President and CEO
European Automotive Group
(1) Once adjusted for special items: $28.3 million.
(2) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section
of the 2018 MD&A for further details.
(3) Organic growth of 6.0% on a standalone basis.
(4) Once adjusted for special items: 6.8%.
2018 KEY HIGHLIGHTS
• Opened 13 company-owned
stores, extending our
market coverage; opened
15 company-owned stores since
being under the Uni-Select
umbrella
• Generated 6.0% of organic sales(2)
growth on a standalone basis
• Reached an EBITDA margin(2) of
6.5% or 6.8% once adjusted for
special items, including
the impact of the opening of
company-owned stores estimated
at 40 bps, in line with expectations
• Information technology solutions
were either standardized,
deployed or integrated in over
20 company-owned stores
• Consolidated three
company-owned stores
2018 ANNUAL REPORT UNI-SELECT 12
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2018 ANNUAL REPORT UNI-SELECT
Market
Conditions
Current market dynamics remain favorable but more volatile due to the uncertainty surrounding
Brexit that could cause some market disruption. In general, economic downturns tend to provide
opportunities for growth as the car park ages and drives business towards the aftermarket.
~7%
Market share
35.6 MILLION
Light vehicle registrations
7.7 YEARS
Average age of car park
2.4 MILLION
New car registrations
327.1 BILLION
Total miles driven (2017)
£4.1 BILLION
Addressable automotive
aftermarket parts
market
Annual mandatory
testing for all vehicles
3 YEARS+
Sources for market data (all figures are from 2018 unless otherwise noted): U.K. Government Statistics, SMMT, OC&C, PWC
Outlook
“In 2019, we will build on what was accomplished last year as we
continue to open company-owned stores, optimize our operations
in terms of product offering and pricing. While we expect to
perform well in 2019, the year 2018 will be a tough comparable
as we performed exceptionally well in the first three quarters of
the year.”
Peter Sephton
President and CEO, European Automotive Group
2019 PRIORITIES
• Extend our market coverage through openings of
company-owned stores
• Execute the Performance Improvement Plan to further
optimize operations
• Improve our distribution model with additional capacity
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2018 ANNUAL REPORT UNI-SELECT EMPOWERING OUR TEAM MEMBERS
FOR THE ROAD AHEAD
In 2018, considerable efforts were deployed to ensure that employees were
kept informed of current changes and challenges. Throughout the year, the
Corporation remained focused on its core employee initiatives, including
continued deployment of our Leadership Acceleration Program (LEAP) and
community engagement. In addition, in the spirit of continuous improvement,
the Corporation engaged in an organizational survey with its team members.
Employees were also invited to participate in a number of festivities and
gatherings to celebrate the 50th anniversary of Uni-Select.
CONTINUING TO LEAP FORWARD
LEAP was launched in 2016. The first wave of this tailored three-step program – LEAP 1.0 –
introduced our leaders to the core skills of Delivering Results, Successful Communication and
Leading as a Coach. LEAP 2.0 further builds upon these skills through modules such as Change
Management, Emotional Intelligence, Delegation, Engagement and Motivation.
Since the program was launched in 2016, over 75.0% of managers in Canada and the U.S.
completed its modules. In 2018, LEAP was rolled out in the U.K. and approximately 25.0% of
managers were trained in this first year. The LEAP program is delivered by Uni-Select’s internal
resources for a learning experience that is relevant, applicable, enjoyable and effective for
our people. As we pursue our growth, we believe that the LEAP program will act as a key
differentiator and help us strengthen our competitive advantage.
IMPORTANT MILESTONES IN THE PAST 50 YEARS
1968
FOUNDATION
Founded by twelve Québec
entrepreneurs
1970’s
GROWTH
Grew to a network
of 70 members,
105 operating stores and
sales of approximately
C$100.0 million
1980’s
DEVELOPMENT
Expanded its operations
outside of Québec and
became a publicly-traded
company
1990’s
EXPANSION
Entered the U.S. market
and completed over
15 acquisitions, mainly
in Canada
2018 ANNUAL REPORT UNI-SELECT 14
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2018 ANNUAL REPORT UNI-SELECT
GIVING BACK TO THE COMMUNITY
At Uni-Select, we believe in the importance of fostering vibrant communities. We are empowered by
a team committed to strengthening and supporting the communities in which we live and work. Every
year, our team members in Canada, the U.S. and the U.K. support causes that matter to them. This
includes volunteering time, raising funds as well as making corporate donations to non-profit charitable
organizations that help make a difference.
In 2018, for example, our Canadian operations supported the Tel-Jeunes Foundation and the Montreal
Heart Institute. Among other community initiatives, our U.S. operations volunteered at Gleaners and
participated in a toy donation, while our U.K. operations supported The Stand Up to Cancer Bake Off and
the Save the Children Christmas Jumper appeal by donating Christmas knits and raising money.
LISTENING TO OUR TEAM MEMBERS
In 2018, we conducted an organizational survey among team members in Canada and the U.S. The
results demonstrated that team members understand what they need to be successful in their role. The
survey also revealed that employees are proud to work at Uni-Select and that they would recommend the
company as a great place to work.
Meanwhile, such a thorough exercise enabled the Corporation to identify key learnings on where to focus
to further improve talent management and employee performance. Targeted initiatives are thus being
developed and deployed in areas such as coaching, communication, and performance recognition.
CELEBRATING 50 YEARS AND COUNTING
2018 marked Uni-Select’s 50th anniversary. Recall that Uni-Select was founded in 1968, thanks to
the vision of twelve Québec entrepreneurs who decided to join forces to form a purchasing group for
aftermarket parts. The Corporation has evolved significantly since then, and reaching such a major
milestone was the opportunity to celebrate this inspiring journey with our team members through
numerous group activities and gatherings.
2018 marked Uni-Select’s
50th anniversary.
2000’s
ACQUISITIONS
Completed nearly 70 acquisitions
of various sizes – sales grew from
C$580.0 million in 2000 to C$1.4 billion
in 2009
2011-16
CONSOLIDATION
Acquired FinishMaster, Inc. (2011) and
became the largest independent paint,
coatings, and related accessories
distributor in North America; sold the
Uni-Select USA, Inc. and Beck/Arnley
Worldparts, Inc. net assets (2015)
2017
THIRD GROWTH PILLAR
Completed the acquisition of The
Parts Alliance, a leading and growing
automotive aftermarket parts distributor
in the United Kingdom (August 2017)
2018 ANNUAL REPORT UNI-SELECT 15
15
2018 ANNUAL REPORT UNI-SELECT FINANCIAL PERFORMANCE
SALES AND ORGANIC GROWTH (1)
(in millions of $, except percentages)
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
0.2%
1,197
2016
1,448
-2.9%
2017
1.5%
1,752
2018
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
Sales
Organic growth (1)
In 2018, sales increased 21.0%
primarily driven by acquisitions,
notably, The Parts Alliance. In addition,
all three segments reported positive
organic growth (1) as a result of
initiatives undertaken by the sales
teams and the opening of company-
owned stores.
EBITDA (1), ADJUSTED EBITDA (1), EBITDA % (1) AND ADJUSTED EBITDA% (1)
(in millions of $, except percentages)
140
120
100
80
60
40
20
0
9.0%
8.9%
108 107
8.1%
7.6%
118 111
120
105
6.8%
6.0%
2016
2017
2018
Adjusted EBITDA (1)
Adjusted EBITDA % (1)
EBITDA (1)
EBITDA % (1)
In 2018, adjusted EBITDA (1)
increased mainly due to acquisitions,
however, the margin decreased
significantly primarily due to pricing
and competitive pressures in the
FinishMaster U.S. segment.
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2018 MD&A for further details.
16
2018 ANNUAL REPORT UNI-SELECT CAPITAL DEPLOYMENT
(in millions of $)
450
400
350
300
250
200
150
100
50
0
414
241
100
2016
2017
2018
Acquisitions
Capex & intangibles
Merchant advances
Dividends
Share buyback
FUNDED DEBT TO ADJUSTED EBITDA (1)
(in millions of $, except ratio)
450
400
350
300
250
200
150
100
50
0
1.0x
112
2016
3.6x
418
3.5x
419
2017
2018
4.0x
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x
Total net debt (1)
Funded debt to adjusted EBITDA (1)
In 2018 Uni-Select took a balanced
approached to capital allocation
by investing in acquisitions, capital
expenditures and merchant advances
in similar proportions. It also returned
cash to shareholders through
dividends and share buybacks.
2018 leverage remained at a similar
level to last year as the Corporation
completed acquisitions, invested in
its inventory and incurred special item
cash disbursements. Uni-Select is still
on track to reach 2.5x funded debt to
adjusted EBITDA (1) by 2021, excluding
potential acquisitions.
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2018 MD&A for further details.
17
2018 ANNUAL REPORT UNI-SELECT 2018 ANNUAL REPORT UNI-SELECT 18
18
2018 ANNUAL REPORT UNI-SELECT MANAGEMENT’S
DISCUSSION AND ANALYSIS
2018
Annual highlights
Preliminary comments to Management’s discussion and analysis
Profile and description
Operational review of the last three years
Update on the Performance Improvement Plan and subsequent event
Non‐IFRS financial measures
Analysis of consolidated results
Analysis of results by segment
Cash flows
Financing
Capital structure
Financial position
Related parties
Risk management
Changes in accounting policies
Use of accounting estimates and judgments
Exchange rate data
Effectiveness of disclosure controls and procedures and internal
controls over financial reporting
Outlook
20
21
22
22
25
26
27
33
38
40
42
44
45
45
49
50
52
52
53
ANNUAL HIGHLIGHTS
(In millions of US dollars, except percentages, per share amounts and otherwise specified)
2018
SALES
$1,752.0
2017
SALES
$1,448.3
EBITDA(1)
$104.9
6.0%
EBITDA(1)
$110.8
7.6%
ADJUSTED EBITDA(1)
$119.5
6.8%
ADJUSTED EBITDA(1)
$117.5
8.1%
NET EARNINGS
$36.5
$0.86/SHARE
NET EARNINGS
$44.6
$1.06/SHARE
ADJUSTED EARNINGS(1)
$51.5
$1.22/SHARE
ADJUSTED EARNINGS(1)
$55.1
$1.30/SHARE
‐ Consolidated sales reached $1,752.0, representing an increase of $303.7 or 21.0% compared to last year, fueled mainly by the
contribution of The Parts Alliance UK segment for a full year. Consolidated organic growth(1) reached 1.5% with all three segments
reporting organic growth(1): 1.4% at the FinishMaster US segment, 0.5% in the Canadian Automotive Group segment and 5.3% for The
Parts Alliance UK segment.
‐
EBITDA(1) and EBITDA margin(1) were respectively $104.9 and 6.0% compared to $110.8 and 7.6% last year. Once adjusted for special
items, EBITDA(1) and EBITDA margin(1) were respectively $119.5 and 6.8% compared to $117.5 and 8.1% last year.
‐ Net earnings were $36.5 or $0.86 per share, compared to $44.6 or $1.06 per share last year. Once adjusted, earnings(1) were $51.5 or
$1.22 per share in 2018 and $55.1 or $1.30 last year.
‐
In August 2018, the Corporation entered into an amended and restated credit agreement converting the term‐loan into the unsecured
long‐term revolving credit facility and extending the maturity of all the credit facilities to June 30, 2023, providing greater financial
flexibility, at a minimal cost. As at December 31, 2018, total net debt(1) stood at $418.7; same level as last year, since inflows from
operations allowed growth investments in customers, business acquisitions and supply chain optimization.
‐ On September 18, 2018, Uni‐Select announced Management changes and a review of strategic alternatives, resulting in the recognition
of severance and retention bonuses amounting to $6.2 for the year.
‐ On November 14, 2018, the Corporation announced a restructuring plan (“25/20 Plan”), which mainly consists of headcount reduction
and the consolidation of locations, while optimizing the supply chain. The Corporation recognized restructuring and other charges
totaling $7.6 for the year, principally for severance and termination benefits, onerous contracts and consulting fees. Different initiatives
in the various operations are underway, including the integration of company‐owned stores and the remodeling of the supply chain
with two new optimized distribution centres.
‐ As at December 31, 2018, the Corporation counted 468 company‐owned stores in its network, a growth of 21 compared to last year,
supported by business acquisitions and the opening of greenfields, net of integrated company‐owned stores.
‐
In January 2019, the Board of Directors and Management initiated the development of a broad performance improvement and
rightsizing plan for the FinishMaster US segment with the objective of realigning its operations to address changing market conditions.
This plan focuses on four streams: consolidation of company‐owned stores, optimization, margin recovery and spending reductions.
The 25/20 Plan and the FinishMaster US Segment performance improvement and rightsizing plan combined together will now be
referred to as the ″Performance Improvement Plan″ of the Corporation.
(1) This information represents a non‐IFRS financial measure. (Refer to the “Non‐IFRS financial measures” section for further details.)
2018 ANNUAL REPORT UNI‐SELECT 20
PRELIMINARY COMMENTS TO MANAGEMENT’S DISCUSSION AND ANALYSIS
B A S I S O F P R E S E N T A T I O N O F M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
This Management’s discussion and analysis (“MD&A”) discusses the Corporation’s operating results and cash flows for the quarter and the
year ended December 31, 2018 compared with the quarter and the year ended December 31, 2017, as well as its financial position as at
December 31, 2018 compared with its financial position as at December 31, 2017. This report should be read in conjunction with the
audited consolidated financial statements and accompanying notes included in the 2018 Annual Report. The information contained in this
MD&A takes into account all major events that occurred up to February 20, 2019, the date at which the consolidated financial statements
and MD&A were approved and authorized for issuance by the Corporation’s Board of Directors. It presents the existing Corporation’s status
and business as per Management’s best knowledge as at that date.
Additional information on Uni‐Select, including the audited consolidated financial statements and the Corporation’s Annual Information
Form, is available on the SEDAR website at sedar.com.
In this MD&A, “Uni‐Select” or the “Corporation” refers, as the case may be, to Uni‐Select Inc. and its subsidiaries.
Unless otherwise indicated, the financial data presented in this MD&A, including tabular information, is expressed in thousands of
US dollars, except per share amounts, percentages, number of shares and otherwise specified. Comparisons are presented in relation to
the comparable periods of the prior year.
The consolidated financial statements contained in the present MD&A were prepared in accordance with International Financial Reporting
Standards (“IFRS”). These financial statements have been audited by the Corporation’s external auditors.
F O R W A R D ‐ L O O K I N G S T A T E M E N T S
The MD&A is intended to assist investors in understanding the nature and importance of the results and trends, as well as the risks and
uncertainties associated with Uni‐Select’s operations and financial position. Certain sections of this MD&A contain forward‐looking
statements within the meaning of securities legislation concerning the Corporation’s objectives, projections, estimates, expectations or
forecasts.
Forward‐looking statements involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ
materially from forecasted results. Risks that could cause the results to differ materially from expectations are discussed in the “Risk
Management” section. Those risks include, among others, competitive environment, consumer purchasing habits, vehicle fleet trends,
general economic conditions and the Corporation’s financing capabilities.
There is no assurance as to the realization of the results, performance or achievements expressed or implied by forward‐looking statements.
Unless required to do so pursuant to applicable securities legislation, Management assumes no obligation as to the updating or revision of
forward‐looking statements as a result of new information, future events or other changes.
C O M P L I A N C E W I T H I F R S
The information included in this report contains certain financial measures that are inconsistent 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. The Corporation considers that users of its MD&A may analyze its results based on these measurements. (Refer to section
“Non‐IFRS financial measures” for further details.)
2018 ANNUAL REPORT UNI‐SELECT 21
PROFILE AND DESCRIPTION
Uni‐Select is a leader in the distribution of automotive refinish and industrial paint and related products in North America, as well as a
leader in the automotive aftermarket parts business in Canada and in the UK. Uni‐Select is headquartered in Boucherville, Québec, Canada,
and its shares are traded on the Toronto Stock Exchange (TSX) under the symbol UNS.
In Canada, Uni‐Select supports over 16,000 automotive repair and collision repair shops through a growing national network of more than
1,100 independent customers and over 70 company‐owned stores, many of which operate under the Uni‐Select BUMPER TO BUMPER®,
AUTO PARTS PLUS® AND FINISHMASTER® store banner programs. It also supports over 3,900 shops through its automotive repair/installer
shop banners, as well as through its automotive refinish banners.
In the United States, Uni‐Select, through its wholly‐owned subsidiary FinishMaster, Inc., operates a national network of over
200 automotive refinish company‐owned stores under the FINISHMASTER banner which services a network of over 30,000 customers
annually, of which it is the primary supplier to over 6,800 collision repair centre customers.
In the UK and Ireland, Uni‐Select, through its Parts Alliance group of subsidiaries, is a leading distributor of automotive parts supporting
over 23,000 customer accounts with a network of over 180 company‐owned stores.
OPERATIONAL REVIEW OF THE LAST THREE YEARS
S E L E C T E D C O N S O L I D A T E D I N F O R M A T I O N
(in thousands of US dollars, except per share amounts, percentages and otherwise specified)
2018
2017
2016
OPERATING RESULTS
Sales
EBITDA(1)
EBITDA margin(1)
Special items
Adjusted EBITDA(1)
Adjusted EBITDA margin(1)
Net earnings
Adjusted earnings(1)
Free cash flows(1)
COMMON SHARE DATA
Net earnings
Adjusted earnings(1)
Dividend (C$)
Book value per share
Number of shares outstanding
Weighted average number of outstanding shares
FINANCIAL POSITION
Working capital
Total assets
Total net debt(1)
Total equity
Return on average total equity(1)
Adjusted return on average total equity(1)
1,751,965
1,448,272
1,197,319
104,940
110,752
106,848
6.0%
14,589
7.6%
6,780
8.9%
(746)
119,529
117,532
107,628
6.8%
36,497
51,473
79,902
0.86
1.22
0.3700
12.36
8.1%
44,616
55,097
95,660
1.06
1.30
0.3625
12.25
9.0%
58,265
58,638
107,093
1.37
1.38
0.3350
11.19
42,387,300 42,273,812 42,214,178
42,253,987 42,261,423 42,434,956
256,365
254,581
1,540,570
1,496,389
418,703
523,882
7.0%
9.1%
417,909
517,977
9.0%
10.8%
191,458
980,616
111,973
472,362
12.8%
12.9%
(1)
This information represents a non‐IFRS financial measure. (Refer to the “Non‐IFRS financial measures” section for further details.)
Detailed analysis of the changes in operating results and the consolidated statements of financial position between 2018 and 2017 are
provided in the following sections. Detailed analysis of the changes in the operating results and the consolidated statements of financial
position between 2017 and 2016 are included in the MD&A in the 2017 Annual Report, available on the SEDAR website at sedar.com.
2018 ANNUAL REPORT UNI‐SELECT 22
O V E R V I E W
The last three years were transformational for the Corporation. To respond to the constant evolution of the business, market and
competition, the Corporation implemented new business strategies and initiatives, building a long‐term platform for profitable growth
while reinforcing its market share and leadership positions. As well, the Corporation is thoroughly reviewing its cost to serve models to
optimize its profitability.
The major initiatives and achievements of the Corporation include the following:
‐ Driving balanced‐growth through a combination of organic and acquisitive initiatives in all segments. The Corporation, with its mergers
and acquisitions program, completed 26 acquisitions over the 2016 to 2018 period which added 279 company‐owned stores to its
network. The Corporation energized its organic growth through initiatives such as opening 22 greenfields for the same period, out of
which 15 were opened in the UK since August 2017.
‐
‐
‐
Improving operational efficiency by successfully integrating business acquisitions, launching the 25/20 Plan, previously the 20/20
initiative, across its three pillars to align the cost structure with the evolution of the business model as well as developing and optimizing
software tools. Over the last three years, the Corporation closed and integrated 40 company‐owned stores in accordance with these
initiatives.
Transforming and evolving the Canadian Automotive Group segment to compete in the future by adding a corporate store network,
complementing the network of independent jobber customers, developing and executing new enhanced store banner and
merchandising programs (BUMPER TO BUMPER and AUTO PARTS PLUS) while launching the FINISHMASTER brand in Canada.
Evaluating additional new markets to establish a third growth pillar, with a cultural fit, a strong market position and significant potential
for growth, resulting in the acquisition on August 7, 2017 of The Parts Alliance, a UK leader in the distribution of automotive aftermarket
parts.
‐ Managing a sound financial position and capital structure with strategic investments, the amendment and restatement of the credit
agreement, the enhancement of the vendor financing program and a constant return to shareholders through dividends.
All these activities provided healthy free cash flows to the Corporation, allowing further growth and value creation in all business
segments. The Corporation started 2016 with 209 company‐owned stores across its Canadian Automotive Group and FinishMaster US
segments and has ended the 2018 year with a network of 468 company‐owned stores across its three operational segments.
2 0 1 8 F I N A N C I A L Y E A R
Change management and restructuring
Evolving market conditions prompted the Corporation to review its business models, resulting in management changes, review of strategic
alternatives and restructuring. Notwithstanding, the distribution network broadened, supported by the opening of greenfields as well as
business acquisitions.
Key initiatives by segment:
FinishMaster US:
The FinishMaster US segment renewed with organic sales growth during the year, as a result of efforts deployed by the sales team and the
on‐boarding of new customers.
Consolidation movement in the market is causing a shift towards the national account customers, for which discounts are more significant,
as they are growing by acquiring multi‐shop owner (“MSO”) customers. This evolving customer mix as well as pricing pressure in the various
refinish activities, affected the margin. These headwinds were partially counteracted by ongoing productivity improvement initiatives
started in the second half of 2017.
Canadian Automotive Group:
The Canadian Automotive Group segment worked on the ongoing optimization and development of its company‐owned stores, investing
in their integration, which resulted in six company‐owned stores integrated and one sold during the year, while strengthening its market
position in the Atlantic region by acquiring AutoChoice Parts & Paints Limited.
To improve the supply chain and profitability, this segment initiated its portion of the 25/20 Plan with a first phase of reducing the workforce
and remodeling of the distribution network in the Prairies. This includes the integration of the current distribution centres in Saskatoon
and Calgary, while a superior one is expected to open in the first quarter of 2019 in Calgary. This will permit a broader selection of inventory.
2018 ANNUAL REPORT UNI‐SELECT 23
The Parts Alliance UK:
The Parts Alliance UK segment generated organic growth through strategic sales initiatives and the opening of 13 greenfields during the
year, for a total 15 since its acquisition, expanding the footprint in the UK.
The operating performance of this segment in 2018 was reinforced by a full year of operations, leveraging its fixed cost base, as well by
cost reduction in 2017 related to the 25/20 Plan and maximizing the operations of its company‐owned stores. As part of this process,
information technology solutions were either standardized, deployed or integrated over 20 company‐owned stores.
Furthermore, The Parts Alliance UK segment is improving its supply chain logistic, which includes the closure of a location, a slight reduction
in workforce and the inauguration of a national distribution centre, situated in the heart of the UK, providing an enhanced offer across the
network while improving efficiency.
Corporate Office and Others:
The primary goal of the Corporate Office and Others segment was to give tools to the businesses to unlock more efficiency and create
additional value for shareholders. This resulted in:
‐
‐
‐
‐
The announcement in September by the Board of Directors of the management changes and initiation of a review of strategic
alternatives;
The launch of the 25/20 Plan in November, extending the 20/20 initiative started in 2017;
The amendment and restatement of the credit agreement, converting the term‐loan into the unsecured long‐term revolving
credit facility and extending the maturity of all the credit facilities to June 30, 2023, providing greater financial flexibility, at a
minimal cost; and
The integration of The Parts Alliance UK segment for the 52‐109 certification compliance.
2 0 1 7 F I N A N C I A L Y E A R
Internationalization and evolving network
The Corporation evolved, taking giant steps and an international turn by adding The Parts Alliance, a UK leader in the distribution of
automotive aftermarket parts, to its growing network. Meanwhile, the Canadian Automotive Group and the FinishMaster US segments
complemented their respective networks through selected business acquisitions and greenfield openings.
During the year, the Corporation grew through business acquisitions, adding a third pillar and a European presence to its network with the
acquisition of The Parts Alliance UK. As well, the FinishMaster US segment completed its largest acquisition with D’Angelo’s, while the
Canadian Automotive group segment realized certain acquisitions. In addition, greenfields were opened in the FinishMaster US and The
Parts Alliance UK segments. As a result of these growth initiatives, the number of company‐owned stores grew from 259 early 2017 to 447
by the end of the year.
Furthermore, the Corporation launched the 20/20 initiative to improve efficiency in all operational segments. The FinishMaster US segment
strived on reducing its costs to adapt the cost structure to the evolving business model. The Canadian Automotive Group segment focused
on integrating the company‐owned stores, including rebranding, processes and the implementation of the new point‐of‐sale ("POS")
system. The Parts Alliance UK segment worked towards maximizing software tools and improving the productivity of its operations. Through
these various initiatives, 14 locations across the Corporation were successfully integrated.
For its part, the Corporate and Others segment amended and restated the credit agreement providing a total upsize of $225,000 and
enabling, among other things, The Parts Alliance acquisition, as well as further growth.
2 0 1 6 F I N A N C I A L Y E A R
Growing our network
The Corporation was successful in its growth and performance activities through accretive business acquisitions, while navigating through
slower economic conditions in Canada and a product line changeover in the United States.
Both the FinishMaster US and the Canadian Automotive Group segments were actively driving growth through organic initiatives and
business acquisitions. The Canadian Automotive Group segment accelerated the company‐owned store initiative, building its foundation,
which included the deployment of a POS system, the launch of the new BUMPER TO BUMPER program and the FINISHMASTER brand in
Canada. The FinishMaster US segment opened a new distribution centre on the East Coast to improve services to customers while working
through a product line changeover during the second half of the year. Together, they concluded 14 business acquisitions, adding to the
network more than 60 locations before synergies. Integration progressed as planned and yielded the expected benefits.
2018 ANNUAL REPORT UNI‐SELECT 24
On the corporate side, strategies were initiated to manage cash, enhance performance, limit financial and foreign exchange risks and
ultimately create value with the renewal and addition of vendor financing agreements with suppliers, negotiations with information
technology suppliers for the deployment of a server solution, hedging of the stock‐based compensations as well as some large accounts
payable and a 2‐for‐1 stock split of common shares.
UPDATE ON THE PERFORMANCE IMPROVEMENT PLAN AND SUBSEQUENT
EVENT
During the second half of 2017, the Corporation launched the 20/20 initiative to improve efficiency in all operational segments.
Considering the evolving market conditions faced in 2018, the Corporation decided to further align the cost structure with this new reality.
As a result, the Corporation launched the 25/20 Plan in November, which complemented the 20/20 initiative. This plan, affecting all
segments, consists of headcount reduction and the integration of locations, as well as optimizing the supply chain logistics.
Through this plan, the Corporation expects to generate annualized cost savings of $25,000 by the end of 2020, of which, $18,700 has been
realized as at December 31, 2018.
During the year 2018, the Corporation reduced its workforce, integrated 14 company‐owned stores and sold one. In addition, to optimize
its logistical processes, the Corporation is currently integrating three smaller distribution centres into two larger ones, permitting increased
competitiveness and efficiency. These new distribution centres are expected to be operational during the first quarter of 2019.
The total cost of implementing the 25/20 Plan is expected to be approximately $11,000. As at December 31, 2018, the Corporation
recognized restructuring and other charges totaling $7,578. (Refer to the “Analysis of consolidated results” section for further details.)
The following table summarizes the annualized impacts as at December 31, 2018:
Annualized cost savings
Restructuring and other charges:
Restructuring charges
Other charges as incurred
Capital expenditures
Expected
Realized
By the end of
2020
25,000
6,500
4,500
11,000
7,000
As at
2018
18,700
5,055
2,523
7,578
5,509
As at December 31, 2018, a provision for restructuring charges of $4,173 is presented as current liabilities in the Corporation’s consolidated
statement of financial position.
In January 2019, the Board of Directors and Management initiated the development of a broad performance improvement and rightsizing
plan for the FinishMaster US 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 savings of
$10,000 by the end of 2019, focuses on four streams: consolidation of company‐owned stores, optimization, margin recovery and spending
reductions. Additional restructuring and other charges in the range of $5,000 to $7,000 will be recorded during the 2019 year, mainly for
severance and onerous lease contracts.
The 25/20 Plan and the FinishMaster US Segment performance improvement and rightsizing plan combined together will now be referred
to as the ″Performance Improvement Plan″ of the Corporation, with targeted annualized savings of $35,000.
2018 ANNUAL REPORT UNI‐SELECT 25
NON‐IFRS FINANCIAL MEASURES
The information included in this report contains certain financial measures that are inconsistent 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. The Corporation is of the opinion that users of its MD&A may analyze its results based on these measurements.
The following table presents performance measures used by the Corporation which are not defined by IFRS.
Organic growth(1)
EBITDA(1)
Adjusted EBITDA, adjusted
earnings and adjusted
earnings per share(1)
This measure consists of quantifying the increase in consolidated sales between two given periods,
excluding the impact of acquisitions, exchange‐rate fluctuations and when necessary, the variance in
the number of billing days. This measure enables Uni‐Select to evaluate the intrinsic trend in the sales
generated by its operational base in comparison with the rest of the market. Determining the rate of
organic growth, based on findings that Management regards as reasonable, may differ from the actual
rate of organic growth.
This measure represents net earnings excluding finance costs, depreciation and amortization 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.
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 facilitate the analysis and provide a better understanding of the Corporation’s operational
performance. The intent of these measures is to provide additional information.
These adjustments include, among other things, restructuring and other charges, severance and
retention bonuses related to Management changes as well as net transaction charges, amortization
of the premium on foreign currency options and amortization of intangible assets related to The Parts
Alliance acquisition. Management considers The Parts Alliance acquisition as transformational. The
exclusion of these items does not indicate that they are non‐recurring.
EBITDA margin(1) and adjusted
EBITDA margin(1)
The EBITDA margin is a percentage corresponding to the ratio of EBITDA to sales. The adjusted EBITDA
margin is a percentage corresponding to the ratio of adjusted EBITDA to sales.
Free cash flows(2)
This measure corresponds to the cash flows from operating activities according to the consolidated
statements of cash flows adjusted for the following items: changes in working capital items,
acquisitions of property and equipment and difference between amounts paid for post‐employment
benefits and current period expenses. Uni‐Select considers the free cash flows to be a good indicator
of financial strength and of operating performance because it shows the amount of funds available to
manage growth in working capital, pay dividends, repay debt, reinvest in the Corporation and
capitalize on various market opportunities that arise.
The free cash flows exclude certain variances 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 consolidated statements of cash flows. Therefore, it should not be considered as an alternative
to the consolidated statements of cash flows, or as a measure of liquidity, but as additional
information.
Total net debt(3)
This measure consists of long‐term debt, including the portion due within a year (as shown in note 17
to the consolidated financial statements), net of cash.
Total net debt to total net
debt and total equity ratio(3)
This ratio corresponds to total net debt divided by the sum of total net debt and total equity.
Long‐term debt to total
equity ratio(3)
This ratio corresponds to long‐term debt, including the portion due within a year (as shown in note 17
to the consolidated financial statements), divided by the total equity.
2018 ANNUAL REPORT UNI‐SELECT 26
Funded debt to adjusted
EBITDA(3)
Return on average total
equity(3)
This ratio corresponds to total net debt to adjusted EBITDA(1).
This ratio corresponds to net earnings, divided by average total equity.
Adjusted return on average
total equity(3)
This ratio corresponds to adjusted earnings(1) to which the amortization of intangible assets related to
The Parts Alliance acquisition is added back divided by average total equity.
(1) Refer to the “Analysis of consolidated results” section for a quantitative reconciliation from the non‐IFRS financial measures to the most directly
comparable measure calculated in accordance with IFRS.
(2) Refer to the “Cash flows” section for a quantitative reconciliation from the non‐IFRS measures to the most directly comparable measure calculated in
accordance with IFRS.
(3) Refer to the “Capital structure” section for further details.
ANALYSIS OF CONSOLIDATED RESULTS
The operations of The Parts Alliance UK segment are included in the consolidated results since their acquisition on August 7, 2017.
S A L E S
FinishMaster US
Canadian Automotive Group
The Parts Alliance UK
Sales
Sales variance
Conversion effect of the Canadian dollar and the British pound
Number of billing days
Acquisitions
Consolidated organic growth
Fourth quarters
Twelve‐month periods
2018
203,440
122,460
93,555
2017
198,956
123,023
92,999
2018
829,982
503,829
418,154
2017
814,639
484,934
148,699
419,455
414,978
1,751,965
1,448,272
4,477
7,201
235
(2,208)
9,705
%
1.1
1.7
0.0
303,693
3,219
1,866
(0.5)
(287,039)
2.3
21,739
%
21.0
0.2
0.1
(19.8)
1.5
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
Sales reached $419,455 for the quarter, representing a growth of
1.1%, compared to the same quarter in 2017, mainly from organic
growth of 2.3% and sales generated from business acquisitions. This
growth was partially offset by the conversion effect of the Canadian
dollar and the British pound into the US dollar, both currencies
losing strength during the quarter.
The consolidated organic growth is principally coming from the
FinishMaster US and The Parts Alliance UK segments, respectively
reporting organic growth of 3.9% and 2.8%. The Canadian
Automotive Group segment had a softer quarter and reported a
negative organic growth of 0.5%.
The growth of 21.0%, compared to the same period in 2017, was
driven by the sales generated from business acquisitions, adding
sales of $287,039 or 19.8%, mainly from The Parts Alliance UK
segment.
On a twelve‐month basis, all three segments reported organic
growth, the result of initiatives undertaken by the sales teams and
the opening of greenfields. The FinishMaster Us segment reported
1.4%, the Canadian Automotive Group segment reported 0.5% while
The Parts Alliance UK segment reported 5.3%.
2018 ANNUAL REPORT UNI‐SELECT 27
G R O S S M A R G I N
Gross margin
In % of sales
FOURTH QUARTERS
Fourth quarters
Twelve‐month periods
2018
134,603
32.1%
2017
139,987
33.7%
2018
575,169
32.8%
2017
465,074
32.1%
TWELVE‐MONTH PERIODS
The gross margin, as a percentage of sales, decreased by
160 basis points, compared to the same quarter in 2017, mainly due
to pricing pressure and an evolving customer mix
in the
FinishMaster US segment.
The gross margin, as a percentage of sales,
increased by
70 basis points, compared to the same period in 2017, benefiting
from The Parts Alliance acquisition, which has a business model with
a higher gross margin than the other segments.
These impacts were, in part, compensated by improved buying
conditions in the Canadian Automotive Group segment after
reaching a higher level of annual performance rebates.
Once The Parts Alliance UK segment is excluded, the remaining
negative gross margin variance, in percentage of sales, is principally
attributable to pricing pressure and an evolving customer mix for
the FinishMaster US segment.
E M P L O Y E E B E N E F I T S
Employee benefits
In % of sales
FOURTH QUARTERS
Employee benefits, as a percentage of sales,
improved by
20 basis points, compared to the same quarter in 2017, essentially
from a superior absorption of fixed payroll in relation to added
volume from overall organic growth. The reduction of the
performance‐based compensation across the Corporation was
offset by a charge resulting from the equity swap instruments
associated with the stock‐based compensation.
Fourth quarters
Twelve‐month periods
2018
75,412
18.0%
2017
75,469
18.2%
2018
308,546
17.6%
2017
236,684
16.3%
TWELVE‐MONTH PERIODS
Employee benefits, as a percentage of sales,
increased by
130 basis points, compared to the same period in 2017. This
variance is mainly attributable to a different business model in The
Parts Alliance UK segment requiring a higher level of employee
benefits.
Excluding this element, employee benefits, in percentage of sales,
remained stable. The FinishMaster US segment savings realized
from the 25/20 Plan, combined with the net reduction of
performance‐based compensation, were offset by the integration of
the company‐owned stores and investments in resources required
in the Canadian Automotive Group segment.
2018 ANNUAL REPORT UNI‐SELECT 28
O T H E R O P E R A T I N G E X P E N S E S
Other operating expenses
In % of sales
Fourth quarters
Twelve‐month periods
2018
37,763
9.0%
2017
36,534
8.8%
2018
147,094
8.4%
2017
110,858
7.7%
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
Other operating expenses, as a percentage of sales, increased by
20 basis points, compared to the same quarter in 2017, due to
higher professional and consulting fees as well as information
technology expenses in the normal course of business. In addition,
the weaker Canadian dollar had an impact on foreign exchange
losses, compared to a gain for the same quarter last year.
These elements were partially compensated by a superior
absorption of fixed costs in relation to added volume from overall
organic growth.
Other operating expenses, as a percentage of sales, increased by
70 basis points, compared to the same period in 2017, of which the
acquisition of The Parts Alliance UK segment represents
30 basis point.
Once The Parts Alliance UK segment is excluded, the remaining
variance, in percentage of sales, is mainly explained by losses related
to foreign exchange currencies, higher professional and consulting
fees as well as information technology expenses in the normal
course of business. Investments were required for the ongoing
integration of company‐owned stores by the Canadian Automotive
Group segment, while a one‐time favorable saving was recognized
in 2017 in relation to the internalization of the servers.
These elements were partially compensated by a superior
absorption of fixed costs in relation to added volume from overall
organic growth.
S P E C I A L I T E M S
Special items comprise items which do not reflect the Corporation’s core performance or where their separate presentation will assist users
of the consolidated financial statements in understanding the Corporation’s results for the year. Special items are detailed as follows:
Restructuring and other charges
Severance and retention bonuses related to Management changes
Net transaction charges related to The Parts Alliance acquisition
Fourth quarters
Twelve‐month periods
2018
7,578
961
106
8,645
2017
‐
‐
2,130
2,130
2018
7,578
6,157
854
14,589
2017
(523)
‐
7,303
6,780
Restructuring and other charges
On November 14, 2018, the Corporation announced the 25/20 Plan, which mainly consists of headcount reduction and the consolidation
of locations, while optimizing the supply chain.
The Corporation recognized restructuring charges totalling $5,055, including $3,122 for severance and termination benefits, and $1,933 for
onerous contracts.
The Corporation also incurred other charges of $2,523, primarily comprising of consulting fees related to the review of strategic alternatives.
During 2017, the Corporation reviewed its remaining provisions in relation to the rightsizing of the corporate office, resulting in a reduction
of restructuring and other charges in the consolidated statements of earnings of $523.
Severance and retention bonuses related to Management changes
On September 18, 2018, the Corporation announced Management changes with the immediate departure and replacement of its President
and Chief Executive Officer, and the President and Chief Operating Officer of FinishMaster, Inc. As a result, the Corporation recognized
charges totaling $961 and $6,157 for the quarter and twelve‐month period ended December 31, 2018, mainly composed of severance
charges.
2018 ANNUAL REPORT UNI‐SELECT 29
Net transaction charges related to The Parts Alliance acquisition
In connection with The Parts Alliance acquisition completed in August 2017, the Corporation recognized transaction charges totaling $106
and $854 for the quarter and twelve‐month period ended December 31, 2018 ($2,130 and $7,303 respectively in 2017). These charges
include:
Acquisition costs
Other charges related to the acquisition
Favorable change in the fair value of foreign currency options
E B I T D A
Net earnings (loss)
Income tax expense (recovery)
Depreciation and amortization
Finance costs, net
EBITDA
EBITDA margin
Special items
Adjusted EBITDA
Adjusted EBITDA margin
FOURTH QUARTERS
The adjusted EBITDA margin decreased by 160 basis points,
compared to the same quarter in 2017. This variance is mainly
explained by pricing pressure and evolving customer mix in the
FinishMaster US segment.
These elements were partially compensated by the Canadian
from higher annual
Automotive Group segment benefiting
performance rebates as well as a superior absorption of fixed costs
from an increased volume of sales.
Fourth quarters
Twelve‐month periods
2018
‐
106
‐
106
2017
489
1,641
‐
2,130
2018
294
560
‐
854
2017
7,310
1,699
(1,706)
7,303
Fourth quarters
Twelve‐month periods
2018
(2,363)
(489)
10,265
5,370
12,783
3.0%
8,645
21,428
5.1%
%
2017
8,721
2,170
9,977
4,986
25,854 (50.6)
6.2%
2,130
27,984 (23.4)
6.7%
2018
36,497
8,180
39,702
20,561
104,940
6.0%
14,589
119,529
6.8%
2017
44,616
22,002
29,647
14,487
110,752
7.6%
6,780
117,532
8.1%
%
(5.2)
1.7
TWELVE‐MONTH PERIODS
The adjusted EBITDA margin decreased by 130 basis points,
compared to the same period in 2017. The variance of the
twelve‐month period is principally explained by pricing pressure and
an evolving customer mix in the FinishMaster US segment, losses
related to foreign exchange currencies, higher professional and
consulting fees as well as information technology expenses. In
addition, investments were required for the integration of the
company‐owned stores by the Canadian Automotive Group
segment.
These elements were, in part, compensated by savings in The
FinishMaster US segment resulting from the 25/20 Plan and an
improved cost absorption at The Parts Alliance UK segment, which
benefited from a full twelve months of operations.
2018 ANNUAL REPORT UNI‐SELECT 30
F I N A N C E C O S T S , N E T
Finance costs, net
FOURTH QUARTERS
The increase in finance costs, compared to the same quarter in
2017, is mainly attributable to a higher average debt, which resulted
in higher borrowing costs.
Fourth quarters
Twelve‐month periods
2018
5,370
2017
4,986
2018
20,561
2017
14,487
TWELVE‐MONTH PERIODS
The increase in finance costs, compared to the same period in 2017,
is mainly attributable to a higher average debt, mostly related to
The Parts Alliance acquisition, which resulted in higher borrowing
costs. This variance was partially compensated by the amortization
of the premium on foreign currency options related to The Parts
Alliance acquisition recorded in 2017.
(Refer to note 5 in the consolidated financial statements for further details.)
D E P R E C I A T I O N A N D A M O R T I Z A T I O N
Depreciation and amortization
Fourth quarters
Twelve‐month periods
2018
10,265
2017
9,977
2018
39,702
2017
29,647
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The increase in depreciation and amortization, compared to the
same quarter in 2017, is mainly attributable to recent capital
investments.
The increase in depreciation and amortization, compared to the
same period of 2017, is mainly attributable to The Parts Alliance
acquisition, notably from the amortization of customer relationship
intangible assets. Depreciation on recent capital investments also
contributed to the increase.
(Refer to note 6 in the consolidated financial statements for further details.)
I N C O M E T A X E X P E N S E
Income tax expense (recovery)
Income tax rate
Fourth quarters
Twelve‐month periods
2018
(489)
17.1%
2017
2,170
19.9%
2018
8,180
18.3%
2017
22,002
33.0%
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The variance of the income tax rate, compared to the same quarter
in 2017, is mainly attributable to the lower enacted US corporate tax
rate announced in December 2017, as well as different geographic
pre‐tax earnings with distinct tax rates.
The variance of the income tax rate, compared to the corresponding
period in 2017, is mainly attributable to the lower enacted
US corporate
in December 2017,
non‐deductible acquisition costs in 2017 in relation to The Parts
Alliance acquisition, as well as different geographic pre‐tax earnings
with distinct tax rates.
announced
rate
tax
(Refer to note 7 in the consolidated financial statements for further details.)
2018 ANNUAL REPORT UNI‐SELECT 31
N E T E A R N I N G S A N D E A R N I N G S P E R S H A R E
Net earnings (loss)
Special items, net of taxes
Amortization of the premium on foreign currency options, net of
taxes
Amortization of intangible assets related to the acquisition of
The Parts Alliance, net of taxes
Adjusted earnings
Earnings (loss) per share
Special items, net of taxes
Amortization of the premium on foreign currency options, net of
taxes
Amortization of intangible assets related to the acquisition of
The Parts Alliance, net of taxes
Adjusted earnings per share
Fourth quarters
Twelve‐month periods
2018
(2,363)
6,741
2017
%
8,721 (127.1)
1,773
2018
36,497
10,811
2017
%
44,616
(18.2)
6,613
‐
‐
‐
2,003
1,052
5,430
(0.06)
0.16
‐
0.03
0.13
1,119
11,613
(53.2)
0.21 (128.6)
0.04
‐
0.02
0.27
(51.9)
4,165
51,473
0.86
0.26
‐
0.10
1.22
1,865
55,097
(6.6)
1.06
0.15
0.05
0.04
1.30
(18.9)
(6.2)
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
Adjusted earnings, compared to the same quarter
in 2017,
decreased by $6,183 or 53.2%, mainly resulting from a lower
adjusted EBITDA, as well as additional finance costs and
depreciation and amortization related to investments of capital.
Adjusted earnings, compared to the corresponding period in 2017,
decreased by $3,624 or 6.6%, as a result of additional finance costs
as well as depreciation and amortization, mostly related to business
acquisitions and investments of capital.
These elements were partially compensated by the contribution of
The Parts Alliance UK segment for a full year and the reduction of
the income tax rate for the US operations.
The conversion effect of the Canadian dollar and the British pound into the US dollar had no impact on earnings per share for both the
quarter and the twelve‐month period when compared to the corresponding periods of 2017.
2018 ANNUAL REPORT UNI‐SELECT 32
C O N S O L I D A T E D Q U A R T E R L Y O P E R A T I N G R E S U L T S
The Corporation’s sales follow seasonal patterns: sales are typically stronger during the second and the third quarters for the FinishMaster
US and the Canadian Automotive Group segments, and during the first and the second quarters for The Parts Alliance UK segment. Sales
are also impacted by business acquisitions as well as by the conversion effect of the Canadian dollar and the British pound into the US dollar.
The following table summarizes the main financial information drawn from the consolidated interim financial reports for each of the last
eight quarters.
2018
2017
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Sales
United States
Canada
United Kingdom(1)
EBITDA
EBITDA margin
Special items
Adjusted EBITDA
Adjusted EBITDA margin
Net earnings
Adjusted earnings
Basic earnings (loss) per share
Adjusted basic earnings per share
Diluted earnings per share
Dividends declared per share (C$)
203,440
122,460
93,555
214,209
131,128
103,508
210,954
139,572
111,045
201,379
110,669
110,046
198,956
123,023
92,999
419,455
448,845
461,571
422,094
414,978
12,783
3.0%
8,645
21,428
5.1%
(2,363)
5,430
(0.06)
0.13
(0.06)
0.0925
29,712
6.6%
5,212
34,924
7.8%
10,594
15,528
0.25
0.37
0.25
0.0925
0.77:$1
1.30:$1
35,443
7.7%
114
35,557
7.7%
17,875
18,399
0.42
0.44
0.42
0.0925
0.77:$1
1.36:$1
27,002
6.4%
618
27,620
6.5%
10,391
12,116
0.25
0.29
0.25
0.0925
0.79:$1
1.39:$1
25,854
6.2%
2,130
27,984
6.7%
8,721
11,613
0.21
0.27
0.21
0.0925
0.79:$1
1.33:$1
206,495
133,612
55,700
395,807
32,181
8.1%
1,734
33,915
8.6%
11,159
15,851
0.26
0.37
0.26
0.0925
0.80:$1
1.31:$1
209,486
130,801
‐
340,287
29,544
8.7%
2,916
32,460
9.5%
13,738
16,635
0.33
0.39
0.32
0.0925
0.74:$1
‐
199,702
97,498
‐
297,200
23,173
7.8%
‐
23,173
7.8%
10,998
10,998
0.26
0.26
0.26
0.085
0.76:$1
‐
Average exchange rate for earnings (C$)
0.76:$1
Average exchange rate for earnings (£)
1.29:$1
(1)
Sales since the completion of the acquisition on August 7, 2017.
ANALYSIS OF RESULTS BY SEGMENT
S E G M E N T E D I N F O R M A T I O N
The Corporation is providing information on four reportable segments:
FinishMaster US:
distribution of automotive refinish and
FinishMaster, Inc. in the US market.
industrial paint and related products representing
Canadian Automotive Group:
distribution of automotive aftermarket parts, including refinish and industrial paint and related
products, through Canadian networks.
The Parts Alliance UK:
distribution of automotive original equipment manufacturer (“OEM”) and aftermarket parts, serving
local and national customers across the UK.
Corporate Office and Others:
head office expenses and other expenses mainly related to the financing structure.
The profitability measure employed by the Corporation for assessing performance is EBITDA.
2018 ANNUAL REPORT UNI‐SELECT 33
O P E R A T I N G R E S U L T S – F I N I S H M A S T E R U S
Sales
Sales
Sales variance
Acquisitions
Number of billing days
Organic growth
FOURTH QUARTERS
Fourth quarters
Twelve‐month periods
2018
203,440
2017
198,956
2018
829,982
2017
814,639
4,484
‐
3,210
7,694
%
2.3
‐
1.6
3.9
15,343
(7,324)
3,221
11,240
%
1.9
(0.9)
0.4
1.4
TWELVE‐MONTH PERIODS
The FinishMaster US segment is reporting a growth of 2.3%,
compared to the same quarter last year, which is the result of the
organic growth of 3.9% in part offset by the 1.6% impact of a
different number of billing days.
Sales from this segment increased by 1.9%, compared to the same
period in 2017, supported by organic growth as well as business
acquisitions, in part offset by the impact of the number of billing
days.
This segment is reporting organic growth for a third consecutive
quarter, attributable to the sales team efforts on driving growth by
developing business volume and the onboarding of new customer
accounts.
The organic growth of 1.4% for the twelve‐month period is the result
investments, as well as
initiatives, customer
of sales team
two greenfields opened during the year.
EBITDA
EBITDA
EBITDA margin
Special items
Adjusted EBITDA
Adjusted EBITDA margin
FOURTH QUARTERS
The adjusted EBITDA margin decreased by 330 basis points when
compared to the same quarter last year. This variance is mainly
attributable to pressure on the gross margin from the combination
of an evolving customer mix and pricing pressure. The customer mix
impact resulted from a shift towards the national account
customers, for which discounts are more significant.
These elements were partially compensated by an improved
absorption of fixed costs in relation to organic growth, lower
medical benefits as well as a reduction of the performance‐based
compensation.
An in‐depth review started in January 2019 with the objective of
developing a plan to address and align the business model to
changing market conditions. The resulting plan will leverage the
25/20 Plan already in place. In addition, one company‐owned store
was integrated during the quarter.
Fourth quarters
Twelve‐month periods
2018
11,687
5.7%
1,693
13,380
6.6%
2017
%
19,603 (40.4)
9.9%
‐
19,603 (31.7)
9.9%
2018
74,349
9.0%
1,693
76,042
9.2%
2017
%
91,345 (18.6)
11.2%
‐
91,345 (16.8)
11.2%
TWELVE‐MONTH PERIODS
The adjusted EBITDA margin decreased by 200 basis points, when
compared to the same period last year, globally affected by the
same factors mentioned in the quarter.
Furthermore, the twelve‐month period was positively affected by
savings arising from activities initiated under the 25/20 Plan. These
activities include the integration of five company‐owned stores
during the year and the alignment of employee benefits to its
evolving cost‐to‐serve model.
2018 ANNUAL REPORT UNI‐SELECT 34
O P E R A T I N G R E S U L T S – C A N A D I A N A U T O M O T I V E G R O U P
Sales
Sales
Sales variance
Conversion effect of the Canadian dollar
Number of billing days
Acquisitions
Organic growth
FOURTH QUARTERS
Sales for the Canadian Automotive Group segment decreased by
0.5%, compared to the same quarter in 2017; the impact of a
different number of billing days and business acquisitions
compensating for the effect of the Canadian dollar on its conversion
to the US dollar.
The negative organic growth reported by this segment for the
quarter is attributable to different timings, in particular related to
the Holiday season since many installers and jobbers were closed
two more days than the same period last year. In addition, as
previously stated when reporting the results of the third quarter,
certain paint body and equipment sales were made in advance
during the preceding quarter due to price increase.
Fourth quarters
Twelve‐month periods
2018
122,460
2017
123,023
2018
503,829
2017
484,934
(563)
4,557
(2,548)
(2,019)
(573)
%
(0.5)
3.7
(2.1)
(1.6)
(0.5)
18,895
(290)
(2,328)
(13,653)
2,624
%
3.9
(0.1)
(0.5)
(2.8)
0.5
TWELVE‐MONTH PERIODS
Sales for this segment increased by 3.9%, compared to the same
period in 2017, driven by business acquisitions, organic growth and
a different number of billing days.
Organic growth was 0.5% for the twelve‐month period, resulting
from initiatives on driving growth and overcoming softer market
conditions.
2018 ANNUAL REPORT UNI‐SELECT 35
EBITDA
EBITDA
EBITDA margin
Special items
Adjusted EBITDA
EBITDA margin
Fourth quarters
Twelve‐month periods
2018
5,948
4.9%
3,346
9,294
7.6%
%
(5.4)
47.9
2017
6,286
5.1%
‐
6,286
5.1%
2018
28,616
5.7%
3,346
31,962
6.3%
2017
%
31,214 (8.3)
6.4%
‐
31,214
6.4%
2.4
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The adjusted EBITDA margin decrease of 10 basis points, compared
to the same period in 2017, is mainly related to efforts undertaken
in 2018 to optimize the company‐owned stores combined with the
integration of six company‐owned stores and one sold during the
year. Furthermore, the twelve‐month period of 2018 was impacted
by losses on foreign exchange currencies due to a weaker Canadian
dollar, while the corresponding period of 2017 benefited from a
one‐time saving in relation to the internalization of the servers.
These elements were, in part, compensated by higher volume
rebates, a greater performance of the PBE program, as well as a
reduction of performance‐based compensation.
increased by 250 basis points,
The adjusted EBITDA margin
compared to the same quarter in 2017, strengthened by improved
buying conditions after reaching a higher
level of annual
performance rebates. Furthermore, a greater performance of the
paint body and equipment (“PBE”) program, as well as a reduction
of performance‐based
the
to
compensation
enhancement of the adjusted EBITDA margin for the quarter.
contributed
These elements were, in part, offset by losses on foreign exchange
currencies originating from the weaker Canadian dollar and higher
information technology expenses to support operations.
In relation to the restructuring announced during the quarter and
referred to as the 25/20 Plan, the Canadian Automotive Group
segment immediately initiated its plan, with a first phase of reducing
the workforce and remodeling of the distribution network in the
Prairies. This includes the integration of the current distribution
centres in Saskatoon and Calgary, while a superior one is expected
to open during the first quarter of 2019 in Calgary. This will permit a
broader selection of inventory. These initiatives are complementary
to the integration and optimization of the company‐owned stores.
2018 ANNUAL REPORT UNI‐SELECT 36
O P E R A T I N G R E S U L T S – T H E P A R T S A L L I A N C E U K
The operations of The Parts Alliance UK segment are reported since their acquisition on August 7, 2017.
Sales
Sales
Sales variance
Conversion effect of the British Pound
Number of billing days
Acquisitions
Organic growth
FOURTH QUARTERS
Sales for this segment increased by 0.6%, compared to the same
quarter in 2017; the impact of the British pound on its conversion to
the US dollar mostly offsetting the 2.8% of organic growth and the
effect of a different number of billing day.
Organic growth for the segment was driven by the recent opening
of greenfields. During the fourth quarter, three greenfields were
opened as per plan, for a total of 13 in 2018 and 15 since its
acquisition, expanding the footprint in the UK.
Sales for this segment were softer than expected for December and
were affected by milder weather compared to 2017.
Fourth quarters
Twelve‐month periods
2018
93,555
2017
92,999
2018
418,154
2017
148,699
556
2,644
(427)
(189)
2,584
%
0.6
2.8
(0.4)
(0.2)
2.8
269,455
3,509
973
%
181.2
2.4
0.6
(266,062)
(178.9)
7,875
5.3
TWELVE‐MONTH PERIODS
Sales for this segment increased by 181.2%, compared to the same
period in 2017, as the figures from last year included sales since the
acquisition on August 7, 2017.
The organic growth of 5.3% benefited from the opening of
greenfields as well as growth initiatives.
EBITDA
EBITDA
EBITDA margin
Special items
Adjusted EBITDA
Adjusted EBITDA margin
FOURTH QUARTERS
The adjusted EBITDA margin decreased by 20 basis points,
compared to the same quarter in 2017. This variance is largely
attributable to recent investments in greenfields impacting the
EBITDA margin of the quarter by 75 basis points. Greenfields are
expected to affect the EBITDA margin until reaching the optimized
operational level, which may vary between 12 and 24 months.
This element was, in part, compensated by added volume of sales
related to organic growth and increasing the absorption of fixed
costs.
As part of the 25/20 Plan, The Parts Alliance UK segment is reviewing
its supply chain, which includes the closure of a location, a slight
reduction
inauguration of a national
distribution centre, situated in the heart of the UK and allowing the
ability to grow while improving efficiency.
in workforce and the
Fourth quarters
Twelve‐month periods
2018
2,356
2.5%
1,230
3,586
3.8%
%
2017
3,708 (36.5)
4.0%
‐
3,708
4.0%
(3.3)
2018
27,095
6.5%
1,230
28,325
6.8%
%
2017
6,007 351.1
4.0%
‐
6,007 371.5
4.0%
TWELVE‐MONTH PERIODS
leveraging
The adjusted EBITDA margin
increased by 280 basis points,
compared to the same period in 2017, reinforced by a full year of
operations, and
its fixed cost base. Furthermore,
undertakings, as part of the 25/20 Plan, supported the operating
integrating the operations of the acquired
performance, by
company‐owned stores, standardizing
their processes and
maximizing their contribution. During the year, three company‐
owned stores were integrated.
Theses benefits were partially offset by the opening of greenfields,
impacting
the annual EBITDA margin by approximately
40 basis points.
2018 ANNUAL REPORT UNI‐SELECT 37
O P E R A T I N G R E S U L T S – C O R P O R A T E O F F I C E A N D O T H E R S
EBITDA
Special items
Adjusted EBITDA
FOURTH QUARTERS
The variance, compared to the same quarter in 2017, is in part
attributable to a charge resulting from the equity swap instruments
associated with stock‐based compensation, while a gain was
realized last year for the corresponding quarter. In addition, higher
professional and consulting fees were incurred during the quarter
for current operations.
CASH FLOWS
O P E R A T I N G A C T I V I T I E S
Cash flows from operating activities
Fourth quarters
Twelve‐month periods
2018
(7,208)
2,376
(4,832)
%
(92.6)
2017
(3,743)
2,130
2018
(25,120)
8,320
2017
%
(17,814) (41.0)
6,780
(1,613) (199.6)
(16,800)
(11,034) (52.3)
TWELVE‐MONTH PERIODS
The variance, compared to the same period in 2017, is mostly
explained by the same factors mentioned for the quarter.
Fourth quarters
Twelve‐month periods
2018
13,398
2017
45,471
2018
94,579
2017
124,005
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The variance in cash inflows from operating activities, compared to
the same quarter in 2017, is the result of investments in inventory
made during the last quarter of 2018 to benefit from annual
performance rebates, to prevent against potential logistical issues
related to Brexit, as well as to fill new distribution centres as part of
the 25/20 Plan.
This variance was partially compensated by a reduction in trade
receivables due to improved collection during the last quarter of
2018.
The variance in cash inflows from operating activities, compared to
the same period in 2017, is explained by growing sales, increasing
trade receivables and inventory levels. Additionally, investments in
inventory were required at the end of the year to benefit from
annual performance rebates, to prevent against potential logistical
issues related to Brexit, as well as to fill new distribution centres as
part of the 25/20 Plan. In addition, higher interest payments in 2018
related to the financing of business acquisitions and larger Canadian
tax installments paid at the beginning of the year, contributed to the
variance.
These elements were partially compensated by a higher level of
trade payables through the vendor financing program and a superior
operating income, notably benefiting from the contribution of
The Parts Alliance UK segment for a full year.
2018 ANNUAL REPORT UNI‐SELECT 38
I N V E S T I N G A C T I V I T I E S
Cash flows used in investing activities
Fourth quarters
Twelve‐month periods
2018
(38,178)
2017
(19,370)
2018
(86,193)
2017
(401,958)
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The increase in cash outflows used in investing activities, compared
to the same quarter in 2017, mostly resulted from business
acquisitions during
fourth quarter of 2018, adding
21 company‐owned stores to the consolidated network.
the
The variance in cash outflows used in investing activities, compared
to the same period in 2017, is mainly related to business acquisitions
closed in 2017, notably the addition of a new segment with The
Parts Alliance UK.
This variance was, in part, compensated by additional customer
investments granted by the FinishMaster US segment in 2018 for
business volume development.
F I N A N C I N G A C T I V I T I E S
Cash flows from (used in) financing activities
Fourth quarters
Twelve‐month periods
2018
21,979
2017
(54,782)
2018
(30,594)
2017
285,677
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The variance in cash flows from financing activities, compared to the
same quarter in 2017, is mainly explained by a higher level of
business acquisitions, combined with investments in inventory
during the fourth quarter, which required additional funding from
the credit facility in 2018.
in 2017,
The variance in cash flows from financing activities, compared to the
same period
is mainly explained by a superior
reimbursement of the long‐term debt in 2018 resulting from a lower
level of business acquisitions financed by the credit facility, partially
offset by investments in inventory and the grant of additional
customer investments during the current year.
F R E E C A S H F L O W S
Cash flows from operating activities
Changes in working capital
Acquisitions of property and equipment
Difference between amounts paid for post‐employment benefits and current
period expenses
Free cash flows
FOURTH QUARTERS
is explained by
The variance in free cash flows, compared to the same quarter in
2017,
important property and equipment
investments during the last quarter of 2018, in relation to new
in the Canadian Automotive Group and
distribution centres
The Parts Alliance UK segments, in line with the supply chain
optimization as part of the 25/20 Plan.
Fourth quarters
Twelve‐month periods
2018
13,398
8,953
22,351
(8,675)
41
13,717
2017
45,471
(23,234)
22,237
(5,224)
2018
94,579
5,163
99,742
2017
124,005
(14,583)
109,422
(19,391)
(13,658)
(147)
16,866
(449)
(104)
79,902
95,660
TWELVE‐MONTH PERIODS
The variance in free cash flows, compared to the same period in
2017, is mainly explained by higher interest payments related to the
financing of business acquisitions, larger Canadian tax installments
as well as capital investments for property and equipment as part of
the 25/20 Plan and for openings of greenfields.
These elements were, in part, compensated by the increasing
operating income, notably benefiting from a full‐year contribution
by The Parts Alliance UK segment.
2018 ANNUAL REPORT UNI‐SELECT 39
FINANCING
S O U R C E S O F F I N A N C I N G
The Corporation is diversifying its sources of financing in order to manage and mitigate liquidity risk.
C R E D I T F A C I L I T I E S
On August 30, 2018, the Corporation entered into an amended and restated credit agreement (the “agreement”). The agreement provides
for a $100,000 upsize in the unsecured long‐term revolving credit facility (the “revolving credit facility”) through the conversion, and
immediate cancellation, of the unsecured term facility outstanding balance. The total maximum principal amount available under the
agreement remains at $625,000, which is entirely composed of the revolving credit facility that can be repaid at any time without penalty.
In addition, the agreement extends the maturity of the revolving credit facility and the unsecured letter of credit facility to June 30, 2023.
As at December 31, 2018, the unused portion, subject to financial covenants, amounted to $207,000 ($193,000 as at December 31, 2017).
(Refer to note 17 in the consolidated financial statements for further details.)
V E N D O R F I N A N C I N G P R O G R A M
The Corporation benefits from a vendor financing program. Under this program, financial institutions make discounted accelerated
payments to suppliers, and the Corporation makes full payment to the financial institutions according to the new extended payment term
agreements with suppliers.
As at December 31, 2018, Uni‐Select benefited from additional deferred payments of accounts payable in the amount of $213,478 and
used $291,582 of the program ($166,344 and $229,468 respectively as at December 31, 2017). The authorized limit with the financial
institutions is $300,000, following an increase of $32,500 during the second quarter of 2018. These amounts are presented in “Trade and
other payables” in the condensed consolidated statements of financial position. This program is available upon the Corporation’s request
and may be modified by either party.
F I N A N C I A L I N S T R U M E N T S
Derivative financial instruments – hedge of foreign exchange risk
The Corporation entered into forward contracts in order to mitigate the foreign exchange risks mainly related to purchases in currencies
other than the respective functional currencies of the Corporation. The consolidated forward contracts outstanding as at
December 31, 2018 are as follows:
Currencies (sold/bought)
CAD/USD
GBP/USD
GBP/EURO
Maturity
Average rate (1)
Up to March 2019
Up to May 2019
Up to January 2019
0.79
1.27
1.11
Notional
amount (2)
6,881
3,613
458
(1) Rates are expressed as the number of units of the currency bought for one unit of currency sold.
(2) Exchange rates as at December 31, 2018 were used to translate amounts in foreign currencies.
Derivative financial instruments used in cash flow hedges ‐ hedge of interest rate risk
The Corporation entered into various swap agreements to hedge the variable interest cash flows on a portion of the Corporation’s revolving
credit facility and term loan for total nominal amounts of $67,500 for interest rate swaps denominated in US dollars ($80,000 in 2017), and
£70,000 for interest rate swaps denominated in British pounds (same in 2017). Until their respective maturities, these agreements are fixing
the interest cash flows between 1.745% and 1.760% for interest rate swaps denominated in US dollars, and to 0.955% for interest rate
swaps denominated in British pounds.
Derivative financial instruments – hedge of share‐based payments cost
In 2016, the Corporation entered into equity swap agreements in order to manage the market price risk of its common shares. As at
December 31, 2018, the equity swap agreements covered the equivalent of 364,277 common shares of the Corporation (same in 2017).
2018 ANNUAL REPORT UNI‐SELECT 40
F U N D R E Q U I R E M E N T S
The Corporation is able to meet both its operational and contractual fund requirements and support its various strategic initiatives for future
growth, by using the various financing tools mentioned above, as well as its capacity to generate cash flows.
O P E R A T I O N A L N E E D S
Operational requirements that the Corporation will face in 2019 are summarized as follows:
‐
The purchase of various capital assets for:
‐ Partial renewal of the vehicle fleet through both financed leases and purchases;
‐ Hardware equipment and software applications;
‐
Location modernization;
‐ Greenfield openings; and
‐
Supply chain optimization in relation to the Performance Improvement Plan.
‐
‐
Incentives granted to customers.
The dividend payments.
C O N T R A C T U A L O B L I G A T I O N S
Operating leases
The Corporation has entered into long‐term operating lease agreements expiring at various dates until 2033 for the rental of buildings,
vehicles and information technology equipment and services. Some of these lease agreements contain renewal options for additional
periods of one to five years which the Corporation may exercise by giving prior notice.
Finance leases
The Corporation mainly uses finance leases to renew its vehicle fleet. The terms vary from 16 to 84 months depending on the lease. As at
December 31, 2018, the carrying values of the leased assets, which are presented under "automotive equipment" along with "property and
equipment", were $11,680 ($19,141 as at December 31, 2017).
The following table shows the various contractual obligations due by period.
Long‐term debt(1) (2)
Operating leases
Finance leases(3)
Total
2019
2020
2021
2022
2023
Thereafter
4
34,317
4,132
38,453
4
30,399
3,351
33,754
3
24,748
2,505
27,256
‐
418,220
‐
17,177
1,447
18,624
13,547
40,005
474
78
432,241
40,083
(1)
(2)
(3)
Includes credit facility.
Does not include obligations related to interest on debt.
Include obligations related to interest on finance leases.
Post‐employment benefit obligations
The Corporation sponsors both defined benefit and defined contribution pension plans.
The defined benefit pension plans include a basic registered pension plan, a registered pension plan for senior management and a
non‐registered supplemental pension plan for certain members of senior management. The benefits under the Corporation’s defined
benefit pension plans are based on the years of service and the final average salary. The two registered pension plans are funded by the
Corporation and the members of the plan. Employee contributions are determined according to the members’ salaries and cover a portion
of the benefit costs. The employer contributions are based on the actuarial evaluation which determines the level of funding necessary to
cover the Corporation’s obligations.
For the year ending December 31, 2019, the Corporation expects to make contributions of approximately $1,676 for its defined benefit
pension plans. (Refer to note 16 in the consolidated financial statements for further details.)
2018 ANNUAL REPORT UNI‐SELECT 41
Off balance sheet arrangements – guarantees
Under inventory repurchase agreements, the Corporation has made commitments to financial institutions to repurchase inventory from
some of its customers. In Management’s opinion and based on historical experience, the likelihood of significant payments being required
under these agreements and losses being absorbed is low as the value of the assets held in guarantee is greater than the Corporation’s
financial obligations. (Refer to note 22 in the consolidated financial statements for further details.)
Under the terms of its credit facility, the Corporation has issued letters of credit amounting to $7,337 as at December 31, 2018 ($8,137 as
at December 31, 2017). (Refer to note 17 in the consolidated financial statements for further details.)
CAPITAL STRUCTURE
The Corporation’s capital management strategy optimizes the capital structure to enable the Corporation to benefit from strategic
opportunities that may arise while minimizing related costs and maximizing returns to shareholders. The Corporation adapts capital
management to the changing business conditions and the risks related to the underlying assets.
L O N G ‐ T E R M F I N A N C I A L P O L I C I E S A N D G U I D E L I N E S
Guided by its low‐asset‐base‐high‐utilization philosophy, the Corporation’s strategy is to monitor the following ratios to ensure flexibility
in the capital structure:
‐
‐
‐
Total net debt to total net debt and total equity;
Long‐term debt to total equity ratio;
Funded debt to adjusted EBITDA ratio;
‐ Adjusted return on average total equity; and
‐ Dividend payout ratio based on the adjusted earnings of the previous year converted in Canadian dollars.
Components of debt ratios:
Long‐term debt
Total net debt
Total equity
Debt ratios(1):
Total net debt to total net debt and total equity ratio
Long‐term debt to total equity ratio
Funded debt to adjusted EBITDA ratio
Return on average total equity
Adjusted return on average total equity
December 31,
2018
2017
426,739
418,703
523,882
448,581
417,909
517,977
44.4%
81.5%
3.50
7.0%
9.1%
44.7%
86.6%
3.56
9.0%
10.8%
Dividend payout ratio
19.3%
These ratios are not required for banking commitments but represent the ones that the Corporation considers pertinent to monitor and to ensure
flexibility in the capital structure.
21.9%
(1)
Management continuously monitors its working capital items to improve the cash conversion cycle, in particular, on optimizing inventory
levels in all business segments.
The slight decrease of the total net debt to total net debt and total equity ratio is related to the increase of the total equity resulting from
the net earnings of the period.
The reduction of the long‐term debt to total equity ratios is explained by the partial reimbursement of the debt from cash flows generated
by operations, combined with an increase of the total equity resulting from the net earnings of the period.
The improvement of the funded debt to adjusted EBITDA ratio is attributable to a higher adjusted EBITDA.
The variance of the adjusted return on average total equity is explained by lower adjusted earnings for the year impacted by additional
amortization of intangible assets and finance costs related to business acquisitions, which were, in part, compensated by an increase of the
average total equity.
2018 ANNUAL REPORT UNI‐SELECT 42
B A N K C O V E N A N T S
For purposes of compliance, the Corporation regularly monitors the requirements of its bank covenants to ensure they are met. As at
December 31, 2018 and 2017, the Corporation met all the requirements.
D I V I D E N D S
For the year 2018, the Corporation declared dividends amounting to $0.370 per share compared to C$0.3625 in 2017, representing an
increase of 2.1%.
On February 20, 2019, the Corporation declared the first quarterly dividend of 2019 of C$0.0925, payable on April 16, 2019 to shareholders
of record as of March 31, 2019.
Dividends are approved by the Board of Directors, which bases its decision on operating results, cash flows and other relevant factors.
There is no guarantee that dividends will be declared in the future.
These dividends are eligible dividends for income tax purposes.
I N F O R M A T I O N O N C A P I T A L S T O C K
(in thousands of shares)
Number of shares issued and outstanding
Weighted average number of outstanding shares
As of January 31, 2019, 42,387,300 common shares were outstanding.
Fourth quarters
Twelve‐month periods
2018
42,387
42,301
2017
42,274
42,274
2018
42,387
42,254
2017
42,274
42,261
Issuance of shares
During the year ended December 31, 2018, the Corporation issued 206,184 common shares (59,634 in 2017) at the exercise of stock options
for a cash consideration of $2,331 ($661 in 2017). The weighted average price of the exercise of stock options was C$14.94 for the year
(C$14.80 for 2017).
Repurchase and cancellation of shares
On April 18, 2018, the Corporation announced that it received approval from the TSX to renew its intention to purchase by way of a new
normal course issuer bid (“NCIB”), for cancellation purposes, up to 1,500,000 common shares, representing approximately 3.5% of its
42,273,812 issued and outstanding common shares as of April 16, 2018 over a twelve‐month period beginning on April 23, 2018 and ending
on April 22, 2019. In connection with the NCIB, the Corporation established an Automatic Purchase Plan (“APP”), enabling itself to provide
standard instructions regarding the redemption of common shares during self‐imposed blackout periods. Such redemptions will be
determined by the broker in its sole discretion based on the Corporation’s parameters.
In relation to this APP, 92,696 common shares were repurchased during the year ended December 31, 2018 for a cash consideration of
$1,422 including a share repurchase and cancellation premium of $1,232 applied as a reduction of retained earnings (none in 2017).
S T O C K ‐ B A S E D C O M P E N S A T I O N
The Corporation’s stock‐based compensation plans include an equity‐settled common share stock option plan, and cash‐settled plans
consisting of a deferred share unit plan and a performance share unit plan.
Common share stock option plan for management employees and officers
For the year ended December 31, 2018, 181,679 options were granted to management employees and officers of the Corporation (573,215
for 2017), with an average exercise price of C$28.61 (C$29.02 in 2017). During the year, 206,184 options were exercised (59,634 for 2017)
and 340,360 options were forfeited or expired (none for 2017).
As at December 31, 2018, options granted for the issuance of 541,494 common shares (906,359 as at December 31, 2017) were outstanding
under the Corporation’s stock option plan, and 1,396,500 common shares (1,237,819 as at December 31, 2017) were reserved for additional
options under the stock option plan.
For the year ended December 31, 2018, compensation expense of $1,339 ($924 for 2017) was recorded in the “Net earnings”, with the
corresponding amounts recorded in “Contributed surplus”.
2018 ANNUAL REPORT UNI‐SELECT 43
Deferred share unit (“DSU”) plan
For the year ended December 31, 2018, the Corporation granted 83,423 DSUs (36,572 DSUs for 2017) and redeemed 86,292 DSUs
(25,491 DSUs for 2017). Compensation expense of $206 ($673 in 2017) was recorded during the year, and 150,468 DSUs were outstanding
as at December 31, 2018 (153,337 DSUs as at December 31, 2017). As at December 31, 2018, the compensation liability was $2,114 ($3,482
as at December 31, 2017) and the fair value of the equity swap agreement was a liability of $1,332 (liability of $352 as at
December 31, 2017).
Performance share unit (“PSU”) plan
For the year ended December 31, 2018, the Corporation granted 135,709 PSUs (127,950 PSUs for 2017) and redeemed 248,601 PSUs
(70,991 PSUs for 2017). Compensation reversal of $661 (expense of $1,809 in 2017) was recorded during the year, and 160,103 PSUs were
outstanding as at December 31, 2018 (272,995 PSUs as at December 31, 2017). As at December 31, 2018, the compensation liability was
$317 ($4,945 as at December 31, 2017) and the fair value of the equity swap agreement was a liability of $1,726 (liability of $356 as at
December 31, 2017).
FINANCIAL POSITION
During the period, the financial position, when compared to December 31, 2017, has been impacted by business acquisitions and the
conversion effect of the Canadian dollar and the British pound into the US dollar.
The following table shows an analysis of selected items from the consolidated statements of financial position:
Dec. 31,
2018
Dec. 31,
2017
Impact of
business
acquisitions
Impact on
conversion
C$/US$
and £/US$
Net
variances
Short‐term
Cash
Trade and other receivables
Inventory
Trade and other payables
Long‐term
Investments and advances to merchant members
Intangible assets
Goodwill
Balance of purchase price, net (including short‐term portion)
Long‐term debt (including short‐term portion)
Explanations for net variances:
Cash: Cash availability was used to reduce the long‐term debt.
8,036
247,732
524,335
532,676
46,039
210,331
372,007
5,274
426,739
30,672
236,811
458,354
446,370
30,628
231,365
372,119
18,413
448,581
‐
1,768
8,780
2,456
180
2,371
(428)
(11,835)
(18,684)
22,208
20,988
75,885
(20,493)
104,343
(439)
15,670
(6,925)
(16,480)
11,156
(11,268)
(12,617)
32,979
(522)
(8,869)
(45,952)
‐
‐
Trade and other receivables: The increase is essentially related to growing sales activities.
Inventory: The increase is attributable to growing activities, notably from the opening of greenfields, as well as to additional
investments required at the end of the year to benefit from annual performance rebates, to prevent against potential logistical issues
related to Brexit, as well as to fill new distribution centres as part of the 25/20 Plan.
Trade and other payables: The increase is mainly explained by additional volume of trade payables going through the vendor financing
program.
Investments and advances to merchant members: The increase is mainly attributable to additional customer investments granted by
the FinishMaster US segment in relation to new business volume wins, net of amortization.
Intangible assets: Amortization during the period, net of new investments, explains the variance.
Long‐term debt: Operating activities combined with the available cash position, net of the investments of the period, allowed the partial
reimbursement of the debt.
2018 ANNUAL REPORT UNI‐SELECT 44
RELATED PARTIES
For the years ended December 31, 2018 and 2017, common shares of the Corporation were widely held, and the Corporation did not have
an ultimate controlling party.
Transaction with key management personnel
Key management includes directors (executive and non‐executive) and members of the Executive Committee. For the years ended
December 31, 2018 and 2017, the compensation to key management personnel was as follows:
Salaries and short‐term employee benefits
Severances and retention bonuses
Stock‐based benefits
Post‐employment benefits (including contributions to defined benefit pension
Years ended
December 31,
2018
5,254
3,626
1,693
235
10,808
2017
4,786
‐
2,308
274
7,368
There were no other related‐party transactions with key management personnel for the years ended December 31, 2018 and 2017.
RISK MANAGEMENT
In the normal course of business, the Corporation is exposed to a variety of risks and uncertainties that may have a material and adverse
impact on its business activities, operating results, cash flows and financial position. The Corporation continuously maintains and updates
its system of analysis and controls on operational, strategic and financial risks to manage and implement activities with the objective of
mitigating the risks.
The following information is a summary of key risk factors, which may not be exhaustive.
R I S K S A S S O C I A T E D W I T H T H E E C O N O M Y
Economic climate
The economic climate has a moderate impact on sales of automotive aftermarket parts, automotive refinish and industrial paint and related
products and on the Corporation’s operations. Although the automotive aftermarket industry is, to some extent, dependent on the
economic climate, it is not nearly as affected as new car sales are by a difficult economic situation, since deciding to make car repairs is less
discretionary and less expensive than the decision to buy a new vehicle.
Changes in legislation or government regulations or policies
Certain political developments occurring this past year have resulted in increased uncertainty for multi‐national companies. These
developments may result in trade policy actions that could impact the landscape of international trade. The Corporation’s business is global
and changes to existing international trade agreements, blocking of foreign trade or imposition of tariffs on foreign goods could result in
decreased sales and/or increase in pricing, either of which could have an adverse impact on the business, operational results, financial
condition and cash flows in future periods for the Corporation.
Inflation
Management believes that inflation has limited impact on the Corporation’s financial results as the vast majority of price increases imposed
by manufacturers are passed on to consumers for after market parts. Nevertheless, for automotive refinish and industrial paint and related
products, the Corporation may not be able to implement additional price increases in the future and that could have a negative impact on
financial results. To reduce the risk, the Corporation employs numbers of practices, including re‐evaluate cost‐to‐serve and negotiate
agreements with vendors.
Distance travelled
There is a direct link between unemployment rates, fuel prices and distance travelled as there is a direct link between distance travelled
and the rate of vehicle wear and tear and repairs. Fuel prices also affect the Corporation’s delivery costs.
2018 ANNUAL REPORT UNI‐SELECT 45
R I S K S A S S O C I A T E D W I T H T H E B U S I N E S S C O N T E X T
Growth in the vehicle fleet
The growing number of car models over the last few years, coupled with their longer lifespan, results in a proliferation of aftermarket parts,
imposing financial constraints on distributors and wholesalers that must carry a greater selection of parts to ensure adequate availability.
This factor is partly offset by manufacturers putting increasingly sophisticated technological components into their vehicles, resulting in
each part having more than one use and costing more to repair, which is favourable to the automotive aftermarket.
The rise in the number of foreign vehicle brands in North America is also responsible for the growing number of car models and the
proliferation of aftermarket parts. This situation, together with technological complexity, electric cars and greater number of electronic
components being used in cars, are factors that tend to favour dealers when consumers are deciding on a service supplier to perform their
vehicle maintenance. On the other hand, any potential downsizing of automobile dealers’ network could result in a move toward the
aftermarket network for vehicle maintenance and repairs.
Products supply and inventory management
Uni‐Select primarily distributes parts and products from well‐known and well‐established North American manufacturers. These
manufacturers generally take responsibility for products that are defective, poorly designed or non‐compliant with their intended use.
Uni‐Select directly imports, to a lesser extent, various parts and products from foreign sources; with regards to these parts, the cash
recovery of an eventual recourse against a supplier or manufacturer is uncertain. The Corporation carries liability insurance. In addition,
transport logistics between the country of origin and the markets supplied increase the risk of stock outages.
The nature of the Corporation’s businesses demands the maintenance of adequate inventories and the ability to meet specific delivery
requirements. Supply management is an important element for proper inventory management and under most of our automotive parts
supply agreements, the Corporation has return privileges, which helps mitigate the risks associated with inventory obsolescence.
To ensure a continuous supply of its products, the Corporation examines the financial results of its main suppliers and regularly reviews the
diversification of its sources of supply.
Distribution by the manufacturer directly to consumers
The distribution of paint depends on the supply of products to the Corporation by certain large and limited number of manufacturers. One
or some of these manufacturers could, in the future, decide to distribute their products directly to the end‐customers or through other
distributors without using the Corporation’s services as a distributor. Such decision could cause an adverse effect on the profitability of the
Corporation’s business depending on the importance of the manufacturer in the Corporation’s supply chain and the availability of
alternative supply sources. To reduce such risks, Uni‐Select retains harmonious business relationships with large paint manufacturers,
provides efficient distribution and offers loyalty programs to their body shop customers, thereby creating value throughout the supply
chain.
Technology
Ongoing technological developments in recent years require distributors and wholesalers to provide continual training programs to their
employees and customers, along with access to new diagnostic tools. Uni‐Select manages the potential impact of these trends through the
scope and quality of the training and support programs it provides to independent wholesalers, their employees and their customers. It
provides its customers with access to efficient and modern technologies in the areas of data management, warehouse management and
telecommunications.
Improved safety features such as collision avoidance systems, driverless vehicles and other safety improvements as well as insurance
company influence may reduce the demand for some of the Corporation’s paint and related products and may have an impact on the
operations and financial results.
Environmental risks
The industry of paint and of certain parts products distribution involves a certain level of environmental risk. Damages or destruction to
warehouses specialised in the storage of such products, notably by fire, resulting in the spillage of paint or hazardous material, can have
environmental consequences such as soil contamination or air pollution. These specialised warehouses are well‐equipped to reduce such
risks. This includes up‐to‐date sprinkler systems and retention basins in the event of accidental spills.
2018 ANNUAL REPORT UNI‐SELECT 46
Risks related to legal, regulatory compliances and litigations
The global operations of the Corporation require to be compliant with applicable laws and regulations in many jurisdictions on various
matters, such as: anticorruption, taxation, securities, antitrust, data privacy or data protection (including the General Data Protection
Regulation) and labour relations. Complying with these diverse requirements applicable to the operations of the Corporation located in
Canada, the US and the UK, is an important task that consumes significant resources (including external professional advisers). Some of
these laws and regulations may impose several requirements and may expose the Corporation to penalties and fines for non‐compliance
as well as harm its reputation.
R I S K S A S S O C I A T E D W I T H T H E O P E R A T I O N A L C O N T E X T
Risks related to Uni‐Select’s business model and strategy
In the automotive aftermarket, Uni‐Select’s business model is servicing independent wholesalers and independent installers through a
network of company‐owned warehouses and stores. This requires the Corporation to take special measures to promote its wholesalers’
loyalty and long‐term survival. This is why Uni‐Select’s fundamental approach is to drive the growth, competitiveness and profitability of
its independent wholesalers by a total business solution that incorporates good purchasing conditions, proactive management of product
selection, highly efficient distribution services, innovative marketing programs and various support services, such as training and financing.
Furthermore, considering that owners of aftermarket parts stores are aging, Uni‐Select has also implemented succession programs to
enable independent wholesalers who wish to retire to sell their business to a family member or an employee. Alternatively, Uni‐Select may
decide to purchase the business of its independent wholesalers to protect and grow its distribution network, as part of its corporate
strategy.
Strategic Alternatives Review
In September 2018, the Board of Directors of the Corporation made management changes and announced the formation of a Special
Committee of independent members of the Board to oversee a review of strategic alternatives. The Special Committee, the Board and
management continue to actively review, analyze and evaluate a comprehensive range of alternatives with the goal of maximizing value
for our shareholders. There are no guarantees that the review of strategic alternatives will result in a transaction, or if a transaction is
undertaken, as to its terms or timing.
Integration of acquired business
The Corporation’s growth‐by‐acquisition strategy carries its share of risks. The Corporation’s success of its acquisitions depends on its ability
to integrate and crystallize synergies in terms of efficiently consolidating the operations of the acquired businesses into its existing
operations. Uni‐Select has developed an expertise in this regard having successfully acquired and integrated several businesses over the
years. To limit its risk, the Corporation has adopted a targeted and selective acquisition strategy, conducts strict due diligence and develops
detailed integration plans. Finally, Uni‐Select relies on a multidisciplinary team that is able to accurately assess and manage the risks specific
to the markets where it does business.
Competition
The aftermarket industry in which the Corporation does business is highly competitive. Availabilities of parts, prices, quality and customer
service are critical factors. Uni‐Select competes primarily in the DIFM (Do It For Me) segment of the industry with, among others, national
retail chains, independent distributors and wholesalers as well as online suppliers. Competition varies from market to market, and some
competitors may have superior advantages over Uni‐Select, which may result, among others, in a reduction in selling prices and an increase
in marketing and promotional expenses, which would drive down the Corporation's profitability. To reduce this risk, the Corporation
regularly reviews its product and service offering to meet the needs of its customer base as effectively as possible. In addition, the
proliferation of parts in itself is a barrier to entry into the market for new competitors.
Business and financial systems
The Corporation relies extensively on its computer systems and the systems of its business partners to manage inventory, process
transactions and report results. These systems are subject to damage or interruption from power outages, telecommunications failures,
computer viruses, security breaches and catastrophic events. If its computer systems or those of its business partners fail to function
properly, the Corporation may experience loss of critical data and interruptions or delays in its ability to manage inventories or process
transactions, potentially impacting revenue and operational results. To mitigate that risk, the Corporation is supported by expert firms to
prevent its applications from intrusion and loss of data. It includes robust firewalls, backup procedures, dual telecommunication lines,
hardware redundancy and external hosting of equipment in specialised sites.
2018 ANNUAL REPORT UNI‐SELECT 47
Human resources
During this period of active change, Uni‐Select must attract, train and retain a large number of competent employees, while controlling
payroll. Labour costs are subject to numerous external factors, such as wage rates, fringe benefits and the availability of local skilled
resources at the opportune moment and internal factors such as the renegotiation of collective agreements for unionized employees. The
inability to attract, train and retain employees could affect the Corporation’s growth capacity as well as its financial performance. The
Corporation has the following to attract, train and retain the best talent:
‐ Guides to accelerate employee on‐boarding and measure proficient acquisition integration;
‐
‐
Focus on areas related to training, such as sales development, business‐related subject matter reinforcement, effective teams
and interpersonal communications;
Yearly talent reviews for performance, development and succession; and
‐ Harmonized competitive and equitable pension and benefits programs.
R I S K S A S S O C I A T E D W I T H F I N A N C I A L I N S T R U M E N T S
Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting its obligations on time and at a reasonable cost. This risk is
dealt with in the “Financing” section.
Credit risk
Credit risk stems primarily from the potential inability of customers to discharge their obligations. The maximum credit risk to which the
Corporation is exposed represents the carrying amount of cash, cash held in escrow, trade and other receivables and advances to merchant
members. No account represents more than 5% of total accounts receivable. In order to manage its risk, specific credit limits are determined
for certain accounts and reviewed regularly by the Corporation.
The Corporation may also be exposed to credit risk from its foreign exchange forward contracts, its interest rate swaps and its equity swap
agreements, which is managed by dealing with reputable financial institutions.
The Corporation holds in guarantee some personal property and some assets of certain customers. Those customers are also required to
contribute to a fund to guarantee a portion of their amounts due to the Corporation. The financial condition of customers is examined
regularly, and monthly analyses are reviewed to ensure that past‐due amounts are collectible and, if necessary, that measures are taken
to limit credit risk.
Allowances for doubtful accounts and past‐due accounts receivable are reviewed at least quarterly, and a bad‐debt expense is recognized
only for accounts receivable for which collection is uncertain.
Foreign exchange risk
The Corporation is exposed to foreign exchange risk on its financial instruments mainly related to purchases in currencies other than the
respective functional currencies of the Corporation. To limit the impact of fluctuations in the Canadian dollar or the British pound over the
US dollar and Euro on forecasted cash flows, the Corporation uses forward contracts from time to time.
The Corporation has certain investments in foreign operations (United States and United Kingdom) whose net assets are exposed to foreign
currency translation. The Corporation hedges the foreign exchange risk exposure related to those investments with US dollar or British
pound denominated debt instruments.
Interest rates
The Corporation is exposed to interest rate fluctuations, primarily due to its variable‐rate debts. The Corporation manages its interest rate
exposure by maintaining an adequate balance of fixed versus variable rate debt and by concluding swap agreements to exchange variable
rates for fixed rates. The Corporation does not use financial instruments for trading or speculative purposes.
(For further details about risks associated with financial instruments, refer to note 20 in the consolidated financial statements.)
2018 ANNUAL REPORT UNI‐SELECT 48
CHANGE IN ACCOUNTING POLICIES
A C C O U N T I N G C H A N G E S A D O P T E D I N 2 0 1 8
The Corporation applied, for the first time, IFRS 15 “Revenues from contracts with customers” and IFRS 9 “Financial Instruments” that
require restatement of previous consolidated financial statements.
Revenues from contracts with customers
In May 2014, the International Accounting Standards Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) jointly issued
IFRS 15, a converged standard on the recognition of revenue from contracts with customers. It supersedes the IASB’s current revenue
recognition guidance including IAS 18 “Revenue”, IAS 11 “Construction Contracts”, and related interpretations. IFRS 15 provides a single
principle‐based five‐step model to use when accounting for revenue arising from contracts with customers.
The Corporation has applied IFRS 15 as of January 1, 2018 using the full retrospective method of adoption. The effect of adopting this
standard is detailed as follows:
Effects on the consolidated financial statements and notes for the year ended December 31, 2017
Under the new standard, the transfer of products with a right of return is presented gross as a refund liability and an asset for recovery. In
the Corporation’s audited consolidated financial position as at December 31, 2017, the allowance for returns was presented on a net basis
and, therefore, a reclassification of $9,644 from “Trade and other payables” to “Trade and other receivables” is required.
The implementation of IFRS 15 had no material impact on the Corporation’s consolidated statements of earnings, comprehensive income,
changes in equity and cash flows for the year ended December 31, 2017.
The new disclosure requirements of IFRS 15 partially impacted the information described under notes 2 and 3 in the consolidated financial
statements. Refer to these notes, under their respective “Sales recognition” sections, for further details.
Financial instruments
In July 2014, the IASB issued a complete and final version of IFRS 9 “Financial Instruments”, replacing the current standard on financial
instruments (IAS 39). IFRS 9 introduces a single, principle‐based approach for the classification of financial assets, driven by the nature of
cash flows and the business model in which an asset is held. IFRS 9 also provides guidance on an entity’s own credit risk relating to financial
liabilities and has modified the hedge accounting model to align the economics of risk management with its accounting treatment. The
standard results in a single expected‐loss impairment model rather than an incurred losses model.
The Corporation has applied IFRS 9 retrospectively, with the initial application date as of January 1, 2018. This transition had no significant
impact on the consolidated financial statements.
The new disclosure requirements of IFRS 9 partially impacted the information described under note 3 in the consolidated financial
statements. Refer to this note, under “Financial instruments ‐ Classification and measurement of non derivative financial assets” and
“Financial instruments ‐ Impairment of non derivative financial instruments” sections for further details.
The following summarizes other impacts resulting from the adoption of the accounting changes:
Classification and measurement of non derivative financial instruments: The Corporation reclassified its loans and receivables financial
assets to financial assets measured at amortized cost. The adoption of IFRS 9 did not result in any measurement adjustments to the financial
assets and, therefore, does not require restatement of comparative periods. As well, it had no significant effect on the Corporation’s
accounting policies for financial liabilities and derecognition of financial instruments.
Impairment of non derivative financial instruments: IFRS 9 replaces the incurred loss model in IAS 39 with the ECL approach. The adoption
of the ECL requirements of IFRS 9 had no significant impact on the Corporation’s accounting for impairment losses for financial assets.
Derivative financial instruments and hedge accounting: The Corporation has elected to adopt the new general hedge accounting model in
IFRS 9. This requires the Corporation to apply a more qualitative and forward‐looking approach to assessing hedge effectiveness. The
adoption of the hedge accounting requirements of IFRS 9 did not result in any changes in the eligibility for hedge accounting and the
accounting for the derivative financial instruments designated as effective hedging instruments at the transition date.
2018 ANNUAL REPORT UNI‐SELECT 49
F U T U R E A C C O U N T I N G C H A N G E S
EFFECTIVE DATE – JANUARY 1, 2019 WITH EARLIER ADOPTION PERMITTED IN CERTAIN CIRCUMSTANCES
Leases
In January 2016, the IASB issued IFRS 16 “Leases”, replacing the current standard on leases (IAS 17). IFRS 16 eliminates the classification as
an operating lease and requires lessees to recognize a right‐of‐use asset and a lease liability in the consolidated statement of financial
position with exemptions permitted for short‐term leases and leases of low value assets. In addition, IFRS 16 changes the definition of a
lease, sets requirements on how to account for the asset and liability (including complexities such as non‐lease elements, variable lease
payments and options periods), changes the accounting for sale and leaseback arrangements and introduces new disclosure requirements.
The impact of this new standard, including the presentation and disclosure requirements, has been assessed. IFRS 16 will affect primarily
the accounting for the Corporation’s real estate operating leases. The Corporation intends to apply the modified retrospective transition
approach and will not restate comparative amounts for the year prior to its adoption. Under this approach, the cumulative effect of initially
applying IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at the date of initial application. The
Corporation has elected to apply the following transitional practical expedients:
-
-
-
Apply a single discount rate to a portfolio of leases with reasonably similar characteristics;
Account for leases for which the remaining lease term ends within 12 months of the effective date as a short‐term lease;
Recognize short‐term leases and low value leases on a straight‐line basis as “Other operating expenses” in the consolidated
statement of earnings.
The Corporation expects to recognize new assets (right‐of‐use assets) and liabilities (lease liabilities) approximating $86,000 and $97,000
respectively, as well as deferred tax assets of about $2,000.
As a result of adopting the new standard, the Corporation expects that net earnings will decrease for 2019. As well, earnings before finance
costs, depreciation and amortization and income taxes is expected to increase, since the operating lease payments were included in “Other
operating expenses”, while the amortization of the right‐of‐use assets and interest on the lease liabilities are excluded from this measure.
Cash flows from operating activities will increase since the repayment of the principal portion of the lease liabilities will be presented as
part of the cash flows from financing activities.
Refer to note 22 in the consolidated financial statements for more details on the Corporation’s future minimum lease payments under
operating leases as at December 31, 2018.
USE OF ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of financial statements in accordance with IFRS requires Management to apply judgment and to make estimates and
assumptions that affect the amounts recognized in the consolidated financial statements and notes to the consolidated financial
statements. Judgment is commonly used in determining whether a balance or transaction should be recognized in the consolidated financial
statements and estimates and assumptions are more commonly used in determining the measurement of recognized transactions and
balances. However, judgment and estimates are often interrelated.
Information about the Corporation’s accounting policies is provided in note 3 to the consolidated financial statements, and the most
significant uses of judgment, estimates and assumptions relate to the following:
E S T I M A T E S
Business combinations: Upon the recognition of a business combination, the Corporation records the assets acquired and liabilities
assumed at their estimated fair values. The value of goodwill recognized is directly affected by the estimated values of the assets and
liabilities. Any change in the estimates used would result in an increase or decrease in the value of goodwill at the date of acquisition, or in
net earnings in subsequent years. (Refer to note 10 in the consolidated financial statements for further details.)
Sales recognition: Estimates are used in determining the amounts to be recorded for the right of return, assurance warranties and trade
and volume discounts. These estimates are calculated segment‐by‐segment based on the agreed‐on specifications with the customers, the
Corporation’s historical experience and Management’s assumptions about future events, and are reviewed on a regular basis throughout
the year.
2018 ANNUAL REPORT UNI‐SELECT 50
Inventory valuation: The Corporation uses estimates in determining the net realizable value of its inventory, taking into consideration the
quantity, age and condition of the inventory at the time the estimates are made. These estimates also include assumptions about future
selling prices and costs, product demand and return fees. The Corporation also uses estimates in determining the value of trade discounts,
rebates and other similar items receivable from vendors. These estimates are based on the Corporation’s historical experience and
Management’s assumptions about future events, and are reviewed on a regular basis throughout the year.
Allowance for surplus or obsolete inventory: The Corporation records an allowance for estimated obsolescence calculated on the basis of
assumptions about the future demand for its products and conditions prevailing in the markets where its products are sold. This allowance,
which reduces inventory to its net realizable value, is then entered as a reduction of inventory in the consolidated statements of financial
position. Management must make estimates when establishing such allowances. In the event that actual market conditions are less
favorable than the Corporation’s assumptions, additional allowances could prove necessary.
Property and equipment and intangible assets: Assumptions are required in determining the useful lives and residual values of property
and equipment and intangible assets with finite useful lives. (Refer to note 3 in the consolidated financial statements for further details.)
Impairments of non‐financial assets: The Corporation uses estimates and assumptions based on historical experience and Management’s
best estimates to estimate future cash flows in the determination of the recoverable amounts of assets and the fair value of cash generating
units (“CGUs”). Impairment tests require Management to make significant assumptions about future events and operating results.
Significant estimates are also required in the determination of appropriate discount rates to apply the future cash flows in order to adjust
current market rates for assets and entity‐specific risk factors. Revisions of these assumptions and estimates, or variances between the
estimated amounts and actual results may have a significant impact on the assets recorded in the consolidated statements of financial
position, and on the Corporation’s net earnings in future periods. For the years ended December 31, 2018 and 2017, no impairment losses
or reversals of previous losses have been recorded on the Corporation’s non‐current assets. (Refer to note 14 in the consolidated financial
statements for further details.)
Deferred taxes: The Corporation estimates its deferred income tax assets and liabilities based on differences between the carrying amounts
and tax bases of assets and liabilities. They are measured by applying enacted or substantively enacted tax rates and laws at the date of
the consolidated financial statements for the years in which temporary differences are expected to reverse. Changes in the timing of the
reversals or the income tax rates applicable in future years could result in significant differences between these estimates and the actual
amounts realized, which would affect net earnings in a subsequent period.
Post‐employment benefit obligations: Significant assumptions and estimates are required in the measurement of the Corporation’s
obligations under defined benefit pension plans. Management estimates the defined benefit obligations annually with the assistance of
independent actuaries; however, the actual outcome may vary due to estimation uncertainties. The estimates of the defined benefit
obligations are based on inflation rates, discount rates, and mortality rates that Management considers to be reasonable. It also takes into
account the Corporation’s specific anticipation of future salary increases and retirement ages of employees. Discount rates are determined
at each year‐end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and
that have terms to maturity approximating the terms of the related defined benefit obligations. Variation in these assumptions may
significantly impact the Corporation’s defined benefit obligations. (Refer to note 16 in the consolidated financial statements for further
details.)
Hedge effectiveness: The Corporation uses estimates and assumptions, based on external market trends and Management’s best estimates
of entity‐specific risks, in assessing the hedge effectiveness prospectively throughout the hedging relationship, if any. Hedge accounting is
terminated when a hedging relationship is no longer highly effective, or when a forecast transaction is no longer probable. Differences in
actual results may have an impact on the Corporation’s net earnings in subsequent periods. The Corporation does not use derivative
financial instruments for speculative purposes.
Provisions: The Corporation makes estimates of projected costs and timelines and the probability of occurrence of the obligations in
determining the amount for provisions. Provisions are reviewed at the end of each reporting period and are adjusted to reflect the best
estimates. (Refer to note 3 in the consolidated financial statements for further details.)
J U D G M E N T S
Leases: The Corporation uses judgment in determining the classification of its leased assets at inception of the lease. (Refer to note 3 in the
consolidated financial statements for further details.)
Evidence of asset impairment: The Corporation uses significant judgment in determining the existence of an event which indicates a
negative effect on the estimated future cash flows associated with an asset. If applicable, the Corporation performs impairment tests on
its CGUs to assess whether the carrying amounts of assets are recoverable. As described in the previous section, various estimates made
by Management are used in the impairment tests.
2018 ANNUAL REPORT UNI‐SELECT 51
Hedge accounting: At the inception of a hedging relationship, if any, the Corporation uses judgment in determining the probability that a
forecasted transaction will occur.
EXCHANGE RATE DATA
The following table sets forth information about exchange rates based upon rates expressed as US dollars per comparative currency unit:
Average for the period (to translate the statement of earnings)
Canadian dollar
British pound
Period end (to translate the statement of financial position)
Canadian dollar
British pound
Years ended
December 31,
2018
2017
2016
0.77
1.34
0.73
1.27
0.77
1.33
0.80
1.35
0.75
‐
0.74
‐
As the Corporation uses the US dollar as its reporting currency in its consolidated financial statements and in this document, unless
otherwise indicated, results from its Canadian operations and its UK operations are translated into US dollars using the average rate for the
period. Variances and explanations related to fluctuations in the foreign exchange rate, and the volatility of the Canadian dollar and the
British pound are therefore related to the translation in US dollars of the Corporation’s results for its Canadian and UK operations and do
not have an economic impact on its performance since most of the Corporation’s consolidated sales and expenses are received or
denominated in the functional currency of the markets in which it does business. Accordingly, the sensitivity of the Corporation’s results to
fluctuations in foreign exchange rates is economically limited.
EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES AND
INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Interim President and Chief Executive Officer and the Chief Financial Officer of the Corporation, are responsible for the implementation
and maintenance of disclosure controls and procedures, and of the internal control over financial reporting, as provided for in National
Instrument 52‐109 regarding the Certification of Disclosure in Issuers' Annual and Interim Filings. They are assisted in this task by the
Disclosure Committee, which is comprised of members of the Corporation's senior management.
D I S C L O S U R E C O N T R O L S A N D P R O C E D U R E S
Uni‐Select has pursued its evaluation of disclosure controls and procedures in accordance with the NI 52‐109 guidelines. As at
December 31, 2018, the Interim President and Chief Executive Officer and the Chief Financial Officer concluded that the Corporation’s
disclosure controls and procedures are properly designed and effective.
I N T E R N A L C O N T R O L S O V E R F I N A N C I A L R E P O R T I N G
Uni‐Select has continued its evaluation of the effectiveness of internal controls over financial reporting as at December 31, 2018, in
accordance with the NI 52‐109 guidelines. This evaluation enabled the Interim President and Chief Executive Officer and the Chief Financial
Officer to conclude that internal controls over financial reporting were designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of the consolidated financial statements in accordance with IFRS.
During the year ended December 31, 2018, no change in the Corporation’s internal controls over financial reporting occurred that materially
affected, or is reasonably likely to materially affect, the Corporation’s internal controls over financial reporting.
2018 ANNUAL REPORT UNI‐SELECT 52
OUTLOOK
A discussion of management’s expectations as to our outlook for the 2019 year is included in our press release announcing the 2018 fourth
quarter results, under the section Outlook. The press release is available on SEDAR website at sedar.com and under the
“Investors ‐ Newsroom” section of our corporate website at uniselect.com.
André Courville
Eric Bussières
Interim President and Chief Executive Officer
Chief Financial Officer
Approved by the Board of Directors on February 20, 2019.
2018 ANNUAL REPORT UNI‐SELECT 53
CONSOLIDATED
FINANCIAL
STATEMENTS
December 31, 2018
Management’s report
Independent auditor’s report
Consolidated statements of earnings
Consolidated statements of comprehensive income
Consolidated statements of changes in equity
Consolidated statements of cash flows
Consolidated statements of financial position
Notes to consolidated financial statements
55
56
58
59
60
61
62
63
MANAGEMENT’S REPORT
The consolidated financial statements and other financial information included in this Annual Report are the responsibility of the
Corporation’s Management. The consolidated financial statements have been prepared by Management in accordance with International
Financial Reporting Standards (“IFRS”) and have been approved by the Board of Directors on February 20, 2019.
Uni‐Select Inc. maintains internal control systems which, according to Management, reasonably ensure the accuracy of the financial
information and maintain proper standards of conduct in the Corporation’s activities.
The Board of Directors fulfills its responsibility regarding the consolidated financial statements included in this Annual Report, primarily
through its Audit Committee. This Committee, which meets periodically with the Corporation’s directors, management and external
auditors, has reviewed the consolidated financial statements of Uni‐Select Inc. and has recommended that they be approved by the Board
of Directors.
The consolidated financial statements have been audited by the Corporation’s external auditors, Ernst & Young LLP.
André Courville
Interim President and Chief Executive Officer
Eric Bussières
Chief Financial Officer
Boucherville (Canada)
February 20, 2019
2018 ANNUAL REPORT UNI‐SELECT 55
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of
Uni‐Select Inc.
Opinion
We have audited the consolidated financial statements of Uni‐Select Inc. and its subsidiaries (the “Group”), which comprise the
consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of earnings,
comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements,
including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for
the years then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Canada, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information included in the Group’s 2018 Annual Report
Management is responsible for the other information. The other information comprises
Management’s Discussion and Analysis
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on
this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those
charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
2018 ANNUAL REPORT UNI‐SELECT 56
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group
to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Lily Adam.
(1)
Montréal (Canada)
February 20, 2019
(1) CPA auditor, CA public accountancy permit no. A120803
2018 ANNUAL REPORT UNI‐SELECT 57
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of US dollars, except per share amounts)
Note
Sales
Purchases, net of changes in inventories
Gross margin
Employee benefits
Other operating expenses
Special items
Earnings before finance costs, depreciation and amortization and income taxes
Finance costs, net
Depreciation and amortization
Earnings before income taxes
Income tax expense
Net earnings
Earnings per share
Basic
Diluted
Weighted average number of common shares outstanding (in thousands)
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
4
5
6
7
8
8
Years ended
December 31,
2018
2017
1,751,965
1,448,272
1,176,796
575,169
983,198
465,074
308,546
147,094
14,589
104,940
20,561
39,702
44,677
8,180
36,497
236,684
110,858
6,780
110,752
14,487
29,647
66,618
22,002
44,616
0.86
0.86
1.06
1.05
42,254
42,419
42,261
42,430
2018 ANNUAL REPORT UNI‐SELECT 58
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of US dollars)
Note
Net earnings
Other comprehensive income (loss)
Items that will subsequently be reclassified to net earnings:
Effective portion of changes in the fair value of cash flow hedges
(net of income tax of $208 ($24 in 2017))
Net change in the fair value of derivative financial instruments designated as cash flow hedges
transferred to earnings (net of income tax of $15 ($42 in 2017))
Unrealized exchange gains (losses) on the translation of financial statements to the
presentation currency
Unrealized exchange gains (losses) on the translation of debt designated as a hedge of net
investments in foreign operations (no income tax for 2018 (net of income tax of $36 in 2017))
Years ended
December 31,
2018
2017
36,497
44,616
603
(70)
44
123
(7,376)
12,685
(15,831)
(22,560)
242
12,980
Items that will not subsequently be reclassified to net earnings:
Remeasurements of long‐term employee benefit obligations
(net of income tax of $620 ($613 in 2017))
Total other comprehensive income (loss)
Comprehensive income
16
1,801
(1,749)
(20,759)
15,738
11,231
55,847
The accompanying notes are an integral part of these consolidated financial statements.
2018 ANNUAL REPORT UNI‐SELECT 59
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of US dollars)
Share capital
(note 19)
Contributed
surplus
Note
Retained
earnings
Attributable to shareholders
Accumulated
other
comprehensive
income (loss)
(note 21)
Total
equity
Balance, December 31, 2016
96,924
4,260
401,420
(30,242)
472,362
Net earnings
Other comprehensive income (loss)
Comprehensive income
Contributions by and distributions to shareholders:
Issuance of common shares
Dividends
Stock‐based compensation
15
‐
‐
‐
661
‐
‐
661
‐
‐
‐
‐
‐
924
924
44,616
(1,749)
42,867
‐
(11,817)
‐
(11,817)
‐
12,980
12,980
44,616
11,231
55,847
‐
‐
‐
‐
661
(11,817)
924
(10,232)
Balance, December 31, 2017
97,585
5,184
432,470
(17,262)
517,977
Net earnings
Other comprehensive income (loss)
Comprehensive income (loss)
Contributions by and distributions to shareholders:
Repurchase and cancellation of common shares
Issuance of common shares
Transfer upon exercise of stock options
Dividends
Stock‐based compensation
15
‐
‐
‐
(190)
2,331
518
‐
‐
2,659
‐
‐
‐
36,497
1,801
38,298
‐
(22,560)
(22,560)
36,497
(20,759)
15,738
‐
‐
(518)
‐
1,339
821
(1,232)
‐
‐
(12,081)
‐
(13,313)
‐
‐
‐
‐
‐
‐
(1,422)
2,331
‐
(12,081)
1,339
(9,833)
Balance, December 31, 2018
100,244
6,005
457,455
(39,822)
523,882
The accompanying notes are an integral part of these consolidated financial statements.
2018 ANNUAL REPORT UNI‐SELECT 60
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
OPERATING ACTIVITIES
Net earnings
Non‐cash items:
Special items
Finance costs, net
Depreciation and amortization
Income tax expense
Amortization and reserves related to incentives granted to customers
Other non‐cash items
Changes in working capital items
Interest paid
Income taxes paid
Cash flows from operating activities
INVESTING ACTIVITIES
Business acquisitions
Net balance of purchase price
Cash held in escrow
Premium on foreign currency options paid
Proceeds from disposal of foreign exchange options
Advances to merchant members and incentives granted to customers
Reimbursement of advances to merchant members
Acquisitions of property and equipment
Proceeds from disposal of property and equipment
Acquisitions and development of intangible assets
Other provisions paid
Cash flows used in investing activities
FINANCING ACTIVITIES
Increase in long‐term debt
Repayment of long‐term debt
Net increase (decrease) in merchant members’ deposits in the guarantee fund
Repurchase and cancellation of shares
Issuance of common shares
Dividends paid
Cash flows from (used in) financing activities
Effects of fluctuations in exchange rates on cash
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
The accompanying notes are an integral part of these consolidated financial statements.
2018 ANNUAL REPORT UNI‐SELECT 61
Note
Years ended
December 31,
2018
2017
4
5
6
7
9
36,497
44,616
14,589
20,561
39,702
8,180
17,193
(2,884)
(5,163)
(18,681)
(15,415)
(523)
14,487
29,647
22,002
16,581
269
14,583
(10,371)
(7,286)
94,579
124,005
10
(23,670)
(348,490)
(7,082)
(1,670)
‐
‐
(7,935)
(5,108)
(6,631)
6,174
(38,858)
(28,257)
6,282
5,737
(19,391)
(13,658)
1,589
(3,269)
(124)
824
(4,614)
‐
(86,193)
(401,958)
271,541
450,860
(291,126)
(154,090)
328
(1,422)
2,331
(12,246)
(30,594)
(428)
(22,636)
30,672
8,036
(117)
‐
661
(11,637)
285,677
623
8,347
22,325
30,672
9
9
19
19
Note
December 31,
2018
2017
8,036
3,591
30,672
8,147
11
247,732
236,811
16,789
29,279
524,335
458,354
10,502
10,196
442
‐
811,427
773,459
46,039
83,956
210,331
372,007
940
30,628
78,644
231,365
372,119
‐
15,870
10,174
1,540,570
1,496,389
532,676
446,370
4,062
4,173
3,987
2,876
4,230
3,058
15,469
‐
16,831
3,110
37,098
‐
20
12
13
14
14
20
7
4
20
555,062
518,878
15, 16
12,799
20,985
17
18
20
7
422,603
411,585
5,424
1,212
1,424
‐
18,164
1,016,688
523,882
5,543
2,944
1,331
1,041
16,105
978,412
517,977
1,540,570
1,496,389
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of US dollars)
ASSETS
Current assets:
Cash
Cash held in escrow
Trade and other receivables
Income taxes receivable
Inventory
Prepaid expenses
Derivative financial instruments
Total current assets
Investments and advances to merchant members
Property and equipment
Intangible assets
Goodwill
Derivative financial instruments
Deferred tax assets
TOTAL ASSETS
LIABILITIES
Current liabilities:
Trade and other payables
Balance of purchase price, net
Provision for restructuring charges
Income taxes payable
Dividends payable
Derivative financial instruments
Total current liabilities
Long‐term employee benefit obligations
Long‐term debt
Merchant members’ deposits in the guarantee fund
Balance of purchase price
Other provisions
Derivative financial instruments
Deferred tax liabilities
TOTAL LIABILITIES
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board of Directors
Michelle Ann Cormier, CPA, CA, ASC
Director
Richard G. Roy, FCPA, FCA
Director
2018 ANNUAL REPORT UNI‐SELECT 62
Current portion of long‐term debt and merchant members’ deposits in the guarantee fund
17, 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except per share amounts, percentages and otherwise specified)
1 ‐ GOVERNING STATUTE AND NATURE OF OPERATIONS
Uni‐Select Inc. (“Uni‐Select”) is a corporation domiciled in Canada and duly incorporated and governed by the Business Corporations Act
(Québec). Uni‐Select is the parent company of a group of entities, which includes Uni‐Select and its subsidiaries (collectively, the
“Corporation”). The Corporation is a major distributor of automotive products and paint and related products for motor vehicles. The
Corporation’s registered office is located at 170 Industriel Blvd., Boucherville, Québec, Canada.
These consolidated financial statements present the operations and financial position of the Corporation and all of its subsidiaries.
The Corporation’s shares are listed on the Toronto Stock Exchange (“TSX”) under the symbol UNS.
2 ‐ BASIS OF PRESENTATION
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The
Corporation has consistently applied the same accounting policies for all the periods presented.
The Board of Directors approved and authorized for issuance these consolidated financial statements on February 20, 2019.
Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments, which
are measured at fair value, provisions, which are measured based on the best estimates of the expenditures required to settle the obligation
and the post‐employment benefit obligations, which are measured at the present value of the defined benefit obligations and reduced by
the fair value of plan assets.
Functional and presentation currency
Items included in the financial statements of each of the Corporation’s entities are measured using the currency of the primary economic
environment in which the entity operates (the “functional currency”). The Corporation’s functional currencies are the US dollar for entities
located in the United States, the Canadian dollar for entities located in Canada and the British pound for entities located in the United
Kingdom. These consolidated financial statements are presented in US dollars, which is the Corporation’s presentation currency.
Use of accounting estimates and judgments
The preparation of financial statements in accordance with IFRS requires Management to apply judgment and to make estimates and
assumptions that affect the amounts recognized in the consolidated financial statements and notes to the consolidated financial
statements. Judgment is commonly used in determining whether a balance or transaction should be recognized in the consolidated financial
statements and estimates and assumptions are more commonly used in determining the measurement of recognized transactions and
balances. However, judgment and estimates are often interrelated.
Information about the Corporation’s accounting policies is provided in note 3 to the consolidated financial statements, and the most
significant uses of judgment, estimates and assumptions relate to the following:
(i)
Estimates
Business combinations: Upon the recognition of a business combination, the Corporation records the assets acquired and liabilities assumed
at their estimated fair values. The value of goodwill recognized is directly affected by the estimated values of the assets and liabilities. Any
change in the estimates used would result in an increase or decrease in the value of goodwill at the date of acquisition, or in net earnings
in subsequent years. See note 10 for details on the business combinations completed in the last two years.
Sales recognition: Estimates are used in determining the amounts to be recorded for the right of return, assurance warranties and trade
and volume discounts. These estimates are calculated segment‐by‐segment based on the agreed‐on specifications with the customers, the
Corporation’s historical experience and Management’s assumptions about future events, and are reviewed on a regular basis throughout
the year.
Inventory valuation: The Corporation uses estimates in determining the net realizable value of its inventory, taking into consideration the
quantity, age, and condition of the inventory at the time the estimates are made. These estimates also include assumptions about future
selling prices and costs, product demand, and return fees. The Corporation also uses estimates in determining the value of trade discounts,
rebates, and other similar items receivable from vendors. These estimates are based on the Corporation’s historical experience and
Management’s assumptions about future events, and are reviewed on a regular basis throughout the year.
2018 ANNUAL REPORT UNI‐SELECT 63
2 ‐
B ASI S O F PR ES ENT ATIO N ( CON T I N U E D)
Allowance for surplus or obsolete inventory: The Corporation records an allowance for estimated obsolescence calculated on the basis of
assumptions about the future demand for its products and conditions prevailing in the markets where its products are sold. This allowance,
which reduces inventory to its net realizable value, is then entered as a reduction of inventory in the consolidated statements of financial
position. Management must make estimates when establishing such allowances. In the event that actual market conditions are less
favorable than the Corporation’s assumptions, additional allowances could prove necessary.
Property and equipment and intangible assets: Assumptions are required in determining the useful lives and residual values of property
and equipment, and intangible assets with finite useful lives. Refer to note 3 for further details.
Impairment of non‐financial assets: The Corporation uses estimates and assumptions based on historical experience and Management’s
best estimates to estimate future cash flows in the determination of the recoverable amounts of assets and the fair value of cash generating
units (“CGUs”). Impairment tests require Management to make significant assumptions about future events and operating results.
Significant estimates are also required in the determination of appropriate discount rates to apply the future cash flows in order to adjust
current market rates for assets and entity‐specific risk factors. Revisions of these assumptions and estimates, or variances between the
estimated amounts and actual results may have a significant impact on the assets recorded in the consolidated statements of financial
position, and on the Corporation’s net earnings in future periods. For the years ended December 31, 2018 and 2017, no impairment losses
or reversals of previous losses have been recorded on the Corporation’s non‐current assets. Refer to note 14 for further details.
Deferred taxes: The Corporation estimates its deferred income tax assets and liabilities based on differences between the carrying amounts
and tax bases of assets and liabilities. They are measured by applying enacted or substantively enacted tax rates and laws at the date of
the consolidated financial statements for the years in which temporary differences are expected to reverse. Changes in the timing of the
reversals or the income tax rates applicable in future years could result in significant differences between these estimates and the actual
amounts realized, which would affect net earnings in a subsequent period.
Post‐employment benefit obligations: Significant assumptions and estimates are required in the measurement of the Corporation’s
obligations under defined benefit pension plans. Management estimates the defined benefit obligations annually with the assistance of
independent actuaries; however, the actual outcome may vary due to estimation uncertainties. The estimates of the defined benefit
obligations are based on inflation rates, discount rates, and mortality rates that Management considers to be reasonable. It also takes into
account the Corporation’s specific anticipation of future salary increases and retirement ages of employees. Discount rates are determined
at each year‐end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and
that have terms to maturity approximating the terms of the related defined benefit obligations. Variation in these assumptions may
significantly impact the Corporation’s defined benefit obligations. Refer to note 16 for details on the assumptions and estimates used for
the years ended December 31, 2018 and 2017.
Hedge effectiveness: The Corporation uses estimates and assumptions, based on external market trends and Management’s best estimates
of entity‐specific risks, in assessing the hedge effectiveness prospectively throughout the hedging relationship, if any. Hedge accounting is
terminated when a hedging relationship is no longer highly effective, or when a forecast transaction is no longer probable. Differences in
actual results may have an impact on the Corporation’s net earnings in subsequent periods. The Corporation does not use derivative
financial instruments for speculative purposes.
Provisions: The Corporation makes estimates of projected costs and timelines, and the probability of occurrence of the obligations in
determining the amount for provisions. Provisions are reviewed at the end of each reporting period and are adjusted to reflect the best
estimates. Refer to note 3 for further details.
(ii)
Judgments
Leases: The Corporation uses judgment in determining the classification of its leased assets at the inception of the lease. Refer to note 3
for further details.
Evidence of asset impairment: The Corporation uses significant judgment in determining the existence of an event which indicates a
negative effect on the estimated future cash flows associated with an asset. If applicable, the Corporation performs impairment tests on
its CGUs to assess whether the carrying amounts of assets are recoverable. As described in the previous section, various estimates made
by Management are used in the impairment tests.
Hedge accounting: At the inception of a hedging relationship, if any, the Corporation uses judgment in determining the probability that a
forecasted transaction will occur.
2018 ANNUAL REPORT UNI‐SELECT 64
3 ‐
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used to prepare these consolidated financial statements are as follows:
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Corporation. Control exists when the Corporation is exposed, or has rights, to variable returns
from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Subsidiaries are
fully consolidated from the date that control begins until the date that control ceases. Transactions with subsidiaries are eliminated upon
consolidation. The Corporation’s principal wholly‐owned subsidiaries as at December 31, 2018 are as follows:
370071 Alberta Ltd.
FinishMaster, Inc.
FinishMaster Canada Inc.
FinishMaster Services, Inc.
German Swedish & French Car Parts Limited
PA Topco Limited
Parts Alliance Group Limited
Uni‐Select Canada Stores Inc.
Uni‐Sélect Eastern Inc.
Uni‐Select Luxembourg 2018 SARL
Uni‐Select Pacific Inc.
Uni‐Select Prairies Inc.
Uni‐Select Purchases, G.P.
Uni‐Sélect Québec Inc.
Uni‐Select USA Holdings, Inc.
Business combinations
The Corporation applies the acquisition method in accounting for business acquisitions. The consideration transferred by the Corporation
to obtain control of a subsidiary is calculated as the sum of the fair values, at the acquisition date, of the assets transferred, liabilities
incurred and equity interests issued by the Corporation, which includes the fair value of any asset or liability arising from a contingent
consideration arrangement. Acquisition costs are expensed as incurred.
The Corporation recognizes identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have
previously been recognized in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are
measured at their acquisition‐date estimated fair values.
Goodwill is measured at the acquisition date as the fair value of the consideration transferred including the recognized amount of any non‐
controlling interest in the acquiree, less the net recognized amount (generally the fair value) of the identifiable assets acquired and liabilities
assumed. When the net result is negative, a bargain purchase gain is recognized immediately in net earnings.
Foreign currency transactions
Foreign currency translation
(i)
Foreign currency transactions are initially recorded in the functional currency of the related entity (note 2) using the exchange rate
prevailing at the date of the transaction. Assets and liabilities denominated in foreign currencies are translated using closing exchange
rates. Any exchange rate differences are recognized in net earnings except for those relating to qualifying cash flow hedges, which are
deferred under other comprehensive income (“OCI”) in equity.
Foreign operations
(ii)
Assets and liabilities of foreign operations whose functional currency is other than the presentation currency (note 2) are translated into
US dollars using closing exchange rates. Revenues and expenses are translated using average exchange rates for the period. Foreign
currency translation differences are recognized and presented under OCI in equity. The exchange rates used in the preparation of the
consolidated financial statements were as follows:
Average exchange rate for the year
Canadian dollar
British pound
Exchange rate as at year‐end
Canadian dollar
British pound
Years ended
December 31,
2018
2017
0.77
1.34
0.73
1.27
0.77
1.33
0.80
1.35
2018 ANNUAL REPORT UNI‐SELECT 65
3 ‐
S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
Sales recognition
The Corporation recognizes sales upon shipment of products, when the control has been transferred to the buyer, there is no continuing
Management involvement with the products, the recovery of the consideration is probable and the amount of revenue can be measured
reliably. Sales are measured at the fair value of the consideration to which the Corporation is entitled to receive in exchange for transferring
the promised products, net of the provisions for the right of return and assurance warranties as well as other trade and volume discounts.
The Corporation offers its customers a right of return on the sale of products as well as certain warranties to cover the compliance of the
products transferred with agreed‐on specifications. At the time of sales recognition, the Corporation records provisions for the right of
return and assurance warranties which are based on the Corporation’s historical experience and Management’s assumptions.
Inventory
Inventory consists of finished products and is valued at the lower of cost and net realizable value. Cost is determined using the weighted
average cost method net of certain trade discounts, rebates, and other similar items receivable from vendors. Net realizable value is the
estimated selling price in the ordinary course of business, less the estimated selling costs.
Incentives granted to customers
The Corporation provides cash, inventory and equipment incentives to certain customers as consideration for multi‐year purchase
commitments (“contracts”). These incentives are recorded at cost and are amortized, contract by contract, as a reduction of sales, on a
straight‐line basis over the lesser of the contract term or 60 months, corresponding to the average duration of the contracts. In the event
that a customer breaches the commitment, the remaining unamortized book value of the incentive, net of liquidated damages to be
received, is immediately recorded as other expenses in net earnings.
Property and equipment
Property and equipment is measured at its cost less accumulated depreciation and accumulated impairment losses. Cost includes
expenditures that are directly attributable to acquiring the asset and preparing the asset for its intended use. The cost less residual value
of the property and equipment is depreciated over the estimated useful lives in accordance with the following methods and periods:
Paving
Buildings
Furniture and equipment
Computer equipment and system software
Automotive equipment
Leasehold improvements
Vehicles under finance leases
Methods
Periods / Rate
Diminishing balance
Straight‐line and diminishing balance
Straight‐line and diminishing balance
Straight‐line and diminishing balance
Straight‐line and diminishing balance
Straight‐line
Diminishing balance
8%
30 to 50 years / 5%
4 to 10 years / 20%
3 to 5 years / 30%
4 to 5 years / 30%
Lease term
30%
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
Intangible assets
For internally‐generated intangible assets, the Corporation records the costs directly attributable to the acquisition and development of an
enterprise resource planning software (“ERP”) and the corresponding borrowing costs. In order to accurately reflect the pattern of
consumption of the expected benefits, the Corporation amortizes its software and related costs on a straight‐line basis over a 10‐year
period. The amortization period begins when the asset is available for its intended use and ceases when the asset is classified as held for
sale or is derecognized.
Trademarks, which were all acquired as a result of business acquisitions, are determined as having indefinite useful lives based on the
prospects for long‐term profitability and the overall positioning of the trademarks on the market in terms of notoriety and sales volume.
They are measured at cost less accumulated impairment losses and are not amortized.
Other intangible assets, including those acquired as a result of business acquisitions, are measured at cost less accumulated amortization
and accumulated impairment losses, and are amortized over their estimated useful lives according to the following methods and periods:
Customer relationships and others
Software
Methods
Periods / Rate
Straight‐line
Straight‐line and diminishing balance
2 to 20 years
5 to 10 years / 30%
Amortization methods, useful lives and residual values are reviewed at each reporting date.
2018 ANNUAL REPORT UNI‐SELECT 66
3 ‐
S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
Goodwill
Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately
recognized. Goodwill is measured at cost less accumulated impairment losses and is not amortized.
Borrowing costs
Borrowing costs directly attributable to the development of the ERP software (i.e. qualifying asset), if any, are capitalized as part of the cost
of that intangible asset until it is substantially ready for its intended use. Otherwise, borrowing costs are recognized in net earnings using
the effective interest method.
Impairment of assets
Property and equipment and intangible assets with finite lives are reviewed at each reporting date to determine whether events or changes
in circumstances indicate that the carrying amount of the asset or related CGU may not be recoverable. If any such indication exists, then
the assets’ or CGU’s recoverable amount is estimated. Intangible assets with indefinite lives, specifically the goodwill and trademarks, are
tested for impairment annually or more frequently if events or circumstances indicate that they are impaired.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually
are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets. For the purposes of goodwill impairment testing, goodwill acquired in a business
combination is allocated to the CGU, or the groups of CGUs, that is expected to benefit from the synergies of the combination. This
allocation is subject to an operating segment ceiling test and reflects the lowest level at which goodwill is monitored for internal reporting
purposes.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. The data used for
impairment testing procedures are directly linked to the Corporation’s latest approved budget and strategic plan. Discount factors are
determined individually for each CGU and reflect their respective risk profiles as assessed by Management.
Impairment losses are recognized in net earnings. Impairment losses recognized with respect to a CGU are allocated first to reduce the
carrying amount of any goodwill, and then to reduce the carrying amounts of the other assets of a CGU on a pro‐rata basis.
An impairment loss with respect to goodwill, if any, cannot be reversed. For other assets, impairment losses recognized in prior periods are
assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss with respect to other
assets is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss with respect
to other assets is reversed only to the extent that the assets’ carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment loss had been recognized.
Leases
Leases in terms of which the Corporation assumes substantially all the risks and rewards of ownership are classified as finance leases. On
initial recognition, assets acquired under finance leases are recorded in “Property and equipment” at the lower of the fair value of the asset
and the present value of the minimum lease payments. A corresponding liability is recorded as a finance lease obligation within “Long‐term
debt”. In subsequent periods, the asset is depreciated over the estimated useful life and interest on the obligation is recorded in “Finance
costs, net” in the consolidated statements of earnings.
Other leases are classified as operating leases and the leased assets are not recognized in the Corporation’s consolidated statements of
financial position. Payments made under operating leases are recognized in net earnings on a straight‐line basis over the term of the lease.
2018 ANNUAL REPORT UNI‐SELECT 67
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S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
Income taxes
Income tax expense comprises current and deferred tax. Current taxes and deferred taxes are recognized in net earnings except to the
extent that they relate to a business combination, or items recognized directly in equity or in OCI.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable with respect to previous years.
Deferred tax assets and liabilities for financial reporting purposes are determined according to differences between the carrying amounts
and tax bases of assets and liabilities. They are measured by applying enacted or substantively enacted tax rates and laws at the reporting
date for the years in which the temporary differences are expected to reverse. Deferred tax assets are recognized to the extent that it is
probable that the underlying tax loss or deductible temporary difference will be utilized against future taxable income. Deferred tax
liabilities are generally recognized in full, although IAS 12, “Income taxes” specifies limited exemptions. However, deferred taxes are not
recognized on the initial recognition of goodwill or on the initial recognition of an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit. Deferred taxes on temporary differences associated with investments in subsidiaries are
not recognized if the reversal of these temporary differences can be controlled by the Corporation and it is improbable that reversal will
occur in the foreseeable future. Deferred taxes on temporary differences associated with investments in subsidiaries are reassessed at each
reporting date and are recognized to the extent that it has become probable that reversal will occur in the foreseeable future.
Provisions
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The amount recognized as a
provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period. The
Corporation’s main provisions are related to asset retirement obligations and restructuring charges, including site decommissioning costs,
employee termination benefits and onerous lease obligations.
Asset retirement obligation provisions are recognized for statutory, contractual or legal obligations, normally when incurred, associated
with the retirement of property and equipment (mainly leasehold improvements) when those obligations result from the acquisition,
development and/or normal operation of the assets. The obligations are measured initially at fair value and the resulting costs are
capitalized as a part of the carrying value of the related asset. The capitalized asset retirement cost is depreciated on the same basis as the
related asset.
Restructuring charges are recognized when the Corporation has put in place a detailed restructuring plan which has been communicated
in sufficient detail to create an obligation. Restructuring charges include only costs directly related to the restructuring plan, and are
measured at the best estimate of the amount required to settle the Corporation’s obligations. Subsequent changes in the estimate of the
obligation are recognized in the Corporation’s consolidated statements of earnings.
Short‐term employee benefits
Short‐term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A
liability is recognized for the amount expected to be paid under short‐term cash bonus or incentive plans if the Corporation has a present
legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be
reliably estimated.
Stock‐based compensation
Equity‐settled common share stock option plan
The compensation expense is measured as the fair value at the grant date using the binomial option pricing model, and is recognized over
the vesting period, with a corresponding increase to contributed surplus within equity. Forfeitures and cancellations are estimated at the
grant date, and subsequently reviewed at each reporting date. The amount recognized as an expense is adjusted to reflect the number of
awards for which the related service conditions are expected to be met, such that the amount ultimately recognized as an expense is based
on the number of awards that are expected to meet the related service conditions at the vesting date. When the stock options are exercised,
share capital is credited by the sum of the consideration paid and the related portion previously recorded in contributed surplus.
Cash‐settled stock‐based compensation plans
The Corporation has two cash‐settled stock‐based compensation plans composed of a Deferred Share Unit Plan (“DSU Plan”) and a
Performance Share Unit Plan (“PSU Plan”). Under these plans, the fair value of the liability is measured as the number of units expected to
vest multiplied by the fair value of one unit, which is based on the market price of the Corporation’s common shares. The compensation
expense and corresponding liability are recognized over the vesting period, if any, and are revalued at each reporting date until the
settlement, with any changes in the fair value of the liability recognized in net earnings.
2018 ANNUAL REPORT UNI‐SELECT 68
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S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
The Corporation has entered into equity swap agreements in order to manage common shares market price risk relating to the DSUs and
PSUs.
Post‐employment benefit obligations
Defined‐contribution plans
Contributions to the plans are recognized as an expense in the period that employee services are rendered.
Defined benefit plans
The Corporation has adopted the following policies for defined benefit plans:
- The Corporation’s net obligation with respect to defined benefit pension plans is calculated by estimating the value of future benefits
that employees have earned in return for their service in the current and prior periods less the fair value of any plan assets;
- The cost of pension benefits earned by employees is actuarially determined using the projected unit credit method. The calculations
reflect Management’s best estimates of salary increases, retirement ages and mortality rates of members and discount rate;
- When the benefits of a plan are improved, the benefit relating to past service by employees is recognized immediately in net earnings;
- Remeasurements comprising of actuarial gains and losses, the effect of the limit of the asset, the effect of minimum funding
requirements and the return on plan assets in excess of interest income are recognized immediately in OCI and retained earnings.
The current and past service costs related to the defined benefit pension plans are recorded within “Employee benefits”. The net interest
income or expense on the net asset or obligation is recorded within “Finance costs, net”.
Financial instruments
Non derivative financial instruments
Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the financial
instrument.
Classification and measurement of non derivative financial assets
Except for certain trade receivables, financial assets are initially measured at fair value. If the financial asset is not subsequently accounted
for at fair value through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the asset’s
acquisition. The subsequent measurement of financial assets depends on their classification, that is based on two criteria: (i) the
Corporation’s business model for managing the financial assets; and (ii) whether the instruments’ contractual cash flows represent solely
payments and interest on the principal amount outstanding (the “SPPI criterion”).
The Corporation has classified cash, cash held in escrow, trade receivables and advances to merchant members as financial assets measured
at amortized cost. The amortized cost category is for non‐derivative financial assets that are held within a business model with the objective
to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion. After initial recognition, financial assets
under that category are measured at amortized cost using the effective interest method, less any impairment.
The assessment of the Corporation’s business model was made as of the date of initial application of IFRS 9 “Financial instruments”, January
1, 2018, and then applied retrospectively to those financial assets that were not derecognized before that date. The assessment of whether
contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances
as at the initial recognition of the assets.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset
and all substantial risks and rewards are transferred.
Classification and measurement of non derivative financial liabilities
Financial liabilities are initially measured at fair value plus transaction costs and their subsequent measurement depends on their
classification. The classification depends on the objectives set forth when the financial instruments were purchased or issued, their
characteristics and their designation by the Corporation. The Corporation has classified trade and other payables, balance of purchase price,
dividends payable, long‐term debt (except finance leases and financing costs), and merchant members’ deposits in the guarantee fund as
liabilities measured at amortized cost. Subsequent valuations are recorded at amortized cost using the effective interest method.
A financial liability is derecognized when it is extinguished, discharged, cancelled or expired.
Impairment of non derivative financial instruments
Under the forward‐looking expected credit loss (“ECL”) approach, all financial assets, except for those measured at fair value through net
earnings, are subject to review for impairment at least at each reporting date. ECLs are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash flows that the Corporation expects to receive. The shortfall is then
discounted at an approximation to the asset’s original effective interest rate.
2018 ANNUAL REPORT UNI‐SELECT 69
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S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
For trade receivables, the Corporation has applied the standard’s simplified approach and has calculated ECLs based on lifetime expected
credit losses. For other debt financial assets (i.e.: advances to merchant members), the ECL is based on the twelve‐month ECL. The
twelve‐month ECL is the portion of the lifetime ECLs that results from default events on a financial instrument that are possible within
12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will
be based on the lifetime ECL.
Derivative financial instruments and hedge accounting
The Corporation uses derivative financial instruments to manage interest rate risk, foreign exchange risk and common share market price
risk. The Corporation does not use financial instruments for trading or speculative purposes. Some of the derivative financial instruments
are designated as hedging instruments.
On initial designation of the hedge, the Corporation formally documents the relationship between the hedging instruments and hedged
items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be
used to assess the effectiveness of the hedging relationship. At the inception of the hedge relationship and on an ongoing basis, the
Corporation assesses if the hedging instruments are expected to be “highly effective” in offsetting the changes in the cash flows of the
respective hedged items during the period for which the hedge is designated. As well, the Corporation ensures that hedge accounting
relationships are aligned with its risk management objectives and strategy.
Cash flow hedges
Derivatives (interest rate swap agreements), if any, are used to manage the floating interest rate of the Corporation’s total debt portfolio
and related overall borrowing cost. Derivatives are recognized initially at fair value and attributable transaction costs are recognized in net
earnings as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as
described below.
When a derivative is designated as a hedging instrument for a hedge of changes in cash flows attributable to a particular risk associated
with a highly probable forecast transaction that could affect income, the effective portion of changes in the fair value of the derivative is
recognized in OCI and presented in the accumulated changes in the fair value of derivative financial instruments designated as cash flow
hedges in equity. The amount recognized in OCI is removed and included in net earnings in the same period as the hedged cash flows affect
net earnings, under the same line item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in
net earnings. The Corporation considers that its derivative financial instruments are effective as hedges, both at inception and over the
term inception and over the term of the instrument, as for the entire term to maturity, the notional principal amount and the interest rate
basis in the instruments all match the terms of the debt instrument being hedged.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is
revoked, hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in OCI and presented in
accumulated changes in the fair value of derivative financial instrument designated as cash flow hedges remains in equity until the
forecasted interest expense affects net earnings. If the forecasted interest expense is no longer expected to occur, then the balance in OCI
is recognized immediately in net earnings. In other cases, the amount recognized in OCI is transferred to net earnings in the same period
that the hedged item affects net earnings.
Hedge of net investments in foreign operations
The Corporation applies hedge accounting to foreign currency translation differences arising between the functional currency of the foreign
operation and the parent entity’s functional currency. Foreign currency differences arising on the translation of the debt designated as a
hedge of net investments in foreign operations are recognized in OCI to the extent that the hedge is effective, and are presented within
equity. To the extent that the hedge is ineffective, such differences are recognized in net earnings. When the hedged portion of a net
investment is reduced, the relevant amount in the cumulative translation account is transferred to net earnings as part of the profit or loss
on partial or on complete disposal. The Corporation elects to exclude from a partial disposal of a foreign operation the repayments of loans
forming part of the net investment in a foreign operation.
Foreign exchange gains or losses arising on a monetary item receivable from or payable to a foreign operation, the settlement of which is
neither planned nor likely to occur in the foreseeable future, and which in substance is considered to form part of the net investment in
the foreign operation, are recognized in OCI in the cumulative amount of foreign currency translation differences.
2018 ANNUAL REPORT UNI‐SELECT 70
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S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
Hedge of foreign exchange risk
Forward contracts and foreign currency options, if any, are used in order to manage foreign exchange risk. These derivatives are not
designated for hedge accounting and are measured at fair value at the end of each period. Fair value variances are recognized in the
consolidated statements of earnings, and are presented under “Other operating expenses”, unless otherwise specified, with a
corresponding asset or liability for derivative financial instruments in the consolidated statements of financial position.
Pursuant to the forward contract agreement, the Corporation generates offsetting cash flows related to the underlying position with
respect to the amount and timing of forecasted foreign currency transactions. The net effect of the forward contracts partly offset
fluctuations in currency rates impacting the foreign exchange gains/losses mainly resulting from purchases in currencies other than the
respective functional currencies of the Corporation.
Pursuant to the option agreement, the Corporation may generate favorable offsetting cash flows related to the underlying position with
respect to the amount and timing of forecasted foreign currency transactions. The net effect of the currency options will offset, at their
exercise date, the increase in currency rates, if any, impacting the foreign exchange losses mainly resulting from the Corporation’s
acquisitions that are disbursed in a currency other than the respective functional currencies of the Corporation.
Hedge of share‐based payments cost
Equity swap agreements are used in order to manage common shares market price risk. These derivatives are not designated for hedge
accounting and are measured at fair value at the end of each period. Fair value variances are recognized in the consolidated statements of
earnings, and are presented under “Employee benefits” with a corresponding asset or liability for derivative financial instruments in the
consolidated statements of financial position.
Pursuant to the agreement, the Corporation receives the economic benefit of dividends and share price appreciation while providing
payments to the financial institution’s cost of funds and any share price depreciation. The net effect of the equity swaps partly offset
movements in the Corporation’s share price impacting the cost of the DSU and the PSU plans.
Accumulated other comprehensive income
Cumulative translation account
The cumulative translation account comprises all foreign currency differences arising from the translation of the financial statements of
Canadian and United Kingdom operations to the Corporation’s presentation currency.
Unrealized exchange gains and losses on the translation of debt designated as a hedge of net investments in foreign operations
The hedge reserve comprises all foreign currency differences arising from the translation of debt designated as a hedge of the Corporation’s
net investments in foreign operations, if any.
Accumulated changes in the fair value of derivative financial instruments designated as cash flow hedges
The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments, if any,
related to hedged transactions that have not yet been settled.
Accounting changes adopted in 2018
The Corporation applied, for the first time, IFRS 15 “Revenues from contracts with customers” and IFRS 9 “Financial Instruments” that
required restatement of previous consolidated financial statements.
Revenues from contracts with customers
In May 2014, the International Accounting Standards Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) jointly issued
IFRS 15, a converged standard on the recognition of revenue from contracts with customers. It supersedes the IASB’s current revenue
recognition guidance including IAS 18 “Revenue”, IAS 11 “Construction Contracts”, and related interpretations. IFRS 15 provides a single
principle‐based five‐step model to use when accounting for revenue arising from contracts with customers.
The Corporation has applied IFRS 15 as of January 1, 2018 using the full retrospective method of adoption. The effect of adopting this
standard is detailed as follows:
Effects on the consolidated financial statements and notes for the year ended December 31, 2017
Under the new standard, the transfer of products with a right of return is presented gross as a refund liability and an asset for recovery. In
the Corporation’s audited consolidated financial position as at December 31, 2017, the allowance for returns was presented on a net basis
and, therefore, a reclassification of $9,644 from “Trade and other payables” to “Trade and other receivables” is required.
2018 ANNUAL REPORT UNI‐SELECT 71
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S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
The implementation of IFRS 15 had no material impact on the Corporation’s consolidated statements of earnings, comprehensive income,
changes in equity and cash flows for the year ended on December 31, 2017.
The new disclosure requirements of IFRS 15 partially impacted the information described under notes 2 and 3. Refer to these notes, under
their respective “Sales recognition” sections, for further details.
Financial Instruments
In July 2014, the IASB issued a complete and final version of IFRS 9 “Financial Instruments”, replacing the current standard on financial
instruments (IAS 39). IFRS 9 introduces a single, principle‐based approach for the classification of financial assets, driven by the nature of
cash flows and the business model in which an asset is held. IFRS 9 also provides guidance on an entity’s own credit risk relating to financial
liabilities and has modified the hedge accounting model to align the economics of risk management with its accounting treatment. The
standard results in a single expected‐loss impairment model rather than an incurred losses model.
The Corporation has applied IFRS 9 retrospectively, with the initial application date as of January 1, 2018. This transition had no significant
impact on the consolidated financial statements.
The new disclosure requirements of IFRS 9 partially impacted the information described under note 3. Refer to this note, under “Financial
instruments ‐ Classification and measurement of non derivative financial assets” and “Financial instruments ‐ Impairment of non derivative
financial instruments” sections for further details.
The following summarizes other impacts resulting from the adoption of the accounting changes:
Classification and measurement of non derivative financial instruments: The Corporation reclassified its loans and receivables financial
assets to financial assets measured at amortized cost. The adoption of IFRS 9 did not result in any measurement adjustments to the financial
assets and, therefore, does not require restatement of comparative periods. As well, it had no significant effect on the Corporation’s
accounting policies for financial liabilities and derecognition of financial instruments.
Impairment of non derivative financial instruments: IFRS 9 replaces the incurred loss model in IAS 39 with the ECL approach. The adoption
of the ECL requirements of IFRS 9 had no significant impact on the Corporation’s accounting for impairment losses for financial assets.
Derivative financial instruments and hedge accounting: The Corporation has elected to adopt the new general hedge accounting model in
IFRS 9. This requires the Corporation to apply a more qualitative and forward‐looking approach to assessing hedge effectiveness. The
adoption of the hedge accounting requirements of IFRS 9 did not result in any changes in the eligibility for hedge accounting and the
accounting for the derivative financial instruments designated as effective hedging instruments at the transition date.
Future accounting changes
Effective date – January 1, 2019 with earlier adoption permitted in certain circumstances
Leases
In January 2016, the IASB issued IFRS 16 “Leases”, replacing the current standard on leases (IAS 17). IFRS 16 eliminates the classification as
an operating lease and requires lessees to recognize a right‐of‐use asset and a lease liability in the consolidated statement of financial
position with exemptions permitted for short‐term leases and leases of low value assets. In addition, IFRS 16 changes the definition of a
lease, sets requirements on how to account for the asset and liability (including complexities such as non‐lease elements, variable lease
payments and options periods), changes the accounting for sale and leaseback arrangements and introduces new disclosure requirements.
The impact of this new standard, including the presentation and disclosure requirements, has been assessed. IFRS 16 will affect primarily
the accounting for the Corporation’s real estate operating leases. The Corporation intends to apply the modified retrospective transition
approach and will not restate comparative amounts for the year prior to its adoption. Under this approach, the cumulative effect of initially
applying IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at the date of initial application. The
Corporation has elected to apply the following transitional practical expedients:
-
-
-
Apply a single discount rate to a portfolio of leases with reasonably similar characteristics;
Account for leases for which the remaining lease term ends within 12 months of the effective date as a short‐term lease; and
Recognize short‐term leases and low value leases on a straight‐line basis as “Other operating expenses” in the consolidated
statements of earnings.
The Corporation expects to recognize new assets (right‐of‐use assets) and liabilities (lease liabilities) approximating $86,000 and $97,000
respectively, as well as deferred tax assets of about $2,000.
2018 ANNUAL REPORT UNI‐SELECT 72
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S IGNIF ICANT ACCO UNTING PO LI CI ES ( C ONT I NUE D )
As a result of adopting the new standard, the Corporation expects that net earnings will decrease for 2019. As well, earnings before finance
costs, depreciation and amortization and income taxes is expected to increase, since the operating lease payments were included in “Other
operating expenses”, while the amortization of the right‐of‐use assets and interest on the lease liabilities are excluded from this measure.
Cash flows from operating activities will increase since the repayment of the principal portion of the lease liabilities will be presented as
part of the cash flows from financing activities.
Refer to note 22 for further details on the Corporation’s future minimum lease payments under operating leases as at December 31, 2018.
4 ‐
SPECIAL ITEMS
Special items comprise items which do not reflect the Corporation’s core performance or where their separate presentation will assist users
of the consolidated financial statements in understanding the Corporation’s results for the year. Special items are detailed as follows:
Restructuring and other charges
Severance and retention bonuses related to Management changes
Net transaction charges related to The Parts Alliance acquisition
Years ended
December 31,
2018
7,578
6,157
854
14,589
2017
(523)
‐
7,303
6,780
Restructuring and other charges
On November 14, 2018, the Corporation announced a restructuring plan (“25/20 Plan”), which mainly consists of headcount reduction and
the consolidation of locations, while optimizing the supply chain.
The Corporation recognized restructuring charges totalling $5,055, including $3,122 for severance and termination benefits and $1,933 for
onerous contracts. The Corporation also incurred other charges of $2,523, primarily comprising of consulting fees related to the review of
strategic alternatives.
The variances in the provision for restructuring charges are detailed as follows:
Balance, beginning of year
Restructuring charges recognized during the year
Provision used during the year
Change in estimate (1)
Effects of fluctuations in exchange rates
Years ended
December 31,
2018
‐
5,055
(848)
‐
(34)
4,173
2017
775
‐
(308)
(523)
56
‐
(1)
In 2017, the Corporation reviewed its remaining provisions in relation to the sale of net assets, resulting in a reduction of the
restructuring and other charges in the consolidated statements of earnings of $523.
Severance and retention bonuses related to Management changes
On September 18, 2018, the Corporation announced Management changes with the immediate departure and replacement of its President
and Chief Executive Officer, and the President and Chief Operating Officer of FinishMaster, Inc. As a result, the Corporation recognized
charges totaling $6,157 mainly composed of severance charges.
2018 ANNUAL REPORT UNI‐SELECT 73
4 ‐
S P E CI A L I T EM S ( CON T I N U E D)
Net transaction charges related to The Parts Alliance acquisition
In connection with The Parts Alliance acquisition completed in August 2017, the Corporation recognized transaction charges totaling $854
for the year ended December 31, 2018 ($7,303 in 2017). These charges include:
Acquisition costs
Other charges related to the acquisition
Favorable change in the fair value of foreign currency options
5 ‐
FINANCE COSTS, NET
Interest on long‐term debt
Amortization of financing costs
Net interest expense on the long‐term employee benefit obligations (note 16)
Reclassification of realized losses on derivative financial instruments designated as cash flow hedges to net
earnings
Premium on foreign currency options
Interest on merchant members’ deposits in the guarantee fund and others
Interest income from merchant members and others
6 ‐ DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment (note 13)
Amortization of intangible assets (note 14)
Years ended
December 31,
2018
294
560
‐
854
2017
7,310
1,699
(1,706)
7,303
Years ended
December 31,
2018
18,995
908
500
59
‐
315
20,777
(216)
20,561
2017
10,940
672
429
165
2,325
165
14,696
(209)
14,487
Years ended
December 31,
2018
19,953
19,749
39,702
2017
12,411
17,236
29,647
2018 ANNUAL REPORT UNI‐SELECT 74
7 ‐
INCOME TAXES
Income tax expense
Current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Change in enacted tax rate (1)
Years ended
December 31,
2018
13,366
2017
10,673
(5,186)
‐
8,180
12,140
(811)
22,002
(1) On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“US Tax Reform”). The US Tax
Reform reduces the US federal corporate income tax rate from 35.0% to 21.0%, effective as of January 1, 2018. Furthermore, the new
law allows for immediate capital expensing of new investments in certain qualified depreciable assets made after September 27, 2017,
which will be phased down starting in 2023. The US Tax Reform has introduced other significant changes to the US corporate income
tax laws that could have some impact on the Corporation going forward. The US Tax Reform has decreased the Corporation’s net
deferred income tax liability by $811.
Reconciliation of the income tax expense
The following table presents a reconciliation of income taxes at the combined Canadian statutory income tax rates applicable in the
jurisdictions in which the Corporation operates to the amount of reported income taxes in the consolidated statements of earnings:
Income taxes at the Corporation’s statutory tax rate – 26.70% (1) (26.80% in 2017)
Effect of tax rates in foreign jurisdictions
Tax benefit from a financing structure
Change in enacted tax rate
Non‐deductible expenses and others
Years ended
December 31,
2018
11,929
(1,835)
(4,544)
‐
2,630
8,180
2017
17,854
5,593
(4,323)
(811)
3,689
22,002
(1)
For the year ended December 31, 2018, the applicable statutory tax rate is 26.70% (26.80% in 2017). The Corporation’s applicable tax
rate is the Canadian combined rates applicable in the jurisdiction in which the Corporation operates. The decrease is due to the
reduction of the Québec income tax rate in 2018, from 11.8% to 11.7% (11.9% to 11.8% in 2017).
2018 ANNUAL REPORT UNI‐SELECT 75
7 ‐
I NCOM E TAXES ( CON T I N U E D)
Recognized deferred tax assets and liabilities
Non‐capital loss (gain) carryforwards
Provisions and accrued charges, deductible
in future years
Property and equipment
Long‐term employee benefit obligations
Provision for performance incentives
Intangible assets and goodwill
Others
Non‐capital loss (gain) carryforwards
Provisions and accrued charges, deductible
in future years
Property and equipment
Long‐term employee benefit obligations
Provision for performance incentives
Intangible assets and goodwill
Capital loss (gain) on foreign exchange
Others
December 31, 2018
Opening
balance
8,426
Recognized
in net
earnings
4,118
Recognized
in OCI
‐
Recognized as
part of business
combinations
(note 10)
‐
Effects of
fluctuations
in exchange
rates
(260)
11,061
(3,789)
3,531
1,951
(27,715)
604
(5,931)
2,391
1,072
248
(784)
(652 )
(1,207)
5,186
‐
‐
(620)
‐
‐
(223)
(843)
‐
‐
‐
‐
(1,145)
‐
(1,145)
(472)
(42)
(18)
55
1,179
(3)
439
Closing
balance
12,284
12,980
(2,759)
3,141
1,222
(28,333)
(829)
(2,294)
December 31, 2017
Opening
balance
19,309
Recognized
in net
earnings
(12,118)
Recognized
in OCI
‐
Recognized as
part of business
combinations
599
Effects of
fluctuations
in exchange
rates
636
10,503
(1,820)
2,330
1,834
(10,051)
(3,454)
(293)
18,358
345
(2,538)
369
(8)
(1,900)
3,707
814
(11,329)
‐
‐
613
‐
‐
‐
(54)
559
‐
702
‐
‐
(15,128)
‐
‐
(13,827)
213
(133)
219
125
(636)
(253)
137
308
Closing
balance
8,426
11,061
(3,789)
3,531
1,951
(27,715)
‐
604
(5,931)
Consolidated statements of financial position presentation
Deferred tax assets
Deferred tax liabilities
December 31,
2018
15,870
18,164
(2,294)
2017
10,174
16,105
(5,931)
As at December 31, 2018, the Corporation had capital losses and deductible temporary differences of $78,074 ($39,873 in 2017) that can
be carried forward indefinitely, for which no deferred tax assets have been recognized. These losses and temporary differences may be
applied only against future capital gains and the Corporation does not expect to generate capital gains in the near future.
2018 ANNUAL REPORT UNI‐SELECT 76
8 ‐
EARNINGS PER SHARE
The following table presents a reconciliation of basic and diluted earnings per share:
Net earnings considered for basic and diluted earnings per share
Weighted average number of common shares outstanding for basic earnings per share
Impact of the stock options (1)
Weighted average number of common shares outstanding for diluted earnings per share
Earnings per share basic
Earnings per share diluted
Years ended
December 31,
2018
36,497
2017
44,616
42,253,987 42,261,423
168,193
42,418,838 42,429,616
164,851
0.86
0.86
1.06
1.05
(1)
For the year ended December 31, 2018, options to acquire 541,494 common shares (126,960 in 2017) were excluded from the
calculation of diluted earnings per share as the strike price of the options was higher than the average market price of the shares.
9 ‐
INFORMATION INCLUDED IN CONSOLIDATED CASH FLOWS
The changes in working capital items are detailed as follows:
Trade and other receivables
Inventory
Prepaid expenses
Trade and other payables
Provision for restructuring and other charges (note 4)
Years ended
December 31,
2018
(21,286)
(75,885)
(825)
93,681
(848)
(5,163)
2017
7,455
(12,949)
1,518
18,867
(308)
14,583
As at December 31, 2018, acquisition of property and equipment of $2,173 ($582 as at December 31, 2017) remained unpaid and did not
have an impact on cash.
The following table presents reconciliation between the opening and closing balances in the consolidated statement of financial position
for “Long‐term debt”, including the “Current portion of long‐term debt” (refer to note 17 for further details):
Balance, beginning of year
Increase in long‐term debt
Repayment of long‐term debt
Increase in finance leases
Finance lease obligations acquired through business combinations (note 10)
Amortization of financing costs (note 5)
Effects of fluctuations in exchange rates
Balance, end of year
Years ended
December 31,
2018
448,581
271,541
(291,126)
5,472
232
908
(8,869)
426,739
2017
134,298
450,860
(154,090)
5,993
8,386
672
2,462
448,581
2018 ANNUAL REPORT UNI‐SELECT 77
10 ‐ BUSINESS COMBINATIONS
2018 acquisitions
During the year ended December 31, 2018, the Corporation acquired the net assets of 1 company operating in the United Kingdom and the
shares of 1 company operating in Canada. Those companies were acquired in the normal course of business. Total cost of these acquisitions
of $25,295 was preliminarily allocated to the acquired assets and liabilities based on their fair value.
The primary factor that gave rise to the recognition of goodwill was the earnings capacity of the acquired businesses in excess of the net
tangible and intangible assets acquired. Mainly, such excess arose from the levels of tangible assets relative to the earnings capacity of the
businesses, expected synergies, the benefits of acquiring established businesses with certain capabilities in the industry and the geographic
presence of the acquired businesses.
In connection with those acquisitions, the Corporation incurred $401 of acquisition costs, which were expensed as “Other operating
expenses” through the consolidated statements of earnings. Since their respective acquisition date, the acquisitions have contributed a
total of $2,364 to sales.
The following table summarizes the aggregate fair value amounts recognized for each class of the acquirees’ net assets at the dates of
acquisition. For the companies acquired during 2018, the Corporation is currently assessing the estimated fair values of certain assets
acquired, mainly intangible assets, to finalize the purchase price allocation over the identifiable net assets acquired and goodwill. As
permitted by IFRS, the Corporation expects to finalize each purchase price allocation within a year from the dates of acquisition.
Trade and other receivables
Inventory
Prepaid expenses
Property and equipment
Intangible assets
Goodwill (1)
Trade and other payables
Finance lease obligations
Other provisions (2)
Deferred tax liabilities
Total cost
Balance of purchase price (3)
Net disbursement
December 31, 2018
2,632
9,089
52
471
6,640
10,578
(2,662)
(10)
(39)
(1,456)
25,295
(1,625)
23,670
For tax purposes, goodwill is expected to be partially deductible.
(1)
(2) Composed of asset retirement obligation provisions recognized for statutory, contractual or legal obligations associated with the
retirement of property and equipment (mainly leasehold improvements).
(3) As at December 31, 2018, this balance of purchase price is held in escrow.
2017 acquisitions
The Parts Alliance acquisition
In August 2017, the Corporation completed the acquisition of all the shares of PA Topco Limited doing business as The Parts Alliance.
Presented net of the cash of the acquired business for £6,187 (equivalent to $8,065), total cost of this acquisition was amounting to
£202,195 (equivalent to $263,603) based on the exchange rate in effect at the acquisition date. During 2017, The Parts Alliance has
contributed a total of $145,069 and $985 to sales and net earnings respectively, since its acquisition date.
As at December 31, 2018, the Corporation finalized the purchase price allocation of The Parts Alliance. To reflect additional information
obtained about facts and circumstances that existed as of the acquisition date, the following reclassifications were recorded: $10,430 from
customer relationships to goodwill, $3,520 from goodwill to property and equipment, $1,825 from goodwill to software, $996 from goodwill
to deferred tax liabilities, $645 from deferred tax assets to goodwill, and $261 from goodwill to trademarks. As a result, a net reversal
totaling $134 was recorded in “Depreciation and amortization” during the year ended December 31, 2018.
2018 ANNUAL REPORT UNI‐SELECT 78
10 ‐ B USI NESS CO MBIN ATI ON S ( CO NT I NU E D )
Other acquisitions
In 2017, the Corporation acquired the net assets of 4 companies operating in the United States and 4 companies operating in Canada as
well as the shares of 1 company operating in the United Kingdom, following the acquisition of The Parts Alliance. Total final cost of these
acquisitions was $98,427 as of December 31, 2018 (preliminary cost of $98,550 in 2017). In connection with those acquisitions, the
Corporation incurred $901 of acquisition costs in 2017, which were expensed as “Other operating expenses” through the consolidated
statements of earnings. During 2017, the acquisitions have contributed a total of $88,469 and $3,925 to sales and net earnings respectively,
since their respective acquisition date.
As at December 31, 2018, the Corporation finalized the purchase price allocation of all other companies acquired in 2017. It resulted in
reclassifications of $3,848 from goodwill to customer relationships, $227 from goodwill to trademarks, $199 from goodwill to property and
equipment, $40 from deferred tax liabilities to goodwill, and $339 from other net assets to goodwill. As a result, a net reversal totaling $36
was recorded in “Depreciation and amortization” during the year ended December 31, 2018.
Assets acquired and liabilities assumed
The following table summarizes the preliminary purchase price allocation recognized as of December 31, 2017 for all the companies
acquired in 2017, including The Parts Alliance, as well as the final purchase price allocation resulting from the reclassifications performed
during 2018:
Trade and other receivables
Inventory
Prepaid expenses
Deferred tax assets
Investments and advances to merchant members
Property and equipment
Intangible assets
Goodwill (1)
Trade and other payables
Income tax payable
Finance lease obligations
Other provisions (2)
Deferred tax liabilities
Total cost (3)
December 31,
2018
Final
allocation
2017
Preliminary
allocation
74,020
74,856
105,318
105,485
6,717
1,150
3,826
31,566
106,509
148,651
6,717
1,795
3,734
27,847
110,778
148,073
(90,272)
(91,052)
(1,083)
(8,608)
(1,233)
(974)
(8,386)
(1,233)
(14,531)
(15,487)
362,030
362,153
For tax purposes, goodwill is expected to be partially deductible.
(1)
(2) Composed of asset retirement obligation provisions recognized for statutory, contractual or legal obligations associated with the
retirement of property and equipment (mainly leasehold improvements).
(3) As at December 31, 2018, $3,288 of total cost was payable under the balance of purchase price, including a portion of $2,021 that was
held in escrow ($13,663 and $8,147 respectively as at December 31, 2017).
11 ‐ TRADE AND OTHER RECEIVABLES
Trade receivables
Current portion of investments and advances to merchant members (note 12)
December 31,
2018
227,221
20,511
247,732
2017
217,045
19,766
236,811
2018 ANNUAL REPORT UNI‐SELECT 79
12 ‐ INVESTMENTS AND ADVANCES TO MERCHANT MEMBERS
Incentives granted to customers
Shares of companies
Advances to merchant members (1)
Current portion of investments and advances to merchant members
Non‐current portion of investments and advances to merchant members
December 31,
2018
63,597
442
2,511
66,550
20,511
46,039
2017
46,704
477
3,213
50,394
19,766
30,628
(1)
Interest rates varying between 3.95% and 6.95% (3.20% and 6.20% in 2017), receivable in monthly installments, maturing on various
dates until 2022.
13 ‐ PROPERTY AND EQUIPMENT
Land and
paving
Buildings
Furniture
and
equipment
Computer
equipment
and system
software
Automotive
equipment
Leasehold
improvements
Cost
Accumulated depreciation
Net book value, January 1, 2017
Additions
Acquisitions through business
combinations (note 10)
Disposals
Depreciation (note 6)
Effects of fluctuations in exchange rates
3,105
(330)
2,775
5
‐
‐
(52)
156
15,694
26,222
24,084
25,725
(8,105)
(18,207)
(17,481)
(13,250)
7,589
1,630
‐
‐
(559)
342
8,015
2,476
4,566
(171)
(1,946)
536
6,603
4,238
3,437
(19)
(2,835)
456
12,475
7,454
11,921
(949)
(5,421)
410
Balance, December 31, 2017
2,884
9,002
13,476
11,880
25,890
Total
108,946
(66,964)
41,982
14,116
(9,591)
4,525
4,381
20,184
7,923
(102)
27,847
(1,241)
(1,598)
(12,411)
383
15,512
2,283
78,644
Cost
Accumulated depreciation
Net book value, end of year 2017
Additions
Acquisitions through business
combinations (note 10)
Transfers (note 10)
Disposals
Depreciation (note 6)
Effects of fluctuations in exchange rates
3,290
(406)
2,884
15
‐
18,049
34,529
32,677
42,814
26,421
157,780
(9,047)
(21,053)
(20,797)
(16,924)
(10,909)
(79,136)
9,002
13,476
11,880
25,890
15,512
78,644
644
8,474
4,165
8,986
4,173
26,457
‐
3,260
5,891
‐
(49)
(273)
(26)
(863)
(619)
208
4
(156)
(2,965)
(1,033)
3
‐
(11)
(4,360)
(622)
11,055
85
‐
(1,097)
(9,383)
(817)
23,664
175
(5,436)
(119)
(2,333)
(609)
11,363
471
3,719
(1,409)
(19,953)
(3,973)
83,956
Balance, December 31, 2018
5,837
14,029
18,008
Cost
Accumulated depreciation
Net book value, end of year 2018
6,257
(420)
5,837
23,530
39,715
34,849
47,383
23,984
175,718
(9,501)
(21,707)
(23,794)
(23,719)
(12,621)
(91,762)
14,029
18,008
11,055
23,664
11,363
83,956
The carrying values of vehicles under finance leases, which are presented under “Automotive equipment”, were $11,680 as at
December 31, 2018 ($19,141 as at December 31, 2017).
Property and equipment includes assets under construction for an amount of $4,163 as at December 31, 2018 ($1,661 as at
December 31, 2017). These assets are not amortized until they are commissioned.
2018 ANNUAL REPORT UNI‐SELECT 80
14 ‐ INTANGIBLE ASSETS AND GOODWILL
Cost
Accumulated depreciation
Net book value, January 1, 2017
Additions
Acquisitions through business combinations (note 10)
Transfers
Amortization (note 6)
Effect of fluctuations in exchange rates
Balance, December 31, 2017
Cost
Accumulated amortization
Net book value, end of year 2017
Additions
Acquisitions through business combinations (note 10)
Transfers (note 10)
Amortization (note 6)
Effect of fluctuations in exchange rates
Balance, December 31, 2018
Cost
Accumulated amortization (1)
Net book value, end of year 2018
Intangible assets
Goodwill
Customer
relationships
and others
Trademarks
Software (2)
Total
7,900
117,754
27,799
153,453
243,807
‐
(37,022)
(15,273)
(52,295)
‐
7,900
80,732
12,526
101,158
243,807
‐
148,073
(26,860)
‐
7,099
‐
28,972
‐
‐
633
76,853
27,673
3,778
4,953
‐
4,411
110,778
27,673
(13,386)
(3,850)
(17,236)
1,039
37,911
2,504
175,009
1,038
18,445
4,581
231,365
372,119
37,911
225,549
38,714
302,174
372,119
‐
(50,540)
(20,269)
(70,809)
‐
37,911
175,009
18,445
231,365
372,119
‐
‐
488
‐
(1,802)
36,597
349
6,640
(6,582)
(14,445)
(3,849)
2,920
‐
1,825
(5,304)
(1,274)
3,269
6,640
(4,269)
(19,749)
(6,925)
157,122
16,612
210,331
‐
10,578
578
‐
(11,268)
372,007
36,597
221,580
40,326
298,503
372,007
‐
(64,458)
(23,714)
(88,172)
‐
36,597
157,122
16,612
210,331
372,007
(1) The average remaining amortization period of the intangible assets with useful lives is 3 years for software and 11 years for customer
relationships and others.
(2) As at December 31, 2018, software includes the capitalized portion of costs and the accumulated amortization, amounting to $9,805
and $6,581 respectively ($10,631 and $5,789 respectively as at December 31, 2017), related to the acquisition and internal development
of an ERP.
Impairment testing for cash‐generating units containing goodwill and intangible assets with indefinite useful lives (trademarks)
For the purpose of impairment testing, goodwill and trademarks are allocated to the Corporation’s three CGUs, United States, Canada and
United Kingdom, which represent the lowest level within the Corporation at which the goodwill and trademarks are monitored for internal
management purposes. The recoverable amounts of the Corporation’s CGUs were based on their value in use and were determined with
the assistance of independent valuation consultants. The carrying amounts of the units were determined to be lower than their recoverable
amounts, and no impairment loss was recognized.
Value in use was determined by discounting the future cash flows expected to be generated from the continuing use of the units. Value in
use in 2018 was determined similarly as in 2017. The calculation of the value in use was based on the following key assumptions:
-
-
Cash flows were projected based on experience, actual operating results and the five‐year business plan in both 2018 and 2017.
Cash flows for a further five‐year period were extrapolated using constant growth rates of 2.0% (2.0% in 2017) for all of the
US operations, the Canadian operations and the United Kingdom operations, which do not exceed the long‐term average growth
rates for the industry.
Pre‐tax discount rates of 12.8% (9.7% in 2017) for the US operations, 12.4% (10.7% in 2017) for the Canadian operations and 11.2%
(9.2% in 2017) for the United Kingdom operations were applied in determining the recoverable amount of the units. The discount
rates were estimated based on experience and the industry’s weighted average cost of capital, which was based on a possible range
of debt leveraging of 15% at market interest rates net of tax of 4.0% (2.8% in 2017) for the US operations, 3.3% (3.0% in 2017) for
the Canadian operations and 3.0% (3.1% in 2017) for the United Kingdom operations.
2018 ANNUAL REPORT UNI‐SELECT 81
14 ‐
I NTA N GIBL E AS S ET S AND GO OD WILL ( CO NT I N UE D )
The key assumptions reflect Management’s assessment of future trends in the automotive aftermarket and are based on both external and
internal sources. The sensitivity analysis indicated that no reasonable possible changes in the assumptions would cause the carrying amount
of each CGU to exceed its recoverable amount.
15 ‐ STOCK‐BASED COMPENSATION
The Corporation’s stock‐based compensation plans include an equity‐settled common share stock option plan, and cash‐settled plans
consisting of a deferred share unit plan and a performance share unit plan.
Common share stock option plan for management employees and officers
The Corporation has a common share stock option plan for management employees and officers (the “stock option plan”) where a total of
3,400,000 shares have been reserved for issuance. Under the plan, the options are granted at the average closing price of the Corporation’s
common shares on the TSX for the five trading days preceding the grant date. Options granted vest in or over a period of three years plus
one day following the date of issuance and are exercisable over a period of no greater than seven years.
For the year ended December 31, 2018, 181,679 options were granted to management employees and officers of the Corporation (573,215
for 2017), with an average exercise price of C$28.61 (C$29.02 in 2017). During the year, 206,184 options were exercised (59,634 for 2017)
and 340,360 options were forfeited or expired (none for 2017).
As at December 31, 2018, options granted for the issuance of 541,494 common shares (906,359 as at December 31, 2017) were outstanding
under the Corporation’s stock option plan, and 1,396,500 common shares (1,237,819 as at December 31, 2017) were reserved for additional
options under the stock option plan.
A summary of the Corporation’s stock option plan for the years ended December 31, 2018 and 2017 is presented as follows:
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
2018
Weighted
average
exercise
price
C$
26.51
28.61
14.94
30.77
28.94
30.19
Number of
options
392,778
573,215
(59,634)
‐
906,359
246,650
2017
Weighted
average
exercise
price
C$
21.06
29.02
14.80
‐
26.51
21.69
Number of
options
906,359
181,679
(206,184)
(340,360)
541,494
33,865
The range of exercise prices, the weighted average exercise prices and the weighted average remaining contractual life of the Corporation’s
options are as follows:
Exercisable price
C$
33.94
29.64
28.84
28.61
Options outstanding
Options exercisable
December 31, 2018
Weighted
average
remaining
contractual
life (years)
Number
outstanding
11,764
12,653
442,216
74,861
541,494
4.01
5.01
5.61
6.47
5.68
Weighted
average
exercise
price
C$
33.94
29.64
28.84
28.61
28.94
Number
exercisable
8,823
6,327
‐
18,715
33,865
Weighted
average
exercise
price
C$
33.94
29.64
28.84
28.61
30.19
2018 ANNUAL REPORT UNI‐SELECT 82
15 ‐
S T O C K B AS ED‐ COMPENSATION ( CONT I NU E D)
Exercisable price
C$
11.45
14.38
15.32
33.94
29.64
28.84
Options outstanding
Options exercisable
December 31, 2017
Weighted
average
remaining
contractual
life (years)
Number
outstanding
14,886
22,381
168,917
126,960
130,999
442,216
906,359
2.00
3.01
4.01
5.01
6.01
6.61
5.65
Weighted
average
exercise
price
C$
11.45
14.38
15.32
33.94
29.64
28.84
26.51
Number
exercisable
14,886
22,381
113,153
63,480
32,750
‐
246,650
Weighted
average
exercise
price
C$
11.45
14.38
15.32
33.94
29.64
28.84
21.69
For the year ended December 31, 2018, compensation expense of $1,339 ($924 for 2017) was recorded in the “Net earnings”, with the
corresponding amounts recorded in “Contributed surplus”.
The fair value of the stock options granted on January 2, 2018 was determined using the binomial option pricing model. The assumptions
used in the calculation of their fair value were as follows:
Grant date fair value
Dividend yield
Expected volatility
Forfeiture rate
Risk‐free interest rate
Expected life
Exercise price
Share price
C$
%
%
%
%
years
C$
C$
2018 Jan. 3, 2017 Aug. 7, 2017
6.41
1.30
23.58
6.67
1.96
7.00
28.61
28.61
6.49
1.13
23.30
6.67
1.41
7.00
29.64
29.64
6.38
1.33
23.33
6.67
1.71
7.00
28.84
28.84
The expected volatility is estimated for each award tranche, taking into account the average historical volatility of the share price over the
expected term of the options granted.
Deferred share unit (“DSU”) plan
For the year ended December 31, 2018, the Corporation granted 83,423 DSUs (36,572 DSUs for 2017) and redeemed 86,292 DSUs
(25,491 DSUs for 2017). Compensation expense of $206 ($673 in 2017) was recorded during the year, and 150,468 DSUs were outstanding
as at December 31, 2018 (153,337 DSUs as at December 31, 2017). As at December 31, 2018, the compensation liability was $2,114 ($3,482
as at December 31, 2017) and the fair value of the equity swap agreement was a liability of $1,332 (liability of $352 as at
December 31, 2017).
Performance share unit (“PSU”) plan
For the year ended December 31, 2018, the Corporation granted 135,709 PSUs (127,950 PSUs for 2017) and redeemed 248,601 PSUs
(70,991 PSUs for 2017). Compensation reversal of $661 (expense of $1,809 in 2017) was recorded during the year, and 160,103 PSUs were
outstanding as at December 31, 2018 (272,995 PSUs as at December 31, 2017). As at December 31, 2018, the compensation liability was
$317 ($4,945 as at December 31, 2017) and the fair value of the equity swap agreement was a liability of $1,726 (liability of $356 as at
December 31, 2017).
2018 ANNUAL REPORT UNI‐SELECT 83
16 ‐ POST‐EMPLOYMENT BENEFIT OBLIGATIONS
The Corporation sponsors both defined benefit and defined contribution pension plans.
The defined benefit pension plans include a basic registered pension plan, a registered pension plan for senior management and a non‐
registered supplemental pension plan for certain members of senior management. The benefits under the Corporation’s defined benefit
pension plans are based on the years of service and the final average salary. The two registered pension plans are funded by the Corporation
and the members of the plan. Employee contributions are determined according to the members’ salaries and cover a portion of the benefit
costs. The employer contributions are based on the actuarial evaluation which determines the level of funding necessary to cover the
Corporation’s obligations.
The Corporation also contributes to various other plans that are accounted for as defined contribution plans. The total expense for the
Corporation’s defined contribution plan was $4,165 for the year ended December 31, 2018 ($3,403 for 2017).
Defined benefit pension plans
An actuarial valuation of the defined benefit pension plans is obtained at least every three years.
The defined benefit pension plans expose the Corporation to actuarial risks such as longevity risk, currency risk, interest rate risk and
investment risk. The present value of the defined benefit plan obligation is calculated by reference to the best estimate of the mortality of
plan members. Longevity risk exists because an increase in the life expectancy of plan members will increase the plan obligation. A change
in the valuation of the plans’ foreign assets due to changes in foreign exchange rates exposes the plans to currency risk. A decrease in the
bond interest rate used to calculate the present value of the defined benefit obligation will increase the plan obligation. This interest rate
risk will be partially offset by an increase in return on the plans’ fixed income funds. Investment risk occurs if the return on plan assets is
lower than the corporate bond interest rate used to determine the discount rate.
Information regarding the status of the obligation and plan assets of the defined benefit plans is as follows:
Defined benefit obligations
Balance, beginning of year
Current service cost
Employee contributions
Interest expense
Benefits paid
Remeasurements:
Actuarial loss (gain) from changes in financial assumptions
Effects of movements in exchange rates
Balance, end of year
Plan assets
Fair value, beginning of year
Interest income
Employer contributions
Employee contributions
Benefits paid
Administration fees
Return on plan assets (excluding amounts included in interest income)
Effects of movements in exchange rates
Fair value, end of year
2018
2017
67,027
2,135
684
2,386
(3,148)
(5,342)
(5,042)
58,700
55,733
2,246
780
2,381
(2,292)
4,167
4,012
67,027
2018
2017
54,469
1,886
1,784
684
(3,148)
(238)
(2,921)
(4,184)
48,332
47,031
1,952
2,211
780
(2,292)
(338)
1,805
3,320
54,469
2018 ANNUAL REPORT UNI‐SELECT 84
16 ‐ P OST ‐ EM PLO YM EN T B EN EFIT OBLIGATIONS ( CO NT I NU E D)
Components of plan assets
Investments in equity funds
Investments in fixed income funds
Investments in other funds
December 31,
2018
%
52.7
20.3
27.0
100.0
2017
%
53.5
20.6
25.9
100.0
Due to the long‐term nature of plans’ defined benefit obligations, the Corporation considers to be appropriate that a reasonable portion
of the plans’ assets should be invested in equity, fixed income and other funds to generate additional long‐term return.
The net obligation is presented in “Long‐term employee benefit obligations” in the consolidated statements of financial position.
Fair value of plan assets
Defined benefit obligations
December 31,
2018
48,332
(58,700)
(10,368)
2017
54,469
(67,027)
(12,558)
The expense for defined benefit pension plans recognized in “Employee benefits” and in “Finance costs, net” in the consolidated statements
of earnings is as follows:
Current service cost
Net interest expense
Administration fees
Remeasurements of long‐term employee benefit obligations recognized in OCI are as follows:
Actuarial loss (gain) from changes in financial assumptions
Return on plan assets (excluding amounts included in interest income)
Years ended
December 31,
2018
2,135
500
238
2,873
2017
2,246
429
338
3,013
Years ended
December 31,
2018
(5,342)
2,921
(2,421)
2017
4,167
(1,805)
2,362
The significant actuarial assumptions at the reporting date are as follows (weighted average assumptions as at December 31):
Discount rate
Rate of compensation increase
Average life expectancies
Male, 45 years of age at reporting date
Female, 45 years of age at reporting date
Male, 65 years of age at reporting date
Female, 65 years of age at reporting date
December 31,
2018
4.10
3.50
87.8
90.1
86.7
89.1
2017
3.60
3.50
87.7
90.0
86.6
89.1
%
%
years
years
years
years
For the year ended December 31, 2019, the Corporation expects to make contributions of approximately $1,676 for its defined benefit
pension plans.
2018 ANNUAL REPORT UNI‐SELECT 85
16 ‐ P OST ‐ EM PLO YM EN T B EN EFIT OBLIGATIONS ( CO NT I NU E D)
The significant actuarial assumptions for the determination of the defined benefit obligation are the discount rate, the rate of compensation
increase and the average life expectancy. The calculation of the net defined benefit obligation is sensitive to these assumptions.
The following table summarizes the effects of the changes in these actuarial assumptions on the defined benefit obligations:
Discount rate
Increase of 1%
Decrease of 1%
Rate of compensation
Increase of 0.5%
Decrease of 0.5%
Average life expectancies
Increase of 10% in mortality rates
Decrease of 10% in mortality rates
December 31,
2018
%
(14.1)
18.7
2.2
(2.1)
(2.1)
2.3
2017
%
(14.8)
19.6
2.1
(2.0)
(2.1)
2.3
17 ‐ LONG‐TERM DEBT AND CREDIT FACILITIES
Revolving credit facility, variable rates (1) (2)
Term facility, variable rates (1) (2)
Finance leases, variable rates
Others
Installments due within a year
Long‐term debt
Maturity
Effective interest rate
Current
portion
December 31,
2023
‐
‐
2021
2.467% to 6.700%
‐
‐
‐
4,132
4
2018
414,741
‐
11,987
11
4,136
426,739
4,136
422,603
2017
328,970
99,633
19,962
16
448,581
36,996
411,585
(1) As at December 31, 2018, a nominal amount of 418,220 was used under the Corporation’s revolving credit facility (nominal amounts
of $331,867 for the revolving credit facility and $100,000 for the term facility were used as at December 31, 2017). The difference with
the carrying amount presented above is composed of deferred financing costs.
(2) As at December 31, 2018, a principal amount of $302,865 of the revolving credit and term facilities was designated as a hedge of net
investments in foreign operations ($322,075 as at December 31, 2017).
Revolving credit facility and term facility
On August 30, 2018, the Corporation entered into an amended and restated credit agreement (the “agreement”). The agreement provides
for a $100,000 upsize in the unsecured long‐term revolving credit facility (the “revolving credit facility”) through the conversion, and
immediate cancellation, of the unsecured term facility outstanding balance. The total maximum principal amount available under the
agreement remains at $625,000, which is entirely composed of the revolving credit facility that can be repaid at any time without penalty.
The revolving credit facility is available in Canadian dollars, US dollars, Euros or British pounds and its applicable variable interest rates are
based either on LIBOR, Euro Libor, GBP Libor, banker’s acceptances, US base rate or prime rates plus the applicable margins. In addition,
the agreement extends the maturity of the revolving credit facility to June 30, 2023.
Letter of credit facility
On August 30, 2018, the Corporation amended the terms of its $20,000 unsecured letter of credit facility and extended its maturity to
June 30, 2023. This facility is available for the issuance of the Canadian, US, Euros or British pounds letters of credit. Their applicable variable
interest rates are based on US base rate or prime rates plus the applicable margins.
The Corporation’s letters of credit have been issued to guarantee the payments of certain employee benefits and certain inventory
purchases by subsidiaries. The letters of credit are not recorded as liabilities in the Corporation’s long‐term debt as the related guarantees
have been recorded directly in the Corporation’s consolidated statements of financial position, if applicable.
As at December 31, 2018, $7,337 of letters of credit have been issued ($8,137 as at December 31, 2017).
2018 ANNUAL REPORT UNI‐SELECT 86
17 ‐
L ON G‐T ERM DEBT AND CREDIT FACILI TI ES ( CON T I N U ED )
Minimum future payments
Principal repayments due on long‐term debt (except finance leases and financing costs) and present value of the Corporation’s future lease
obligations as of December 31, 2018 are presented as follows:
Long‐term debt (except finance leases and financing
costs)
4
4
3
‐
418,220
Present value of future lease obligations
4,132
3,351
2,505
1,447
474
‐
78
2019
2020
2021
2022
2023 Thereafter
18 ‐ MERCHANT MEMBERS’ DEPOSITS IN THE GUARANTEE FUND
Merchant members are required to contribute to a fund to guarantee a portion of their amounts due to the Corporation. The deposit
amounts are based on each merchant member’s purchase volume, and bear interest at the prime rate less 1%. As at December 31, 2018,
the interest rate in effect was 3.95% (3.20% at December 31, 2017). The variation in deposits is as follows:
Total merchant members’ deposits in the guarantee fund
Installments due within a year
Non‐current portion of the merchant members’ deposits in the guarantee fund
19 ‐ SHARE CAPITAL
December 31,
2018
5,518
94
5,424
2017
5,645
102
5,543
Authorized
The Corporation’s capital structure includes an unlimited number of common shares, without par value, and an unlimited number of
preferred shares, without par value, issuable in series with the following characteristics:
Common shares
(i)
Each common share entitles the holder thereof to one vote and to receive dividends in such amounts and payable at such time as the Board
of Directors shall determine after the payment of dividends to the preferred shares. In the event of a liquidation, dissolution or winding‐
up, the holders shall be entitled to participate in the distribution of the assets after payment to the holders of the preferred shares.
(ii) Preferred shares
The preferred shares, none of which are issued and outstanding, are non‐voting shares issuable in series. The Board of Directors has the
right, from time to time, to fix the number of, and to determine the designation, rights, privileges, restrictions and conditions attached to
the preferred shares of each series. The number of preferred shares that may be issued and outstanding is limited to a number equal to no
more than 20% of the number of common shares issued and outstanding at the time of issuance of any preferred shares. The holders of
any series of preferred shares are entitled to receive dividends and have priority over common shares in the distribution of the assets in
the event of a liquidation, dissolution or winding‐up.
Issued and fully paid
Balance, beginning of year (42,273,812 common shares (42,214,178 in 2017))
Issuance of 206,184 common shares on the exercise of stock options (59,634 in 2017)
Transfer upon exercise of stock options
Repurchase and cancellation of 92,696 common shares (none in 2017)
Balance, end of year (42,387,300 common shares (42,273,812 in 2017))
December 31,
2018
2017
97,585
2,331
518
(190)
100,244
96,924
661
‐
‐
97,585
2018 ANNUAL REPORT UNI‐SELECT 87
19 ‐
S H AR E CA PIT AL ( CO NT I N U E D)
Repurchase and cancellation of shares
On April 18, 2018, the Corporation announced that it received approval from the TSX to renew its intention to purchase by way of a new
normal course issuer bid (“NCIB”), for cancellation purposes, up to 1,500,000 common shares, representing approximately 3.5% of its
42,273,812 issued and outstanding common shares as of April 16, 2018 over a twelve‐month period beginning on April 23, 2018 and ending
on April 22, 2019. In connection with the NCIB, the Corporation established an Automatic Purchase Plan (“APP”), enabling itself to provide
standard instructions regarding the redemption of common shares during self‐imposed blackout periods. Such redemptions will be
determined by the broker in its sole discretion based on the Corporation’s parameters.
In relation to this APP, 92,696 common shares were repurchased during the year ended December 31, 2018 for a cash consideration of
$1,422 including a share repurchase and cancellation premium of $1,232 applied as a reduction of retained earnings (none in 2017).
Issuance of shares
During the year ended December 31, 2018, the Corporation issued 206,184 common shares (59,634 in 2017) at the exercise of stock options
for a cash consideration of $2,331 ($661 in 2017). The weighted average price of the exercise of stock options was C$14.94 for the year
(C$14.80 for 2017).
Dividends
A total of C$0.370 per common share was declared by the Corporation for the year ended December 31, 2018 (C$0.3625 for 2017).
20 ‐ FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The classification of financial instruments as well as their carrying amounts and fair values are summarized as follows:
Financial assets (liabilities) carried at amortized cost
Cash
Cash held in escrow
Trade receivables
Advances to merchant members
Trade and other payables
Balance of purchase price, net
Dividends payable
Long‐term debt (except finance leases and
financing costs)
Merchant members’ deposits in the guarantee fund
Financial assets (liabilities) carried at fair value
Derivative financial instruments
Foreign exchange forward contracts
Interest rate swaps (1)
Equity swap agreements
(1) Derivatives designated in a hedge relationship.
December 31, 2018
December 31, 2017
Carrying
amount
8,036
3,591
Fair
value
8,036
3,591
Carrying
amount
30,672
8,147
Fair
value
30,672
8,147
227,221
227,221
217,045
217,045
Level 2
2,511
2,511
Level 2
3,213
3,213
(514,705)
(514,705)
(5,274)
(2,876)
(5,274)
(2,876)
(430,165)
(430,165)
(18,413)
(3,110)
(18,413)
(3,110)
Level 2
Level 2
(418,231)
(5,518)
(418,231)
(5,518)
Level 2
Level 2
(431,883)
(5,645)
(431,883)
(5,645)
Level 2
Level 2
Level 2
442
940
442
940
(3,058)
(3,058)
Level 2
Level 2
Level 2
(404)
71
(708)
(404)
71
(708)
Financial assets (liabilities) carried at amortized cost
The fair value of the advances to merchant members is equivalent to their carrying value as these instruments are bearing interests that
reflect current market conditions for similar instruments.
The fair value of the long‐term debt (except finance leases and financing costs) has been determined by calculating the present value of
the interest rate spread that exists between the actual credit facilities and the rate that would be negotiated with the economic conditions
at the reporting date. The fair value of long‐term debt approximates its carrying value as the effective interest rates applicable to the
Corporation’s credit facilities reflect current market conditions.
The fair value of the merchant members’ deposits in the guarantee fund is equivalent to their carrying value since their interest rates are
comparable to market rates.
2018 ANNUAL REPORT UNI‐SELECT 88
20 ‐
FI NANCIAL IN ST RUM ENT S AN D RISK M A NA G EM E NT ( CO NT I NU E D)
Financial assets (liabilities) carried at fair value
The fair value of the foreign exchange forward contracts was determined using exchange rates quoted in the active market adjusted for
the credit risk added by the financial institutions.
The fair value of the interest rate swaps was determined using interest rates quoted in the active market adjusted for the credit risk added
by the financial institutions.
The fair value of the equity swap agreements was determined using share prices quoted in the active market adjusted for the credit risk
added by the financial institutions.
Fair value hierarchy
Financial instruments measured at fair value in the consolidated statements of financial position are classified according to the following
hierarchy:
Level 1: consists of measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: consists of measurement techniques mainly based on inputs, other than quoted prices (included within Level 1), that are
observable either directly or indirectly in the market; and
Level 3: consists of measurement techniques that are not mainly based on observable market data.
Derivative financial instruments – hedge of foreign exchange risk
The Corporation entered into forward contracts in order to mitigate the foreign exchange risks mainly related to purchases in currencies
other than the respective functional currencies of the Corporation. The consolidated forward contracts outstanding as at
December 31, 2018 are as follows:
Currencies (sold/bought)
CAD/USD
GBP/USD
GBP/EURO
Maturity
Average rate (1)
Up to March 2019
Up to May 2019
Up to January 2019
0.79
1.27
1.11
Notional
amount (2)
6,881
3,613
458
(1) Rates are expressed as the number of units of the currency bought for one unit of currency sold.
(2)
Exchange rates as at December 31, 2018 were used to translate amounts in foreign currencies.
Derivative financial instruments used in cash flow hedges ‐ hedge of interest rate risk
The Corporation entered into various swap agreements to hedge the variable interest cash flows on a portion of the Corporation’s revolving
credit facility and term loan for total nominal amounts of $67,500 for interest rate swaps denominated in US dollars ($80,000 in 2017), and
£70,000 for interest rate swaps denominated in British pounds (same in 2017). Until their respective maturities, these agreements are fixing
the interest cash flows between 1.745% and 1.760% for interest rate swaps denominated in US dollars, and to 0.955% for interest rate
swaps denominated in British pounds.
Derivative financial instruments – hedge of share‐based payments cost
In 2016, the Corporation entered into equity swap agreements in order to manage the market price risk of its common shares. As at
December 31, 2018, the equity swap agreements covered the equivalent of 364,277 common shares of the Corporation (same in 2017).
Risk management arising from financial instruments
In the normal course of business, the Corporation is exposed to risks that arise from financial instruments primarily consisting of credit risk,
liquidity risk, foreign exchange risk and interest rate risk. The Corporation manages these risk exposures on an ongoing basis.
(i) Credit risk
Credit risk stems primarily from the potential inability of customers to discharge their obligations. The maximum credit risk to which the
Corporation is exposed represents the carrying amount of cash, cash held in escrow, trade and other receivables and advances to merchant
members. No account represents more than 5% of total accounts receivable. In order to manage its risk, specified credit limits are
determined for certain accounts and regularly reviewed by the Corporation.
The Corporation may also be exposed to credit risk from its foreign exchange forward contracts, its interest rate swaps and its equity swap
agreements, which is managed by dealing with reputable financial institutions.
2018 ANNUAL REPORT UNI‐SELECT 89
20 ‐
FI NANCIAL IN ST RUM ENT S AN D RISK M A NA G EM E NT ( CO NT I NU E D)
The Corporation holds in guarantee some personal property and some assets of certain customers. Those customers are also required to
contribute to a fund to guarantee a portion of their amounts due to the Corporation. The financial condition of customers is examined
regularly, and monthly analyses are reviewed to ensure that past‐due amounts are collectible and, if necessary, that measures are taken
to limit credit risk. Over the past few years, no significant amounts have had a negative impact on the Corporation’s net earnings with the
average bad debt on sales rate at 0.2% for the last three years.
As at December 31, 2018, past‐due accounts receivable represent $9,755 or 5.5% ($8,783 or 4.8% as at December 31, 2017) and an
allowance for doubtful accounts of $6,597 ($5,776 as at December 31, 2017) is provided. Allowance for doubtful accounts and past‐due
accounts receivable are reviewed at least quarterly, and a bad debt expense is recognized only for accounts receivable for which collection
is uncertain. The variances in the allowance for doubtful accounts are as follows:
Balance, beginning of year
Bad debt expense
Business acquisitions
Write‐offs
Currency translation adjustment
Balance, end of year
December 31,
2018
5,776
3,381
‐
(2,393)
(167)
6,597
2017
3,077
1,940
1,945
(1,335)
149
5,776
Management considers that all the above financial assets, that are not impaired or past due for each December 31 reporting dates under
review, are of good credit quality.
(ii) Liquidity risk
Liquidity risk is the risk that the Corporation will encounter difficulty in meeting its obligations on time and at a reasonable cost. The
Corporation manages its liquidity risk on a consolidated basis through its use of different capital markets in order to ensure flexibility in its
capital structure. The Corporation prepares budget and cash forecasts, taking into account its current and future cash requirements, to
ensure that it has sufficient funds to meet its obligations.
The Corporation has renewable revolving credit facility and letter of credit facility totaling $625,000 and $20,000 respectively as at
December 31, 2018 (renewable revolving credit facility, term facility and letter of credit totalling $525,000, $100,000 and $20,000
respectively as at December 31, 2017). Refer to note 17 for further details. The Corporation benefits from an available amount on its credit
facilities of approximately $207,000 as at December 31, 2018 ($193,000 as at December 31, 2017).
Management is of the opinion that as a result of the cash flows generated by operations and the financial resources available, the liquidity
risk of the Corporation is appropriately mitigated.
The contractual maturities and estimated future interest payments of the Corporation’s financial liabilities are as follows:
Non‐derivative financial instruments
Trade and other payables
Interest payable
Balance of purchase price, net
Dividends payable
Long‐term debt (except finance leases and financing costs)
Merchant members’ deposits in the guarantee fund
Derivative financial instruments
Equity swap agreements
December 31, 2018
Carrying
amount
Maturing
under one
year
One to
three years
Over three
years
513,542
1,163
5,274
2,876
418,231
5,518
946,604
513,542
1,163
4,062
2,876
4
94
521,741
3,058
949,662
3,058
524,799
‐
‐
1,212
‐
7
‐
1,219
‐
1,219
‐
‐
‐
‐
418,220
5,424
423,644
‐
423,644
2018 ANNUAL REPORT UNI‐SELECT 90
20 ‐
FI NANCIAL IN ST RUM ENT S AN D RISK M A NA G EM E NT ( CO NT I NU E D)
Non‐derivative financial instruments
Trade and other payables
Interest payable
Balance of purchase price, net
Dividends payable
Long‐term debt (except finance leases and financing costs)
Merchant members’ deposits in the guarantee fund
Derivative financial instruments
Foreign exchange forward contracts
Equity swap agreements
December 31, 2017
Carrying
amount
Maturing
under one
year
One to
three years
Over three
years
419,302
1,219
18,413
3,110
431,883
5,645
879,572
404
708
880,684
419,302
1,219
15,469
3,110
25,004
102
464,206
404
‐
464,610
‐
‐
2,944
‐
406,879
‐
409,823
‐
708
410,531
‐
‐
‐
‐
‐
5,543
5,543
‐
‐
5,543
(iii) Foreign exchange risk
The Corporation is exposed to foreign exchange risk on its financial instruments mainly related to purchases in currencies other than the
respective functional currencies of the Corporation. To limit the impact of fluctuations in the Canadian dollar or the British pound over the
US dollar and Euro on forecasted cash flows, the Corporation uses forward contracts from time to time.
The Corporation has certain investments in foreign operations (United States and United Kingdom) whose net assets are exposed to foreign
currency translation. The Corporation hedges the foreign exchange risk exposure related to those investments with US dollar or British
pound denominated debt instruments (note 17).
For the year ended December 31, 2018, Management considers that a 5% rise or fall in exchange rates, assuming that all other variables
remain the same, will not have a significant impact on net earnings. These changes are considered to be reasonably possible based on an
observation of current market conditions.
(iv) Interest rate risk
The Corporation is exposed to interest rate fluctuations, primarily due to its variable rate debts. The Corporation manages its interest rate
exposure by maintaining an adequate balance of fixed versus variable rate debt and by concluding swap agreements to exchange variable
rates for fixed rates. As at December 31, 2018, including the impact of interest rate swap agreements, the fixed rate portion of financial
debt represents approximately 37% (40% in 2017). Refer to note 17 for further details.
For the year ended December 31, 2018, a 25‐basis‐point rise or fall in interest rates, assuming that all other variables remain the same,
would have resulted in a $501 increase or decrease in the Corporation’s net earnings, and an impact of $623 in OCI. These changes are
considered to be reasonably possible based on an observation of current market conditions.
2018 ANNUAL REPORT UNI‐SELECT 91
21 ‐ ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, January 1, 2017
Other comprehensive income
Balance, December 31, 2017
Other comprehensive income (loss)
Balance, December 31, 2018
Unrealized exchange
losses (gains) on the
translation of debt
designated as a hedge of
net investments in foreign
operations
Accumulated changes in
fair value of derivative
financial instruments
designated as cash flow
hedges
(37,801)
242
(37,559)
(15,831)
(53,390)
‐
53
53
647
700
Cumulative
translation
account
7,559
12,685
20,244
(7,376)
12,868
Total
(30,242)
12,980
(17,262)
(22,560)
(39,822)
22 ‐ COMMITMENTS AND GUARANTEES
Commitments
The Corporation has entered into long‐term operating lease agreements expiring at various dates until 2033 for the rental of buildings,
vehicles, and information technology equipment and services. The rent expense recorded in the consolidated statements of earnings was
$27,486 for the year ended December 31, 2018 ($22,582 for 2017). The committed minimum lease payments under these agreements are
as follows:
Less than one year
Between one and five years
More than five years
December 31, 2018
34,317
85,871
40,005
160,193
Some of these lease agreements contain renewal options for additional periods of one to five years which the Corporation may exercise by
giving prior notice.
Guarantees
Under inventory repurchase agreements, the Corporation has made commitments to financial institutions to repurchase inventory from
some of its customers at rates of 60% or 75% of the cost of the inventory for a maximum of $42,479 as at December 31, 2018 (at rates of
60% or 75% and for a maximum of $47,724 as at December 31, 2017). In the event of a default by a customer, the inventory would be
liquidated in the normal course of the Corporation’s operations. These agreements are for undetermined periods of time. In Management’s
opinion and based on historical experience, the likelihood of significant payments being required under these agreements and losses being
absorbed is low as the value of the assets held in guarantee is greater than the Corporation’s financial obligations.
2018 ANNUAL REPORT UNI‐SELECT 92
23 ‐ RELATED PARTIES
For the years ended December 31, 2018 and 2017, common shares of the Corporation were widely held, and the Corporation did not have
an ultimate controlling party.
Transactions with key management personnel
Key management includes directors (executive and non‐executive) and members of the Executive Committee. For the years ended
December 31, 2018 and 2017, the compensation to key management personnel was as follows:
Salaries and short‐term employee benefits
Severances and retention bonuses
Stock‐based benefits
Post‐employment benefits (including contributions to defined benefit pension plans)
Years ended
December 31,
2018
5,254
3,626
1,693
235
10,808
2017
4,786
‐
2,308
274
7,368
There were no other related party transactions with key management personnel for the years ended December 31, 2018 and 2017.
24 ‐ CAPITAL MANAGEMENT
Guided by its low‐asset‐base‐high‐utilization philosophy, the Corporation’s strategy is to monitor the following ratios to ensure flexibility
in the capital structure:
- Total net debt to total net debt and total equity;
- Long‐term debt to total equity ratio;
- Return on average total equity; and
- Ratio of funded debt on earnings before finance costs, depreciation and amortization and income taxes.
In the management of capital, the Corporation includes total equity, long‐term debt and bank indebtedness net of cash.
The Corporation manages and adjusts its capital structure in light of the changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital structure, the Corporation has several tools, notably flexible credit facilities
adding flexibility to business opportunities. The Corporation constantly analyzes working capital levels, notably inventory, to ensure that
the optimal level is maintained and regularly adjusts quantities to satisfy demand as well as the level of diversification required by
customers. The Corporation has also put in place a vendor financing program under which payments to certain suppliers are deferred.
The Corporation assesses its capital management on a number of bases, including the following indicators:
Total net debt to total net debt and total equity ratio
Long‐term debt to total equity ratio
Return on average total equity ratio
Ratio of funded debt on earnings before finance costs, depreciation and amortization and
income taxes
December 31,
2017
44.7 %
86.6 %
9.0 %
2018
44.4 %
81.5 %
7.0 %
3.99
3.77
The interest rate applicable on the revolving credit facility and the term facility is contingent on the achievement of the financial ratio total
funded debt on earnings before finance costs, depreciation and amortization and income taxes, excluding certain adjustments specified in
the credit agreement. The Corporation was in compliance with all of its covenants as at December 31, 2018 and 2017. The Corporation’s
overall strategy with respect to capital risk management remains unchanged from the prior year.
2018 ANNUAL REPORT UNI‐SELECT 93
25 ‐ SEGMENTED INFORMATION
The Corporation is providing information on four reportable segments:
FinishMaster US:
distribution of automotive refinish and
FinishMaster, Inc. in the US market;
industrial paint and related products representing
Canadian Automotive Group: distribution of automotive aftermarket parts, including refinish and industrial paint and related products,
through Canadian networks;
The Parts Alliance UK:
distribution of automotive original equipment manufacturer and aftermarket parts, serving local and
national customers across the United Kingdom; and
Corporate Office and Others:
head office expenses and other expenses mainly related to the financing structure.
The profitability measure employed by the Corporation for assessing segment performance is segment income.
FinishMaster
US
2017
2018
Canadian
Automotive Group
2017
2018
Sales
829,982
814,639
503,829
484,934
Segment income (1)
Special items (note 4)
76,042
91,345
31,962
31,214
1,693
‐
3,346
‐
The Parts Alliance
UK
2017
148,699
2018
418,154
Corporate Office
and Others
2017
2018
Years ended
December 31,
2018
Total
2017
‐
‐ 1,751,965 1,448,272
28,325
1,230
6,007
(16,800)
(11,034) 119,529
117,532
‐
8,320
6,780
14,589
6,780
74,349
91,345
28,616
31,214
27,095
6,007
(25,120)
(17,814) 104,940
110,752
Segment income
reported (2)
Finance costs, net
Depreciation and amortization
Earnings before income taxes
Income tax expenses
Net earnings
20,561
39,702
44,677
8,180
36,497
14,487
29,647
66,618
22,002
44,616
(1)
(2)
The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being gross margin
less employee benefits and other operating expenses.
Per consolidated statements of earnings, corresponds to “Earnings before finance costs, depreciation and amortization and income
taxes”.
2018 ANNUAL REPORT UNI‐SELECT 94
25 ‐
S E G M ENT E D I NFO RM ATIO N ( CON T I N U E D)
The Corporation operates in the United States, Canada and the United Kingdom. The primary financial information per geographic location
is as follows:
Sales
United States
Canada
United Kingdom
Property and equipment
Intangible assets with definite useful lives
Intangible assets with indefinite useful lives
Goodwill
Property and equipment
Intangible assets with definite useful lives
Intangible assets with indefinite useful lives
Goodwill
26 ‐ SUBSEQUENT EVENT
Years ended
December 31,
2018
2017
829,982
503,829
418,154
1,751,965
814,639
484,934
148,699
1,484,272
December 31, 2018
United
Kingdom
32,290
44,666
28,697
114,313
Total
83,956
173,734
36,597
372,007
December 31, 2017
United
Kingdom
26,256
61,141
30,011
117,175
Total
78,644
193,454
37,911
372,119
United
States
25,460
102,834
7,900
201,951
United
States
27,303
109,474
7,900
204,655
Canada
26,206
26,234
‐
55,743
Canada
25,085
22,839
‐
50,289
In January 2019, the Board of Directors and Management initiated the development of a broad performance improvement and rightsizing
plan for the FinishMaster US segment with the objective of realigning its operations to address challenging market conditions, including
ongoing consolidation by national accounts and pricing pressures from manufacturers. This plan, which is expected to generate additional
annualized savings of $10,000 by the end of 2019, focuses on four streams: consolidation of company‐owned stores, optimization, margin
recovery and spending reductions. Additional restructuring and other charges in the range of $5,000 to $7,000 will be recorded during the
2019 year, mainly for severance and onerous lease contracts.
The 25/20 Plan and the FinishMaster US Segment performance improvement and rightsizing plan combined together will now be referred
to as the ″Performance Improvement Plan″ of the Corporation, with targeted annualized savings of $35,000.
2018 ANNUAL REPORT UNI‐SELECT 95
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2018 ANNUAL REPORT UNI‐SELECT 96
SHAREHOLDER INFORMATION
DIVIDENDS DECLARED IN 2018
Declared
February 19, 2018
May 3, 2018
August 10, 2018
November 14, 2018
EXCHANGE LISTING
TSX: UNS
DIVIDEND POLICY
The Corporation’s practice is to declare quarterly dividends,
Record Date
Payable Date
March 31, 2018
June 30, 2018
April 17, 2018
July 17, 2018
September 30, 2018
October 16, 2018
December 31, 2018
January 15, 2019
C$
0.0925
0.0925
0.0925
0.0925
ANNUAL GENERAL MEETING OF SHAREHOLDERS
May 2, 2019, at 1:30 PM (ET)
Hôtel Mortagne
Room Boucherville D
1228 Nobel Street
subject to profitability, liquidity requirements to finance growth,
Boucherville, QC J4B 5H1
the general financial health of the Corporation and other factors
as determined by the Board of Directors from time to time.
Dividends paid by the Corporation, unless otherwise indicated,
CORPORATE OFFICE
170 Industriel Blvd.
are designated as eligible dividends for tax purposes. The
Boucherville, QC J4B 2X3
Corporation does not have a dividend reinvestment plan.
450-641-2440
TRANSFER AGENT
AST Trust Company (Canada)
2001 Robert-Bourassa Blvd.
Suite 1600
Montréal, QC H3A 2A6
1 (800) 387-0825 or (416) 682-3860
Website: www.astfinancial.com/ca
questions@uniselect.com
INVESTOR RELATIONS
450-641-2440
investorrelations@uniselect.com
ETHICS LINE
1-855-650-0998
whistleblower@uniselect.com
FILINGS
The Corporation files all mandatory information with Canadian
As part of the Audit Committee whistleblower procedures, this
Securities Administrators which can be found at sedar.com. This
hotline allows team members and others to anonymously and
report as well as other corporate documents can be found on
confidentially raise accounting, internal controls and ethical
the Corporation’s website at uniselect.com.
inquires or complaints.
AUDITORS
Ernst & Young LLP
LEGAL COUNSEL
McCarthy Tétrault LLP
BANKERS
National Bank of Canada
Royal Bank of Canada
Bank of America, N.A.
Bank of Montreal
TRADEMARKS
All trademarks, registered or not, of Uni-Select Inc. and/or
of its subsidiaries include but are not limited to UNI SELECT,
FINISHMASTER, FINISHMASTER CANADA, AUTO EXTRA, AUTO
PARTS PLUS, AUTO-SELECT, BUMPER TO BUMPER-CANADA’S
PARTS PEOPLE, COOLING DEPOT, MÄKTIG, COLOR PLUS,
SMART, PUREZONE, PROCOLOR, RS PARTS, SELECTAUTOXPERT,
SMARTLINK, UNI-PRO, USTART and WORLDPARTS. All other
trademarks, registered or not, are trademarks of their respective
owners. All logos, trade names and trademarks referred to and
used herein remain the property of their respective owners
Fédération des Caisses Desjardins du Québec
and may not be used, changed, copied, altered, or quoted
JP Morgan Chase Bank, N.A.
Laurentian Bank of Canada
The Toronto-Dominion Bank
HSBC Bank Canada
without the written consent of the respective owners. All rights
reserved.
© Uni-Select Inc. 2019. All rights reserved.
Printed in Canada
UNISELECT.COM
170 Industriel Blvd.
Boucherville, QC
J4B 2X3