TRANSFORMING
FOR THE FUTURE
2019 ANNUAL REPORT
01 Three-Year Financial Highlights
12 The Parts Alliance U.K.
02 Uni-Select at a Glance
14
Implementing ESG Initiatives
04 Message from the Chair
16 Financial Performance
06 Message from the CEO
19 Management’s Discussion and Analysis
08 FinishMaster U.S.
58 Consolidated Financial Statements
10 Canadian Automotive Group
101 Shareholder Information
1
THREE-YEAR FINANCIAL HIGHLIGHTS
(In thousands of US dollars, except per share amounts, percentages and otherwise specified)
OPERATING RESULTS
Sales
EBITDA (2)
EBITDA margin (2)
Adjusted EBITDA (2)
Adjusted EBITDA margin (2)
EBT (2)
EBT margin (1) (2)
Adjusted EBT (1) (2)
Adjusted EBT margin (1) (2)
Special items
Net earnings (loss)
Adjusted earnings (2)
Free cash flows (1)
COMMON SHARE DATA
Net earnings (loss)
Adjusted earnings (2)
Dividend (C$)
Book value
2019
2018 (1)
2017 (1)
1,739,572
1,751,965
1,448,272
76,458
4.4%
104,940
110,752
6.0%
7.6%
129,931
119,529
117,532
7.5%
(17,389)
(1.0%)
40,736
2.3%
53,473
(19,845)
30,771
105,658
(0.47)
0.73
0.3700
11.96
6.8%
44,677
2.6%
64,408
3.7%
14,589
36,497
51,473
79,902
0.86
1.22
0.3700
12.36
8.1%
66,618
4.6%
78,023
5.4%
6,780
44,616
55,097
95,660
1.06
1.30
0.3625
12.25
Number of shares outstanding
Weighted average number of outstanding shares
42,387,300
42,387,300
42,273,812
42,387,300
42,253,987
42,261,423
FINANCIAL POSITION
Working capital
Total assets
Total net debt (2)
Convertible debentures
Total equity
Return on average total equity ratio (2)
Adjusted return on average total equity ratio (2)
Dec. 31,
2019
Jan. 1,
2019 (3)
Dec. 31,
Dec. 31,
2018 (1)
2017 (1)
321,970
237,614
256,365
254,581
1,586,394
1,630,609
1,540,570
1,496,389
449,059
84,505
506,994
(3.9%)
5.2%
515,706
418,703
417,909
—
—
—
519,930
523,882
517,977
7.0%
9.1%
7.0%
9.1%
9.0%
10.8%
(1) On January 1, 2019, the Corporation applied, for the first time, IFRS 16 - Leases using the modified retrospective transition approach and did not restate comparative amounts
of years prior to its adoption as permitted. As a result, the 2019 consolidated financial statements present significant variances when compared to 2018 and 2017. The 2019
consolidated statement of earnings includes reduced rent expenses from the elimination of the classification as operating leases, higher finance costs from the interest expense
on lease obligations and higher depreciation of right-of-use assets. Consequently, the Corporation considers that earnings (loss) before income taxes (“EBT”) is the preferred
comparative measure to explain its results and performance, rather than the EBITDA(2) as previously used. The 2019 consolidated financial position includes new long-term
assets (right-of-use assets) and liabilities (lease obligations) recognized on January 1, 2019, of $87,628 and $97,003 respectively. To allow a better comparability, financial
position ratios and variances should be compared with reconciled figures as at January 1, 2019, instead of December 31, 2018. (Refer to the “Adoption of IFRS 16 - Leases”
section of the Management’s Discussion and Analysis for further details.)
(2) This information represents a non-IFRS financial measure. (Refer to the “Non-IFRS financial measures” section of the Management’s Discussion and Analysis for further details.)
(3) Financial position figures and ratios were reconciled as at January 1, 2019 to take into consideration the adoption of IFRS 16 - Leases. (Refer to the “Adoption of IFRS 16 - Leases”
section of the Management’s Discussion and Analysis for further details.)
2019 ANNUAL REPORT
2
UNI-SELECT is a leader in the distribution of automotive refinish and industrial coatings 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 (UNS).
CONSOLIDATED SALES
(in thousands of US dollars)
EBT
(in thousands of US dollars)
ADJUSTED EBT(1)
(in thousands of US dollars)
48%
30%
46%
54%
60%
35%
$1,739,572
($17,389)
$40,736
22%
5%
United States
Canada
United Kingdom
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
Note: Percentages exclude corporate offices and others.
UNI-SELECT 2019 ANNUAL REPORT
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3
UNITED STATES
• 5 distribution centres
• 180 company-owned stores
• 30,000+ installer and collision repair customers served
(primary supplier to 5,500+ collision repair centre
customers)
• 1,600+ team members
CANADA
• 8 distribution centres
• 1,000+ independent customer locations served
• 75 company-owned stores
• 20,000+ installer and collision repair customers served
• 1,400+ team members
UNITED KINGDOM
• 2 distribution centres
• 27 independent customer locations served
• 179 company-owned stores
• 23,000+ installer and collision repair customers served
• 3,000+ team members
CONSOLIDATED DATA
15
Distribution Centres
1,000+
Independent Customer
Locations Served
434
Company-owned Stores
73,000+
Installer and Collision
Repair Customers Served
6,000+
Team Members
2019 ANNUAL REPORT
4
REPOSITIONING THE BUSINESS
FOR THE FUTURE
The year 2019 was one of repositioning Uni-Select for the future. The Board set an
aggressive agenda with three main objectives. The first was to oversee the successful
implementation of the Performance Improvement Plan (“PIP”) thereby reducing our “cost-
to-serve model” while adapting to new market realities. The second was to identify a new
CEO to lead the organization through our current transformation and take the Corporation
to the next level. Finally, it committed to completing the strategic review process in order to
focus our collective energies on the future.
PERFORMANCE IMPROVEMENT PLAN
The Board is pleased with the success of the PIP which began with estimated annual savings of
$20 million and ended at $50.6 million annualized. We thank our employees for the dedication and
commitment to its realization and continued success.
NEW LEADERSHIP
Last May, after a comprehensive process, the Board promoted Brent Windom to the position of
President and Chief Executive Officer while he continued to assume his role as President and COO
of the Canadian Automotive Group. Brent is a veteran of the automotive aftermarket industry, having
held various leadership roles in the sector within Uni-Select and other competitors. He has a profound
understanding and unparalleled knowledge of both Uni-Select and the industry. In addition, Brent has
demonstrated consistently strong leadership abilities. His skill sets are in perfect alignment with the
needs of the organization during its transformation and to pursue its path forward.
CONCLUSION OF STRATEGIC REVIEW
In September 2018, the Board announced the formation of a Special Committee of independent
members of the Board to oversee a review of strategic alternatives. The Special Committee, together
with the Board and management, actively reviewed, analyzed and evaluated a comprehensive range
of alternatives with the goal of maximizing shareholder value. Following this exhaustive process, the
Board determined the best path to create value was to modify Uni-Select’s capital structure with the
issue of a convertible debenture of C$125 million, providing additional financial flexibility by reducing
the Corporation’s senior debt level and allowing it to continue to implement its continuous improvement
plan and to capitalize on growth opportunities.
Birch Hill Equity Partners Management Inc. (“Birch Hill”), a 9.5% shareholder, was the lead investor,
subscribing to C$75 million of the offering. Other institutional investors, which include some of our
largest shareholders, purchased the remaining C$50 million. We could not have asked for a stronger
demonstration of confidence in our team, our strategy and the direction we are taking to drive long-
term value.
BOARD CHANGES
In conjunction with the conclusion of the strategic review and the recent financing, changes were
made to the Board to support the current transformation. As such, Birch Hill were granted the ability to
designate two nominees to the Board. Accordingly, in early January we welcomed David G. Samuel and
Matthew B. Kunica. At the same time, we thanked David Bibby, Jeff Hall, George Heath, Dennis Welvaert
and Michael Wright for their invaluable contributions over the years.
UNI-SELECT 2019 ANNUAL REPORT
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5
Frederick J. Mifflin (1) (2)
Vice Chair
Blair Franklin Capital
Partners Inc.
Toronto, Ontario
Canada
Brent Windom
President and CEO,
Uni-Select Inc. and
President and COO,
Canadian Automotive Group
Montréal, Québec
Canada
Robert Molenaar
Interim President and COO,
FinishMaster, Inc.
Indianapolis, Indiana
United States
BOARD OF DIRECTORS
Michelle Cormier (1) (2) (3)
Chair of the Board
Operating Partner
Wynnchurch Capital
Canada, Ltd.
Montréal, Québec
Canada
Pierre A. Raymond (2)
Corporate Director
Montréal, Québec
Canada
Stéphane Gonthier (3)
Chief Executive Officer
GardaWorld Cash Services
Aventura, Florida
United States
Richard G. Roy
Corporate Director
Verchères, Québec
Canada
Matthew B. Kunica (1)
Partner
Birch Hill Equity Partners
Management Inc.
Toronto, Ontario
Canada
David G. Samuel (3)
Partner
Birch Hill Equity Partners
Management Inc.
Toronto, Ontario
Canada
(1) Member of the Audit Committee, chaired by Michelle Cormier
(2) Member of the Corporate Governance and Nominating Committee, chaired by Pierre A. Raymond
(3) Member of the Human Resources and Compensation Committee, chaired by David G. Samuel
During the year, we had welcomed Pierre A. Raymond, Frederick J. Mifflin, Stéphane Gonthier and our new CEO,
Brent Windom, who all brought complementary skill sets to the Board. With these latest changes, we currently
have nine Board members, of which seven are independent and one is a woman. There remains one vacancy
which we plan to fill in the short term to increase diversity.
With the strategic review now concluded, a renewed leadership team in place and this new financing, we are
well positioned to complete the transformation of our operations and set the building blocks for future growth
and, most importantly, to return Uni-Select to a trend of growth, profitability and improved shareholder value.
ACKNOWLEDGEMENTS
It has been a challenging and highly active two years. I applaud our leadership and their teams for their
consistent effort and genuine dedication. Thanks to this determination, there has been considerable progress
in our transformation and I am confident we will continue to drive the necessary changes. My fellow Board
members have been exemplary in their commitment and passion to restore shareholder value. Their expertise
has been invaluable. Our shareholders have demonstrated abundant patience and unwavering faith. We are
also fortunate to have legions of faithful customers and suppliers. Sincere thanks for your continuous support.
Michelle Cormier
Chair of the Board
2019 ANNUAL REPORT 6
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UNI-SELECT
STABILIZING THE BUSINESS AND
INVESTING STRATEGICALLY
Last May, I was appointed President and Chief Executive Officer of
Uni-Select Inc. The Corporation was undergoing a review of strategic
alternatives while dealing with challenging market conditions in two
of our three business segments. We took concrete steps to navigate
through these headwinds, stabilizing the business where required
and investing strategically for the future. In parallel, Neil Croxson was
promoted to the position of President and COO of The Parts Alliance
U.K., and Rob Molenaar to Interim President and COO of FinishMaster
U.S. The team’s primary focus in 2019 was the implementation of the
Performance Improvement Plan (“PIP”) to reduce our “cost-to-serve
model” across the organization.
NAVIGATING FOR THE FUTURE
Consolidated sales for 2019 were relatively stable at $1.7 billion with positive
organic growth(1) of 0.5%. Sales for FinishMaster U.S. and the Canadian
Automotive Group were up year-over-year, while sales for The Parts Alliance
U.K. were down. Consolidated earnings before taxes (“EBT”) and EBT margin(1)
were negative $17.4 million and 1.0% respectively, down from $44.7 million
and 2.6% last year. Similarly, adjusted EBT(1) and adjusted EBT margin(1) were
$40.7 million and 2.3% respectively, compared to $64.4 million and 3.7% last
year. The solid performance of our Canadian operations with a continued
growth momentum was offset by changing market conditions at both
FinishMaster U.S. and The Parts Alliance U.K., which impacted profitability.
To address these conditions, we doubled-down on executing the PIP,
accelerating and expanding the program in all three business segments to
drive increased savings. As of December 2019, we achieved our targeted
$50 million annualized run rate savings, almost 12 months ahead of schedule.
We integrated 41 company-owned stores, opened six and made one tuck-
in acquisition, ending the year with 434 stores in our network. Continuously
increasing efficiency remained our focus and we thus launched two new
distribution centres (“DCs”) in Canada and the U.K. while consolidating two
other DCs in our network. We are pleased with the results of the PIP, which
reflect the dedication of all the team members and the hard work they
accomplished. Above all, we are confident that we are setting the foundation
for improved results in the future.
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
UNI-SELECT 7
Finally, The Parts Alliance U.K. segment was impacted by the
economic uncertainty and the loss of a sales contract at the end
of 2018, which resulted in a sales decline of 6.1% year-over-
year. While we expanded the PIP and integrated ten company-
owned stores, the EBT margin(1) and adjusted EBT margin(1)
stood at 0.0% and 0.8%, respectively, down 380 basis points on
an adjusted basis from last year. We must certainly contend with
temporary headwinds, but the fundamentals of the autoparts
aftermarket remain solid long-term. As we are transforming the
business for the future and deploying our vision, we continued
to make investments, inaugurating a new distribution centre and
opening five company-owned stores, thus extending our market
coverage and ending the year with 179 company-owned stores.
MANAGING OUR CASH PRUDENTLY
In 2019, we generated $151.8 million of cash flow from
operations before working capital items. We deployed capital
primarily for working capital requirements of $94.0 million, net
customer incentives of $10.4 million, net capital expenditures
of $22.1 million and dividends of $11.9 million. This year, as
anticipated, our working capital was negatively impacted by a
one-time $55.0 million cash outflow due to a change in payment
terms of one of our suppliers. Excluding this factor, our cash
flow from operations would have been in line with last year.
ACKNOWLEDGEMENTS
As I carry out my new responsibilities as CEO, I would like to
thank all Uni-Select team members for their dedication to
our customers, their relentless execution of the PIP, and their
overall resolve during the past year. Their tenacity has been a
source of inspiration for all our stakeholders. I would also like to
thank our customers for their loyalty and our suppliers for their
unwavering support. Finally, my gratitude goes out to the Board
of Directors of Uni-Select for their confidence in my ability to
lead Uni-Select into the future.
Brent Windom
President and Chief Executive Officer
STRENGTHENING OUR FINANCIAL POSITION
At the end of the year, in conjunction with the conclusion of the
strategic review process, we completed a private placement
offering of C$125 million principal amount of convertible senior
subordinated unsecured debentures. In addition to providing
us with greater flexibility, this financial instrument immediately
improved our senior debt leverage ratios and bank covenants
as it is considered quasi equity for bank covenant calculations.
We used the proceeds to reduce borrowings under our senior
debt credit facility and lowered the principal amount available
on the revolving credit facility by $50 million, to $575 million.
We also plan to continue cost reduction initiatives and pursue
strategic growth opportunities. Furthermore, the sale of the
ProColor banner helped to improve our cash position. As a result,
Uni-Select finished the year with a funded debt to adjusted
EBITDA(1) ratio of 3.46.
CANADIAN AUTOMOTIVE GROUP:
OUR TOP PERFORMER THIS YEAR
The Canadian Automotive Group segment was Uni-Select’s top
performer of the year. Financial results improved year-over-
year driven by newly-integrated acquisitions, organic growth(1),
the performance of our company-owned stores and the PIP.
Sales increased 2.4% to reach $516.1 million. EBT margin(1) and
adjusted EBT margin(1) stood at 7.6% and 4.9%, respectively,
up from last year, as we built upon our growth momentum. We
opened a Bumper to Bumper superstore in Montreal, integrated
two company-owned stores, and sold the ProColor banner
program. We ended the year with a network of 75 company-
owned stores and improved its overall performance. Additionally,
our successes this year included a tuck-in acquisition, the
integration of the Autochoice Parts & Paints acquisition, and
the launch of a new Bumper to Bumper distribution centre in
Calgary, the largest-ever in the history of Uni-Select.
In the FinishMaster U.S. segment, the ongoing market consoli-
dation led to a growing proportion of multi-shop operators
(“MSOs”) among our customer base. This ongoing trend has
increased competition and pricing pressures. As a result, and
also due to a lower overall market demand, sales reached
$830.8 million, relatively flat year-over-year. Despite this
operating environment, we are proud to have generated positive
organic growth(1) of 0.5%, a testament to the experience and
skills of our sales force. Adjusting our “cost-to-serve model”
to these evolving market realities, we integrated 29 company-
owned stores, ending the year with 180 stores across the U.S.
We are pleased by our capacity to have seamlessly transferred
sales to other existing locations with minimal impact on
revenues. Our EBT margin(1) and adjusted EBT margin(1) stood at
4.1% and 5.2%, respectively.
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
2019 ANNUAL REPORT 8
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UNI-SELECT
FINISHMASTER U.S.
LARGEST DISTRIBUTOR OF AUTOMOTIVE REFINISH AND INDUSTRIAL COATINGS AND RELATED
PRODUCTS, OPERATING IN THE UNITED STATES
$830.8MSales
0.5%Organic Growth (1)
$33.9MEBT
$43.3M
Adjusted EBT (1)
5.2%Adjusted EBT
Margin (1)
5Distribution
Centres
1,600+
Team
Members
180
Company-owned Stores
30,000+
Customers
SUMMARY OF 2019
2019 was a year of transition as FinishMaster U.S. (“FM U.S.”) adjusted its cost-to-serve model to the new market realities. FM U.S.
generated organic sales growth(1) by developing business volume and onboarding new customers, namely multi-shop operators
(“MSOs”) and large national accounts.
Management decided to accelerate and expand the Performance Improvement Plan during the year to generate greater savings. We
integrated 29 company-owned stores in our network, ending the year with a total of 180 company-owned stores across the U.S. The
integration process of company-owned stores is mostly seamless to customers as we are able to redistribute the business in other
parts of our network with only a marginal impact on sales. We executed the plan successfully as our profitability gradually improved on
a sequential basis over the past several quarters. Furthermore, we have seen tangible signs that the gross margin is stabilizing during
the same period.
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
UNI-SELECT 2019 KEY HIGHLIGHTS
• Generated positive organic sales growth
• Accelerated and expanded the Performance Improvement Plan
reducing ongoing operating expenses
• Appointed Rob Molenaar to Interim President and COO and,
appointed four new members in the executive leadership team
• Signed supply agreements and an exclusive distribution contract
with key suppliers for both automotive refinish as well as industrial
coatings
• Integrated 29 company-owned stores and reduced associated
operating expenses
• Accident frequency rates declined resulting into demand decline
• Gross margin impacted by evolution of customer mix and pricing
pressures
2020 OUTLOOK
In 2020, our objective will be to capitalize on the transformation
undertaken in 2019, while continuing to adjust our cost-to-serve model
to new market realities. We have the ability to scale into existing and
new markets and we intend to continue focusing on each of our paint
segments (i.e. premium, value and industrial) along with associated
products. We will also benefit from the full deployment of the PIP and will
continue our journey towards a continuous improvement culture.
(1) U.S. Department of Transportation, Federal Highway Administration, National Automobile
Dealers Association, Automotive News, Romans Group, and Insurance Information Institute,
2017
(2) IHS Markit Co., Average Age of Cars and Light Trucks in U.S. Rises Again in 2019 to 11.8 Years,
IHS Markit Says, 2018-19, data released September 17, 2019
(3) Automotive News study, A Closer Look at 2019 U.S. Auto Sales, data released January 13, 2020
(4) U.S. Department of Transportation, Federal Transit Administration, Highway Statistics 2017,
State Motor – Vehicle Registrations 2017
(5) U.S. Department of Transportation, Federal Transit Administration, National Transit Database,
Vehicles (Washington, DC: Annual reports), 2015-17, data released October 15, 2019
(6) Certified Collateral Corporation Information Services, Collision and Comprehensive Claims,
data released as of December 1, 2019
(7) National Information Clearing House, NAICS Code: 811121, SIC Code: 7532, Paint & Body
Shop Industry Overview
2019 ANNUAL REPORT
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MARKET CONDITIONS
The consolidation trend among collision repair shops
continued in 2019, led by MSO growth resulting in
further contraction of the traditional market. The
refinish market saw a slight decline in 2019, impacted
by reduced collision claims and increased total losses of
vehicles. This trend is expected to continue into 2020.
~30%Market Share
US$2.7 BILLION (1)
Addressable Automotive Paint
and Related Products Market
11.8 YEARS (2)
Average Age of Car Park
3.2 TRILLION (3)
Total Miles Driven (2018) (all vehicles)
(Federal Highway Administration)
274 MILLION (4)
Light Vehicle Registrations
(all vehicles including light duty trucks)
17.3 MILLION (5)
New Car Registrations (2019)
6% (6)
Accident Rates
$36 BILLION (1)
Collision Market
~35,000 (7)
Body Shops
2019 ANNUAL REPORT
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UNI-SELECT
CANADIAN AUTOMOTIVE GROUP
A LEADER IN THE DISTRIBUTION OF AUTOMOTIVE AFTERMARKET PARTS, TOOLS AND EQUIPMENT,
INDUSTRIAL AND SAFETY, PAINT AND RELATED PRODUCTS IN CANADA
$516.1MSales
2.4%Organic Growth (1)
$39.2MEBT
$25.3M
Adjusted EBT (1)
4.9%Adjusted EBT
Margin (1)
8Distribution
Centres
1,400+
Team
Members
75
Company-owned Stores
(65 Bumper to Bumper
and 10 FinishMaster)
1,000+
Independent
Customer Locations
20,000+
Customers
SUMMARY OF 2019
2019 was a year during which we started to reap the benefits from the foundation we built over the past few years and the strategic
investments we made in our network. We reported solid results, growing sales while optimizing our operations, a reflection of the hard
work and dedication of our team members.
Our sales increased both by acquisitions and organic growth(1). The acquisition of Autochoice Parts & Paints Limited at the end of 2018
proved to be a favourable addition to our network. Organic growth(1) of 2.4% was driven by the promotion of private labels and loyalty
programs. In fact, we drove increased loyalty at strategic independent customers with partnership agreements, at both installer and
store levels.
In line with our focus on operational excellence, we continued the optimization of our distribution and store networks. We launched
our largest-ever distribution centre in Calgary, which enables us to achieve increased efficiency and quicker delivery. We improved
inventory availability on strategic growth categories within company-owned stores and we also opened a Bumper to Bumper superstore
in the Montreal metropolitan area. We integrated two company-owned stores, improving the logistical and service processes, and we
ended the year with 75 company-owned stores across Canada: 65 Bumper to Bumper and 10 FinishMaster.
Coupled with the implementation of the point-of-sale system PartsWatch at all legacy company-owned Bumper to Bumper stores and
the benefits generated from the PIP, these initiatives improved performance in company-owned stores as a whole and resulted in
margin improvement.
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
UNI-SELECT 2019 ANNUAL REPORT
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2019 KEY HIGHLIGHTS
MARKET CONDITIONS
• Improved financial results year-over-year driven by acquisitions and
organic growth
• Achieved organic growth through competitive wins at the independent
member and installer levels
• Integrated the Autochoice Parts & Paints Limited acquisition
completed at the end of 2018
• Opened a new Bumper to Bumper distribution centre in Calgary, the
largest-ever at Uni-Select
• Opened a Bumper to Bumper superstore in Montreal, largest store
footprint thus far
• Sold the ProColor banner program
• Integrated two company-owned stores
• Completed the implementation of the PartsWatch system at all legacy
company-owned Bumper to Bumper stores
2020 OUTLOOK
In 2020, our objective is to build on what we accomplished last year.
We will continue to increase operational efficiency, drive new Bumper
to Bumper Auto Service banners, position inventory strategically in key
categories and seize on strategic acquisitions in the market. We intend
to benefit from using technology through greater organizational speed
and improved business intelligence. The recent company-owned store
acquisitions and FinishMaster company-owned stores will also be
implemented on PartsWatch by the end of 2020.
Overall demand trends in the Canadian market remain
favorable with the auto care industry expected to grow
slightly in 2020, despite softness in the oil and gas
sector in Western Canada. This growth is predicated on
stable gas prices, kilometres driven, and the ongoing
declining trend in DIY.
~20%Market share
C$2.71 BILLION (1)
Addressable Warehouse
Distribution Segment for the Automotive
Aftermarket Parts Market
+20,000
Unique Combinations of Engines
and Body Styles on Road Today
9.97 YEARS (2)
Average Age of Car Park
16,509 KM (3)
Average KM Driven per Car
26.9 MILLION (4)
Light Vehicle Registrations
1.914 MILLION (5)
New Car Registrations
(1) AIA Canada, 2018 Outlook Study (Excludes collision, heavy duty truck,
gasoline, tools and equipment. Includes personal vehicles and fleet),
DesRosiers Automotive Consultants Inc. and registration data©
R.L. Polk & Company, 2017
(2) AIA Canada, 2018 Outlook Study, DesRosiers Automotive Consultants
Inc. and Registration Data© IHS Automotive driven by Polk, 2017
(3) AIA Canada, 2018 Outlook Study, Canadian Vehicle Use Study Results
2013-2015, StatCan, 2017
(4) Experian, Vehicles in Operation (VIO), 2019
(5) DesRosiers Automotive Consultants Inc., Market Snapshot, 2019
2019 ANNUAL REPORT
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UNI-SELECT
THE PARTS ALLIANCE U.K.
A MAJOR DISTRIBUTOR OF AUTOMOTIVE AFTERMARKET PARTS IN THE U.K. AND IRELAND
$392.7MSales
(1.9%)
Organic Growth (1)
($0.1M)
EBT
$3.1M
Adjusted EBT (1)
2Distribution
Centres
3,000+
Team
Members
179
Company-owned
Stores
27
Independent
Customer Locations
0.8%Adjusted EBT
Margin (1)
23,000+
Installer and Collision
Repair Customers
Served
SUMMARY OF 2019
2019 was a challenging year primarily due to the uncertainty surrounding Brexit whose impact was felt throughout the broader economy.
This effect was exacerbated by the loss of a national sales contract in the fourth quarter of last year and the exceptional performance
from The Parts Alliance U.K. (“TPA”) in 2018.
To address these new realities, we accelerated our Performance Improvement Plan, including reshaping our regional management
team, integrating ten company-owned stores and improving the productivity of our logistics to support sales and improve network
efficiency. These initiatives will not only benefit TPA in the short term but they will position the business positively as the market
gradually recovers.
In parallel, we continued to execute on our strategy for the long term. We extended our market coverage through the opening of five
company-owned stores in the regions of York, Newcastle, Mansfield, Southend and Cambridge. We are enhancing our ability to serve
our customers with the expansion of 18 hub stores. We also inaugurated a new national distribution centre, situated in Midpoint, the
heart of the U.K., which will allow for the ability to expand while improving efficiency.
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
UNI-SELECT 2019 ANNUAL REPORT
13
13
2019 KEY HIGHLIGHTS
MARKET CONDITIONS
• Promoted Neil Croxson to President and COO, The Parts Alliance U.K.
• Reshaped the regional management and support function structure
improving efficiency and communication
• Impacted by the prolonged effect of Brexit on the U.K. economy and
the loss of a sales contract in the fourth quarter of 2018
• Opened five company-owned stores, extending market coverage;
opened 20 company-owned stores since being under the Uni-Select
umbrella
• Integrated ten company-owned stores
• Created 18 hubs in our network
• Inaugurated a new and central national distribution centre located
in Midpoint
2020 OUTLOOK
In 2020, we will focus on sales by implementing new initiatives aimed at
gaining a greater share of customers’ wallet and improving our customer
service with the network expansion of the hub model. Our objective will
be to capture the full benefits of past investments. We will continue to
optimize our supply chain, secure supplier synergies, and complete the
integration of our systems.
In 2019, overall market conditions in the U.K. remained
challenging as the uncertainty surrounding Brexit
continued to dominate the landscape. Consumer
spending tightened in the back half of the year which
only deteriorated the situation further. While the long
term fundamentals of the U.K. autoparts aftermarket
are favorable, market conditions in the near term are
expected to remain volatile.
~7% (1)
Market Share
£3.9 BILLION (1)
Addressable Automotive
Aftermarket Parts Market
8.2 YEARS (2)
Average Age of Car Park (2018)
328.9 BILLION (3)
Total Miles Driven
(as at March 31, 2019)
36.1 MILLION (4)
Light Vehicle Registrations
(as at September 2019)
2.7 MILLION (4)
New Car Registrations
(as at September 2019)
3 YEARS + (5)
Annual Mandatory Testing
for All Vehicles
(1) PWC Market analysis 2017 rolled forward by Management
(2) U.K. Department for Transport – Vehicle Licensing Statistics:
Annual 2018
(3) U.K. Department for Transport - Provisional Road Traffic Estimates
Great Britain: April 2018-March 2019
(4) U.K. Department for Transport - Vehicle Licensing Statistics:
2019 Quarter 3
(5) U.K. Department for Transport
2019 ANNUAL REPORT
14
IMPLEMENTING ESG
INITIATIVES
Uni-Select is guided by strong ethical standards and
constantly strives to be a responsible corporate citizen.
The Corporation recognizes that its success depends
on good environmental, social and governance
practices. It is committed to implementing initiatives
that will reduce its impact on the environment, provide
an enviable work environment for its employees, give
back to the communities in which it operates and
promote sound corporate governance.
E N V I R O N M E N T
Uni-Select cares about the impact its operations have on the
environment. The Corporation complies with all applicable
environmental laws and is committed to continuously
improve its environmental practices.
ENVIRONMENT DATA*
• Number of company-owned stores: 434
• Number of distribution centres: 15
• All facilities have recycling programs in place, according
to the size and scope of their operations (cardboard/
paper, e-waste, plastic, wood, hazardous wastes, metals)
• In Canada, the material handling equipment in
warehouses are all battery powered.
• In the U.K., all new branches are fitted with LED lighting.
SELECTED ACCOMPLISHMENTS IN 2019
• A Sustainable Development Committee is being implemented
at the head office in Canada. This committee will be
responsible to research opportunities to continuously
reduce the Corporation’s environmental footprint.
• Thanks to a joint team effort, a pilot project deployed
in two Canadian distribution centres allowed us to divert
significant amounts of waste and scrap pallets from
landfills. We intend to build on these successes while
expanding similar initiatives across Canada.
• In the U.S., FinishMaster began the implementation of a
route optimization tool that determines the most efficient
route for delivery vehicles. Training subject matter experts
have been trained for each region, and FinishMaster U.S.
expects the full branch rollout to be completed in the
second quarter of 2020. With this tool, our U.S. operations
expect to be able to reduce total miles driven by 10-20%,
which will result in lower emissions, cost savings and the
removal of delivery vehicles from the fleet. Combined with
the actions taken by Management to optimize operations,
our target for 2020 is to reduce the number of vehicles
across the U.S. by approximately 10-15%.
• Our U.K. operations now develop quarterly energy reports
for facilities. These reports are shared with managers to
encourage energy awareness, promote the positive impact
of energy initiatives and support decision-making.
* as at December 31, 2019
UNI-SELECT
15
S O C I A L
G O V E R N A N C E
Uni-Select strives to create a working environment that
brings out the best in its employees and fosters community
engagement.
Uni-Select has adopted policies, procedures and structures
to ensure that effective corporate governance practices
are followed and that the Board of Directors functions
independently from Management.
SOCIAL DATA*
• Number of employees: 6,080
• Number (%) of female employees: 1,264 or 20.79%
• Number (%) of male employees: 4,816 or 79.21%
• Number (%) of unionized employees: 162 or 2.66%
• Salaries and employee benefits: $309,270(1)
• Dividends paid to shareholders: $11,855(1)
SELECTED ACCOMPLISHMENTS IN 2019
• Uni-Select continued to deploy its Leadership Acceleration
Program (LEAP). Since the program was launched in 2016,
40% of managers in Canada, the U.S. and the U.K. have
completed its modules.
• After conducting employee surveys in Canada and the U.S.
in 2018, Uni-Select deployed its employee survey in the
U.K. in 2019. Results demonstrated that team members
enjoy their job, are proud to work for Uni-Select and are
optimistic about the future of the business. Management
set five priorities to focus on based on the feedback
received and has already implemented actions to improve
areas of concern.
• Uni-Select is committed to support local communities
where it operates through volunteering employee time,
raising funds as well as making corporate donations to
non-profit charitable organizations. In 2019, Uni-Select’s
Canadian operations supported numerous causes, of which
the Fondation Tel-jeunes, the Children’s Wish Foundation
of Canada , the Heart and Stroke Foundation of Canada and
the Canadian Red Cross. Among other community
initiatives, our U.S. operations donated time to the
Gleaners Food Bank and the Wheeler mission and
supported causes such as the American Cancer Society or
Life with Cancer.
* as at December 31, 2019
(1) in thousands of US dollars
GOVERNANCE DATA*
• Number of Board members: 9
• Percentage of independent Directors: 78%
• Separate Chair and CEO roles: Yes
• Chair is independent: Yes
• Lead independent Director: Yes
• Directors elected individually: Yes
• Policies: The Corporation has many policies in place
including Board diversity, whistleblower and code of
ethics.
SELECTED ACCOMPLISHMENTS IN 2019
• Uni-Select conducted a reformulation of its Board of
Directors to complement its expertise while supporting
the Corporation’s transformation for the future. During
the past year, it welcomed five new members while
reducing the total number of directors. The Board now
has nine members and one vacancy, which is expected to
be used to add a new member and increase diversity.
• In September 2018, the Corporation announced that
its Board of Directors had formed a Special Committee of
independent members of the Board to oversee a review of
strategic alternatives. Through this process, which included
a detailed review and evaluation of a number of alternatives,
the Board determined, and announced on December 18,
2019, that modifying the capital structure with a private
placement financing while positioning the Corporation to
pursue identified growth opportunities and cost reduction
initiatives was the best alternative for maximizing value for
shareholders.
• The Board and Management are committed to open
communication with the shareholders and continued to
dialogue with them on an ongoing basis throughout
the year.
* as at January 1, 2020
2019 ANNUAL REPORT
16
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
1,448
-2.9%
2017
1.5%
1,752
1,740
0.5%
2018
2019
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 2019, sales reached $1.7 billion.
In constant currencies, sales increased
1.1% driven by the contribution of
acquisitions and organic growth(1)
of 0.5%.
EBT, ADJUSTED EBT (1), EBT % (1) AND ADJUSTED EBT% (1)
(in millions of $, except percentages)
100
80
60
40
20
0
5.4%
4.6%
78 67
3.7%
2.6%
64
2.3%
-1.0%
45
41
10%
5%
0%
-5%
-10%
In 2019, adjusted EBT(1) and adjusted
EBT margin(1) decreased from the
previous year mainly explained
by pricing pressure and evolving
customer mix in the FinishMaster U.S.
segment, the opening of greenfields,
as well as higher borrowing costs,
in relation to the debt level. These
factors were partially offset by overall
savings from the PIP.
2017
2018
2019
Adjusted EBT (1)
Adjusted EBT % (1)
(17)
-15%
EBT
EBT % (1)
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
UNI-SELECT 17
NET CAPITAL DEPLOYMENT
(in millions of $)
414
450
400
350
300
250
200
150
100
50
0
In 2019, given challenging market
conditions, Uni-Select managed its
cash very prudently. The Company
reduced its investments in merchant
advances and acquisitions, while
maintaining its investments in capital
expenditures. It also returned cash
to shareholders through dividends.
100
45
2017
2018
2019
Acquisitions
Net 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
3.6x
418
3.5x
419
449
3.5x
2017
2018
2019
Total net debt (1)
Funded debt to adjusted EBITDA (1)
In 2019, the total net debt(1) increased
due to lower cash flow from operations
stemming primarily from a change of
payment terms from a supplier which
resulted in a one-time cash outflow
of $55.0 million. The funded debt(2) to
adjusted EBITDA(1) ratio remained stable
versus last year principally attributable
to the issuance of the convertible
debentures, which were used to repay
a portion of the long-term debt.
5.0x
4.5x
4.0x
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
0.5x
0.0x
(1) This information represents a non-IFRS financial measure. Refer to the “Non-IFRS financial measures” section of the 2019 MD&A for further details.
(2) The total net debt calculation is excluding the convertible debentures which are considered equity for ratio purposes.
2019 ANNUAL REPORT 18
18
UNI-SELECT
UNI-SELECT MANAGEMENT’S
DISCUSSION AND ANALYSIS
2019
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
Adoption of IFRS 16 ‐ Leases
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
21
22
25
26
28
30
38
42
44
47
49
50
50
54
54
56
56
57
ANNUAL HIGHLIGHTS
(In millions of US dollars, except percentages, per share amounts and otherwise specified)
2019
SALES
$1,739.6
2018
SALES
$1,752.0
EBT
($17.4)
(1.0%)
EBT
$44.7
2.6%
ADJUSTED EBT(1)
$40.7
2.3%
ADJUSTED EBT(1)
$64.4
3.7%
NET LOSS
ADJUSTED EARNINGS(1)
($19.8)
(0.47$)/SHARE
$30.8
$0.73/SHARE
NET EARNINGS
ADJUSTED EARNINGS(1)
$36.5
$0.86/SHARE
$51.5
$1.22/SHARE
Adoption of IFRS 16 ‐ Leases:
On January 1, 2019, the Corporation applied, for the first time, IFRS 16 ‐ Leases using the modified retrospective transition approach and did not restate
comparative amounts of the year prior to its adoption as permitted. As a result, the 2019 consolidated financial statements present significant variances
when compared to 2018. For this transitional year, the Corporation considers that earnings (loss) before income taxes (“EBT”) is the preferred comparative
measure to explain its results and performance, rather than EBITDA(1) as previously used. (Refer to the “Adoption of IFRS 16 ‐ Leases” section for further
details.)
Operational and strategic highlights:
- Development of a broad Performance Improvement Plan (“PIP”), resulting in annualized savings of $31.9 realized during the year.
Restructuring and other charges were incurred for a total of $17.5, of which $5.9 was non‐cash items.
-
-
Sale of the ProColor program, resulting in a net cash gain on business disposal of $18.8, of which proceeds were used to reduce debt.
Through a long‐term supply partnership agreement, the Canadian Automotive Group segment is continuing to support ProColor.
Issuance of convertible senior subordinated unsecured debentures for an aggregate principal amount of C$125.0. The Corporation
used a portion of the net proceeds to reduce its debt credit facility and intends to use the remaining portion to pursue strategic growth
opportunities and cost reduction initiatives.
- Reduction of the total maximum principal amount available on the revolving credit facility by $50.0 from $625.0 to $575.0.
- Conclusion of the strategic review process following these modifications to the capital structure, while remaining open to evaluate
future opportunities that align with business strategies and enhance shareholder value.
- Recognition of an impairment loss on goodwill for a non‐cash amount of $45.0 in relation to its operations in the United Kingdom due
to market softness and uncertainties surrounding Brexit.
Financial highlights:
- Consolidated sales of $1,739.6 were affected by the fluctuation of foreign exchange currencies. On a constant currency basis,
consolidated sales increased by 1.1% compared to last year. The Canadian Automotive Group and the FinishMaster U.S. segments are
both reporting positive organic growth(1) of 2.4% and 0.5% respectively, while The Parts Alliance U.K. segment is reporting a negative
organic growth(1) of 1.9%, which resulted in consolidated organic growth(1) of 0.5% for the year.
- EBT and EBT margin(1), once adjusted for special items such as the impairment loss on goodwill of $45.0 and the net gain on the disposal
of the ProColor program of $18.8, were respectively $40.7 and 2.3% compared to $64.4 and 3.7% last year.
- Net loss of ($19.8) or ($0.47) per share reported this year, compared to net earnings of $36.5 or $0.86 per share last year. Once
adjusted, earnings(1) were $30.8 or $0.73 per share in 2019 and $51.5 or $1.22 last year.
- Total net debt(1) was $449.1 as at December 31, 2019.
(1) This information represents a non‐IFRS financial measure. (Refer to the “Non‐IFRS financial measures” section for further details.)
2019 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 year
ended December 31, 2019 compared with the quarter and year ended December 31, 2018, as well as its financial position as at
December 31, 2019 compared with its financial position as at December 31, 2018 and as at January 1, 2019 for reconciled figures as per
the adoption of IFRS 16 ‐ Leases. This report should be read in conjunction with the audited consolidated financial statements and
accompanying notes included in the 2019 Annual Report. The information contained in this MD&A takes into account all major events that
occurred up to February 19, 2020, 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.)
PROFILE AND DESCRIPTION
With over 6,000 employees in Canada, the U.S. and the U.K., Uni‐Select is a leader in the distribution of automotive refinish and industrial
coatings 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 (UNS).
In Canada, Uni‐Select supports over 16,000 automotive repair and collision repair shops and more than 4,000 shops through its automotive
repair/installer shop banners and automotive refinish banners. Its national network includes over 1,000 independent customer locations
and more than 75 company‐owned stores, many of which operate under the Uni‐Select BUMPER TO BUMPER®, AUTO PARTS PLUS® and
FINISHMASTER® store banner programs.
In the United States, Uni‐Select, through its wholly‐owned subsidiary FinishMaster, Inc., operates a national network of over
175 automotive refinish company‐owned stores under the FINISHMASTER® banner, which supports over 30,000 customers annually and is
the primary supplier to more than 5,500 collision repair centre customers.
In the U.K. and Ireland, Uni‐Select, through its Parts Alliance group of subsidiaries, is a major distributor of automotive parts supporting
over 23,000 customer accounts with a network of over 175 company‐owned stores. www.uniselect.com
2019 ANNUAL REPORT UNI‐SELECT 21
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)
2019
2018(1)
2017(1)
OPERATING RESULTS
Sales
EBITDA(2)
EBITDA margin(2)
Adjusted EBITDA(2)
Adjusted EBITDA margin(2)
EBT(2)
EBT margin(1) (2)
Adjusted EBT(1) (2)
Adjusted EBT margin(1) (2)
Special items
Net earnings (loss)
Adjusted earnings(2)
Free cash flows(2)
COMMON SHARE DATA
Net earnings (loss)
Adjusted earnings(2)
Dividend (C$)
Book value
Number of shares outstanding
Weighted average number of outstanding shares
FINANCIAL POSITION
Working capital
Total assets
Total net debt(2)
Convertible debentures
Total equity
Return on average total equity ratio(2)
Adjusted return on average total equity ratio(2)
1,739,572
1,751,965
1,448,272
76,458
104,940
110,752
4.4%
6.0%
7.6%
129,931
119,529
117,532
7.5%
6.8%
(17,389 )
44,677
(1.0% )
40,736
2.3%
53,473
(19,845 )
30,771
105,658
(0.47 )
0.73
0.3700
11.96
2.6%
64,408
3.7%
14,589
36,497
51,473
79,902
0.86
1.22
0.3700
12.36
8.1%
66,618
4.6%
78,023
5.4%
6,780
44,616
55,097
95,660
1.06
1.30
0.3625
12.25
42,387,300 42,387,300 42,273,812
42,387,300 42,253,987 42,261,423
Dec. 31,
2019
Jan. 1,
2019(3)
Dec. 31,
2018(1)
Dec. 31,
2017(1)
321,970
237,614
256,365
254,581
1,586,394
1,630,609
1,540,570
1,496,389
449,059
515,706
418,703
417,909
84,505
‐
‐
‐
506,994
519,930
523,882
517,977
(3.9%)
5.2%
7.0%
9.1%
7.0%
9.1%
9.0%
10.8%
(1) On January 1, 2019, the Corporation applied, for the first time, IFRS 16 ‐ Leases using the modified retrospective transition approach and did not restate
comparative amounts of years prior to its adoption as permitted. As a result, the 2019 consolidated financial statements present significant variances
when compared to 2018 and 2017. The 2019 consolidated statement of earnings (loss) includes reduced rent expenses from the elimination of the
classification as operating leases, higher finance costs from the interest expense on lease obligations and higher depreciation of right‐of‐use assets.
Consequently, the Corporation considers that earnings (loss) before income taxes (“EBT”) is the preferred comparative measure to explain its results
and performance, rather than EBITDA(2) as previously used. The 2019 consolidated financial position includes new long‐term assets (right‐of‐use assets)
and liabilities (lease obligations) recognized on January 1, 2019, of $87,628 and $97,003 respectively. To allow a better comparability, financial position
ratios and variances should be compared with reconciled figures as at January 1, 2019, instead of December 31, 2018. (Refer to the “Adoption of
IFRS 16 ‐ Leases” section for further details.)
This information represents a non‐IFRS financial measure. (Refer to the “Non‐IFRS financial measures” section for further details.)
Financial position figures and ratios were reconciled as at January 1, 2019 to take into consideration the adoption of IFRS 16 ‐ Leases. (Refer to the
“Adoption of IFRS 16 ‐ Leases” section for further details.)
(2)
(3)
Detailed analysis of the changes in operating results and the consolidated statements of financial position between 2019 and 2018 are
provided in the following sections. Detailed analysis of the changes in the operating results and the consolidated statements of financial
position between 2018 and 2017 are included in the MD&A in the 2018 Annual Report, available on the SEDAR website at sedar.com.
2019 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 remaining competitive. As well, during the year 2019, the Corporation further reviewed its cost‐to‐serve models to optimize and
stabilize its profitability.
The major initiatives and achievements of the Corporation include the following:
‐
Improving operational efficiency by launching the PIP across its three pillars to align the cost structure with the evolution of the business
model market, integrating business acquisitions, as well as optimizing processes. Over the last three years, the Corporation integrated
69 company‐owned stores in accordance with these initiatives and realized annualized savings through its PIP amounting to $50,600.
‐ Driving balanced growth through a combination of organic and acquisitive initiatives in all segments. The Corporation, with its mergers
and acquisitions program, completed 12 acquisitions over the 2017 to 2019 period which added 219 company‐owned stores to its
network, notably the acquisition on August 7, 2017, of The Parts Alliance, a U.K. leader in the distribution of automotive aftermarket
parts. As well, the Corporation opened 27 greenfields for the same period, out of which 20 were opened in the U.K. In 2019, the
Corporation focused on its operations and completed one small acquisition.
‐
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
merchandizing programs (BUMPER TO BUMPER® and AUTO PARTS PLUS®) while launching the FINISHMASTER® brand in Canada.
‐ Managing a sound financial position and capital structure with strategic investments, the amendment and restatement of the credit
agreement, the vendor financing program, the issuance of convertible debentures and a constant return to shareholders through
dividends.
All these transitioning activities are now providing more stabilized operations and are positioning the Corporation for its future and
value creation. As well, the Corporation started 2017 with 259 company‐owned and has ended the 2019 year with a network of 434
company‐owned stores across its three operational segments, an increase of about 70%, mainly through acquisitions and greenfield
openings.
2 0 1 9 F I N A N C I A L Y E A R
Performance Improvement Plan, rightsizing and modified capital structure
The Corporation broadened the PIP across its three operational segments, reviewed logistical processes, integrated about 10% of its
company‐owned stores, and realized $31,900 of annualized savings. The resulting network and optimized operations, combined with a new
capital structure, established the cornerstone which will enable the Corporation to unlock added value for all stakeholders.
Key initiatives by segment:
FinishMaster U.S.:
The FinishMaster U.S. segment successfully executed, as planned, initiatives in relation to the PIP, integrated 29 company‐owned stores
with minimal sales erosion, while realigning its organizational structure. These initiatives permitted this segment to mitigate pricing
pressure on gross margins, to remain profitable and competitive as well as to improve its position to face a challenging market environment.
Canadian Automotive Group:
To optimize the supply chain and improve service processes, the Canadian Automotive Group segment inaugurated, during the first quarter,
a larger distribution centre in Calgary, integrating two smaller ones, and opened a superstore in the Montréal metropolitan area. As a result,
this segment improved its profitability and generated positive organic growth of 2.4% in 2019, benefitting from greater efficiency, as well
as from the rationalization of the workforce, all as part of the PIP. Furthermore, this segment proceeded with the sale of the ProColor
program, which resulted in a net cash gain on business disposal of $18,788 and in a long‐term supply partnership agreement.
The Parts Alliance U.K.:
This segment started the year with the optimization of its network following the opening of a new national distribution centre situated in
the heart of the United Kingdom, and additional regional distribution centres, providing an improved footprint and an enhanced offer to
customers.
However, uncertainties surrounding Brexit and its political context impacted the performance of The Parts Alliance U.K. segment, the
softness in the market resulting in a decline in sales, which in turn, impacted the absorption of fixed costs and consequently, profitability.
To counteract this headwind, initiatives as part of the PIP were put in place during the third quarter, including the optimization of the
workforce and 10 company‐owned stores were integrated.
2019 ANNUAL REPORT UNI‐SELECT 23
Corporate Office and Others:
The focus of the Corporate Office and Others segment was on supporting all businesses in their transformation, while reviewing all accretive
strategic alternatives. This resulted in:
‐
‐
‐
‐
The further deployment of the PIP, involving all segments, to address challenging and evolving environments;
The issuance of convertible debentures for an aggregate principal amount of C$125,000, which was partially used to reduce net
debt, while the remaining portion is intended to be used for general corporate purposes and to pursue strategic growth
opportunities;
A goodwill impairment for a non‐cash amount of $45,000 related to its operations in the U.K. due to market softness and
uncertainties surrounding Brexit; and
The conclusion of the strategic review following the modification of the capital structure with the issuance of convertible
debentures.
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.
In September 2018, the Board of Directors made management changes and initiated a comprehensive strategic alternatives review.
This news was followed in November by the launch of the 25/20 restructuring plan, extending the 20/20 initiative started in 2017, to adapt
to the new market realities. Productivity improvement initiatives in the FinishMaster U.S. segment counteracted, in part, the negative
impact on margins emerging from the consolidation movement in the U.S. market, and from pricing pressure in the various refinish
activities. The Canadian Automotive Group segment proceeded with a first phase of reducing the workforce and remodeling the distribution
network in the Prairies, while working on the ongoing optimization and development of its company‐owned stores. The Parts Alliance U.K.
segment implemented cost reduction and standardization of its information technology solutions, maximizing the operations of its
company‐owned stores and improving performance.
During 2018, the FinishMaster U.S. segment renewed with organic sales growth, as a result of efforts deployed by the sales team and the
on‐boarding of new customers. The Canadian Automotive Group segment strengthened its market position in the Atlantic region with the
acquisition of AutoChoice Parts & Paints Limited. The Parts Alliance U.K. segment benefitted from a full year of operations, leveraging its
fixed cost base, and generated organic growth through strategic sales initiatives and expanded its footprint with the opening of
13 greenfields during the year, for a total 15 since its acquisition.
The Corporation amended and restated 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. As
well, the Corporation integrated The Parts Alliance U.K. 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 U.K. leader in the distribution of
automotive aftermarket parts, to its growing network. Meanwhile, the Canadian Automotive Group and the FinishMaster U.S. segments
complemented their respective networks through selected business acquisitions and greenfield openings.
During 2017, the Corporation grew through business acquisitions, adding a third pillar and a European presence to its network with the
acquisition of The Parts Alliance U.K. As well, the FinishMaster U.S. 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 U.S. and
The Parts Alliance U.K. segments. As a result of these growth initiatives, the number of company‐owned stores grew from 259 in 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 U.S.
segment strived on reducing its costs to adapt the cost structure to the evolving business model. The Canadian Automotive Group segment
focused on
implementation of the new
point‐of‐sale ("POS") system. The Parts Alliance U.K. 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.
including rebranding, processes and the
integrating the company‐owned stores,
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.
2019 ANNUAL REPORT UNI‐SELECT 24
UPDATE ON THE PERFORMANCE IMPROVEMENT PLAN
In August 2019, the Corporation announced the expansion of the Performance Improvement Plan (“PIP”) to The Parts Alliance U.K. segment
due to uncertainty and challenging macroeconomics in the U.K. As well, additional savings were expected from recent optimization
initiatives at the FinishMaster U.S. segment.
Following an in‐depth analysis of the operations and cost structure of The Parts Alliance U.K. segment during the third quarter of 2019, the
Corporation highlighted complementary areas of action. Additionally, certain initiatives in the Canadian Automotive Group segment are
expected to be more accretive than originally established.
Since the beginning of the year, the Corporation realized annualized savings of $31,900, from the contribution of all segments.
Consequently, annualized savings realized since the inception amounted to $50,600 as at December 31, 2019, achieving the targeted
savings ahead of the schedule.
During the 2019 year, the Corporation streamlined its workforce and integrated 41 company‐owned stores. In addition, to optimize its
logistical processes, the Corporation integrated three smaller distribution centres into two larger ones, permitting increased
competitiveness and efficiency. These new distribution centres were operational during the first quarter of 2019.
This resulted in the recognition of restructuring and other charges totalling $17,503 for the year, of which $5,945 is non‐cash for the
write‐down of assets. (Refer to the “Analysis of consolidated results” section for further details.)
The following table summarizes the annualized impacts as at December 31, 2019:
Annualized cost savings
Restructuring and other charges:
Restructuring charges(1)
Other charges as incurred(2)
Non‐cash costs related to the write‐down of assets(3)
Net capital expenditures(4)
Expected
By the end of
2020
50,000
As at
Dec. 2018
18,700
11,000
10,000
4,000
25,000
7,000
5,055
1,214
‐
6,269
5,509
Realized
During
2019
31,900
4,605
6,953
5,945
17,503
1,195
As at
Dec. 2019
50,600
9,660
8,167
5,945
23,772
6,704
Primarily comprising consulting fees related to the optimization of the logistical processes and moving costs.
(1) Mainly severance and termination benefits.
(2)
(3) Mainly impairment of property and equipment. (Refer to note 13 in the consolidated financial statements for further details.)
(4)
Includes the proceeds from the sale of one building and tenant incentives.
As at December 31, 2019, a provision for restructuring charges of $3,227 is presented as current liabilities in the Corporation’s consolidated
statements of financial position. (Refer to note 4 in the consolidated financial statements for further details.)
2019 ANNUAL REPORT UNI‐SELECT 25
ADOPTION OF IFRS 16 ‐ LEASES
The Corporation applied, for the first time, IFRS 16 ‐ Leases that does not require restatement of previous consolidated financial statements.
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 obligation in the consolidated statements 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 Corporation has applied the modified retrospective transition approach and did not restate comparative amounts of the year prior to
its adoption, as permitted by IFRS 16. Under this approach, the cumulative effect of initially applying IFRS 16 was recognized as an
adjustment to the opening balance of retained earnings at the date of the initial application. IFRS 16 has affected primarily the accounting
for the Corporation’s real estate operating leases. The Corporation has elected to apply the following transitional practical expedients:
-
-
-
-
Apply the new standard to contracts that were previously identified as leases applying IAS 17;
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 asset leases on a straight‐line basis as “Other operating expenses” in the consolidated
statements of earnings (loss).
Under the new standard, the Corporation recognized new assets (right‐of‐use assets) and liabilities (lease obligations) of $87,628 and
$97,003 ($22,538 in the current portion of long‐term debt and $74,465 in the long‐term debt), respectively, as well as deferred tax assets
of $1,636. The following table presents a reconciliation of the elements impacted by IFRS 16 as part of the consolidated statements of
financial position as at January 1, 2019:
Jan. 1, 2019
IFRS 16
adjustment
Dec. 31, 2018
Trade and other receivables
Total current assets
Property and equipment
Deferred tax assets
TOTAL ASSETS
Trade and other payables
Balance of purchase price, net
Provision for restructuring charges
Current portion of long‐term debt
Total current liabilities
Long‐term debt
TOTAL LIABILITIES
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
The following table presents reconciliation of lease obligations as at January 1, 2019:
Minimum lease payments under operating contracts as at December 31, 2018
Practical expedients for:
Short‐term leases
Low‐value asset leases
Leases commencing in 2019
Lease‐type obligations (service components)
Effect from the use of extension or termination options and variable payments
Effect from discounting at the incremental borrowing rate as of January 1, 2019
Lease obligations recognized due to initial application of IFRS 16 as at January 1, 2019
2019 ANNUAL REPORT UNI‐SELECT 26
248,507
812,202
171,584
17,506
1,630,609
531,380
3,580
2,939
26,768
574,588
497,068
1,110,679
519,930
1,630,609
775
775
87,628
1,636
90,039
(1,296 )
(482 )
(1,234 )
22,538
19,526
74,465
93,991
(3,952 )
90,039
247,732
811,427
83,956
15,870
1,540,570
532,676
4,062
4,173
4,230
555,062
422,603
1,016,688
523,882
1,540,570
Jan. 1, 2019
160,193
(1,262)
(1,393 )
(26,770)
(5,146)
(16,286)
(12,333)
97,003
The lease obligations were discounted using the Corporation’s incremental borrowing rate as at January 1, 2019, in line with transition
methodology selected by the Corporation. The weighted average discount rate was 5.0%.
For the year ended December 31, 2019, expenses for short‐term leases, variable lease payments and leases of low‐value assets respectively
totalling $1,708, $1,195 and $476 were recorded in the “Other operating expenses”.
F I N A N C I A L I M P A C T S A N D C O M P A R A B I L I T Y
The selected method adopted for the transition to IFRS 16 ‐ Leases implies that 2018 consolidated financial statements have not been
restated. As a result, the 2019 consolidated financial statements present significant variances when compared to 2018.
The 2019 consolidated statement of earnings (loss) includes reduced rent expenses from the elimination of the classification as operating
leases, higher finance costs from the interest expense on lease obligations and higher depreciation of right‐of‐use assets. Consequently,
the Corporation considers that EBT is the preferred comparative measure to explain its results and performance, rather than EBITDA as
previously used.
The following table summarizes the 2018 annual and quarterly EBT and adjusted EBT(1) by segment:
Twelve‐month
period
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
FinishMaster U.S.
EBT
EBT margin(1)
Special items
Adjusted EBT(1)
Adjusted EBT margin(1)
Canadian Automotive Group
EBT
EBT margin(1)
Special items
Adjusted EBT(1)
Adjusted EBT margin(1)
The Parts Alliance U.K.
EBT
EBT margin(1)
Special items
Adjusted EBT(1)
Adjusted EBT margin(1)
Corporate Office and Others
EBT
Special items
Amortization of intangible assets related to the
acquisition of The Parts Alliance
Adjusted EBT(1)
Consolidated
EBT
EBT margin(1)
Special items
Amortization of intangible assets related to the
acquisition of The Parts Alliance
Adjusted EBT(1)
Adjusted EBT margin(1)
(1)
56,100
6.8%
1,693
57,793
7.0%
16,473
3.3%
3,346
19,819
3.9%
17,962
4.3%
1,230
19,192
4.6%
(45,858)
8,320
5,142
(32,396)
44,677
2.6%
14,589
5,142
64,408
3.7%
6,813
3.3%
1,693
8,506
4.2%
3,122
2.5%
3,346
6,468
5.3%
(77)
(0.1%)
1,230
1,153
1.2%
(12,710)
2,376
1,299
(9,035)
(2,852)
(0.7%)
8,645
1,299
7,092
1.7%
16,721
7.8%
‐
16,721
7.8%
6,225
4.7%
‐
6,225
4.7%
4,298
4.2%
‐
4,298
4.2%
(12,862)
5,212
1,293
(6,357)
14,382
3.2%
5,212
1,293
20,887
4.7%
17,125
8.1%
‐
17,125
8.1%
6,944
5.0%
‐
6,944
5.0%
6,459
5.8%
‐
6,459
5.8%
(9,486)
114
1,105
(8,267)
21,042
4.6%
114
1,105
22,261
4.8%
15,441
7.7%
‐
15,441
7.7%
182
0.2%
‐
182
0.2%
7,282
6.6%
‐
7,282
6.6%
(10,800)
618
1,445
(8,737)
12,105
2.9%
618
1,445
14,168
3.4%
This information represents a non‐IFRS financial measure. (Refer to the “Non‐IFRS financial measures” section for further details.)
The 2019 consolidated financial position includes new long‐term assets (right‐of‐use assets) and liabilities (lease obligations) recognized on
January 1, 2019, of $87,628 and $97,003 respectively. To facilitate comparability with last year’s figures, financial position ratios and
variances should be compared with reconciled figures as at January 1, 2019, instead of December 31, 2018.
2019 ANNUAL REPORT UNI‐SELECT 27
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)
This measure consists of quantifying the increase in consolidated sales between two given periods,
excluding the impact of acquisitions, the erosion of sales from the integration of company‐owned
stores, 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.
EBITDA(1), adjusted EBITDA(1)
and proforma adjusted
EBITDA(1)
EBITDA 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.
EBITDA margin(1), adjusted
EBITDA margin(1) and
proforma adjusted EBITDA
margin(1)
Adjusted EBT(2), adjusted
earnings and adjusted
earnings per share(1)
Adjusted EBITDA excludes certain adjustments, which may affect the comparability of the
Corporation’s financial results. These adjustments include, among other things, impairment loss on
goodwill, net gain on business disposal, restructuring and other charges, charges related to the review
of strategic alternatives as well as net transaction charges related to The Parts Alliance acquisition.
Proforma adjusted EBITDA subtracts from adjusted EBITDA the rent expenses included in the
measurement of lease obligations. It represents adjusted EBITDA pre‐adoption of IFRS 16 – Leases.
EBITDA margin is a percentage corresponding to the ratio of EBITDA to sales. Adjusted EBITDA margin
is a percentage corresponding to the ratio of adjusted EBITDA to sales. Proforma adjusted EBITDA
margin is a percentage corresponding to the ratio of proforma adjusted EBITDA to sales.
Management uses adjusted EBT, adjusted earnings and adjusted earnings per share to assess EBT, 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, following the adoption of IFRS 16 ‐ Leases. The intent of these measures is to provide
additional information.
These adjustments include, among other things, impairment loss on goodwill, net gain on business
disposal, restructuring and other charges, charges related to the review of strategic alternatives as
well as 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.
EBT margin(1) (2) and adjusted
EBT margin(1) (2)
EBT margin is a percentage corresponding to the ratio of EBT to sales. Adjusted EBT margin is a
percentage corresponding to the ratio of adjusted EBT to sales.
2019 ANNUAL REPORT UNI‐SELECT 28
Free cash flows(3)
Total net debt(4)
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.
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. Starting January 1, 2019, the total net debt
includes new lease obligations arising from the adoption of IFRS 16 ‐ Leases, for which the initial
amount recorded was $97,003.
Total net debt to total net
debt and total equity ratio(4)
This ratio corresponds to total net debt divided by the sum of total net debt, convertible debentures
and total equity.
Long‐term debt to total
equity ratio(4)
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 sum of convertible debentures and total
equity.
Funded debt to adjusted
EBITDA ratio(4)
Return on average total
equity ratio(4)
This ratio corresponds to total net debt to adjusted EBITDA.
This ratio corresponds to net earnings, divided by average total equity.
Adjusted return on average
total equity ratio(4)
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.
Dividend payout ratio(4)
This ratio corresponds to adjusted earnings per share(1) of the prior year, converted in Canadian dollars
using the period end exchange rate of the same period, divided by dividends per share paid in
Canadian dollars for the current period.
(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) With the adoption of IFRS 16 ‐ Leases, the Corporation considers that EBT is the preferred comparative measure to explain its results and performance.
(Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.)
(3) 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.
(4) Refer to the “Capital structure” section for further details.
2019 ANNUAL REPORT UNI‐SELECT 29
ANALYSIS OF CONSOLIDATED RESULTS
On January 1, 2019, the Corporation applied, for the first time, IFRS 16 ‐ Leases using the modified retrospective transition approach and did
not restate comparative amounts for the year prior to its adoption as permitted. As a result, the 2019 consolidated financial statements
present significant variances when compared to 2018. The 2019 consolidated statement of earnings includes reduced rent expenses from
the elimination of the classification as operating leases, higher finance costs from the interest expense on lease obligations and higher
depreciation of right‐of‐use assets. (Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.)
S A L E S
FinishMaster U.S.
Canadian Automotive Group
The Parts Alliance U.K.
Sales
Sales variance
Conversion effect of the Canadian dollar and the British pound
Number of billing days
Erosion of sales from the integration of company‐owned stores
Acquisitions
Consolidated organic growth
Fourth quarters
Twelve‐month periods
2019
198,271
122,321
92,010
2018
203,440
122,460
93,555
2019
830,765
516,112
392,695
2018
829,982
503,829
418,154
412,602
419,455
1,739,572
1,751,965
(6,853)
560
(223)
3,392
(1,611)
(4,735)
%
(1.6)
0.1
(0.0)
0.8
(0.4)
(1.1)
(12,393)
30,931
(1,013)
4,417
(13,330)
8,612
%
(0.7)
1.8
(0.1)
0.3
(0.8)
0.5
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
Consolidated sales for the quarter, when compared to the same
quarter last year, decreased by 1.6%. This performance is mainly
attributable to negative organic growth and to the erosion of sales
from the integration of company‐owned stores, which were, in part,
compensated by the contribution of business acquisitions.
All segments experienced a soft quarter, during which the
FinishMaster U.S. segment was affected by the competitive
landscape, The Parts Alliance U.K. segment faced prolonged
macroeconomic challenges, while the Canadian Automotive Group
segment was impacted by a different timing in sales. As a result,
consolidated organic was negative $4,735 or 1.1% for the quarter.
last year, were
Consolidated sales for the twelve‐month period, when compared to
impacted by the
the corresponding period
conversion effect of the Canadian dollar and the British pound into
the US dollar of $30,931 or 1.8% due to softer currencies. Excluding
the effect of the currencies, consolidated sales increased by $18,538
or 1.1% for the twelve‐month period. This growth is principally
attributable to the contribution of business acquisitions of 0.8% and
the organic growth of 0.5%.
For the twelve‐month period, the Canadian Automotive Group and
the FinishMaster U.S. segments, respectively reported organic
growth of 2.4% and 0.5%, offsetting the negative organic growth of
1.9% at The Parts Alliance U.K. segment.
2019 ANNUAL REPORT UNI‐SELECT 30
G R O S S M A R G I N
Gross margin
In % of sales
FOURTH QUARTERS
Fourth quarters
Twelve‐month periods
2019
128,274
31.1%
2018
134,603
32.1%
2019
550,336
31.6%
2018
575,169
32.8%
TWELVE‐MONTH PERIODS
The gross margin, as a percentage of sales, decreased by
100 basis points, compared to the same quarter in 2018, mainly in
relation to pricing pressure and an evolving customer mix affecting
the FinishMaster U.S. segment. In addition, the performance of The
Parts Alliance U.K. segment, with a lower volume of sales, affected
incentives from suppliers.
The gross margin, as a percentage of sales, decreased by
120 basis points, compared to the corresponding period in 2018,
basically for the same factors mentioned in the quarter.
In addition, the higher volume of sales in the Canadian Automotive
Group segment and its performance generated more rebates.
impacts were,
in part, compensated by a favourable
These
distribution channels mix in the Canadian Automotive Group
segment from the growing weighting of the BUMPER TO BUMPER®
network of company‐owned stores with higher margins, combined
with the acquisition of AutoChoice Parts & Paint Limited.
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 2018, overall
benefiting from initiatives in relation to the PIP.
This element was partially offset by a lower absorption of fixed
payroll resulting from the lower volume of sales, as well as higher
performance‐based compensations in relation to the improved
results of the segments during the second half of 2019, as opposed
to reversals last year. Furthermore, the opening of greenfields over
the last 12 months in the U.K. had an impact of 30 basis points,
requiring new resources and affecting employee benefits, as a
percentage of sales, until reaching the optimized operational level.
Fourth quarters
Twelve‐month periods
2019
74,611
18.1%
2018
76,932
18.3%
2019
309,270
17.8%
2018
315,166
18.0%
TWELVE‐MONTH PERIODS
Employee benefits, as a percentage of sales,
improved by
20 basis points, compared to the same period in 2018, benefiting
from savings in relation to the PIP as well as a superior absorption
of fixed payroll related to additional volume from overall organic
growth.
These elements were partially offset by the opening of greenfields
over the last 12 months in the U.K., impacting by 30 basis points, as
well as by recent business acquisitions, affecting employee benefits,
as a percentage of sales, until their optimization.
2019 ANNUAL REPORT UNI‐SELECT 31
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
2019
25,733
6.2%
2018
36,243
8.6%
2019
111,135
6.4%
2018
140,474
8.0%
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
the
impact of
the adoption of
IFRS 16 ‐ Leases of
Once
approximately 160 basis points
is excluded, other operating
expenses, as a percentage of sales, improved by 80 basis points,
compared to the same quarter last year, benefitting from lower
professional fees and overall savings in relation to the PIP.
Additionally, the fourth quarter of 2018 was impacted by foreign
exchange losses, resulting from the fluctuation of the Canadian
currency.
the
impact of
the adoption of
Once
IFRS 16 ‐ Leases of
approximately 150 basis points is excluded, the other operating
expenses, as a percentage of sales, improved by 10 basis points,
compared to the same period of 2018, essentially from the same
factors as for the quarter.
These positive elements were partially offset by an unfavourable
absorption of fixed costs resulting from the lower level of sales
reported during the quarter. Furthermore, the opening of
greenfields over the last 12 months in the U.K. and recent business
acquisitions are affecting the other operating expenses, as a
percentage of sales, until reaching their optimized operational level.
S P E C I A L I T E M S
Special items comprise elements which do not reflect the Corporation’s core performance or where their separate presentation will assist
readers of the consolidated financial statements in understanding the Corporation’s results for the period. Special items are detailed as
follows:
Impairment loss on goodwill
Net gain on business disposal
Restructuring and other charges related to the PIP
Review of strategic alternatives
Net transaction charges related to The Parts Alliance acquisition
Fourth quarters
Twelve‐month periods
2019
45,000
607
4,989
5,331
‐
55,927
2018
‐
‐
6,269
2,270
106
8,645
2019
45,000
(18,788)
17,503
9,758
‐
53,473
2018
‐
‐
6,269
7,466
854
14,589
Impairment loss on goodwill
During the fourth quarter of 2019, the Corporation recognized an impairment loss on goodwill totalling $45,000 in connection with its
United Kingdom cash‐generating unit, due to market softness in Europe and uncertainties surrounding Brexit.
One of the main streams of growth of this cash‐generating unit is the opening of greenfields, requiring investments and increasing the cost
base until reaching the optimized operational level. The current market conditions, affecting further sales and growth, are consequently
significantly reducing expected cash flows. While the PIP was expanded during the third quarter of 2019 to further align operations, the
prolonged uncertainties required to impair a portion of the goodwill attributable to this cash‐generating unit. (Refer to note 14 in the
consolidated financial statements for further details.)
Net gain on business disposal
On September 30, 2019, the Corporation completed the sale of all the assets pertaining to its ProColor banner program, a separate division
of its business that was launched in 2001 and that was supporting a network of 172 collision repair shops at the time of the transaction.
As of December 31, 2019, total sale price amounted to $19,528. The assets sold, mainly composed of property and equipment, generated
a net gain of $18,788 during the year ended December 31, 2019.
2019 ANNUAL REPORT UNI‐SELECT 32
Restructuring and other charges related to the PIP
In January 2019, the Corporation announced a broad performance improvement and rightsizing plan for the FinishMaster U.S. segment,
which mainly consists of headcount reduction and the integration of locations, while optimizing the supply chain. The 25/20 Plan announced
during the fourth quarter of 2018 and the FinishMaster U.S. segment performance improvement and rightsizing plan combined together
are now referred to as the ″Performance Improvement Plan″ of the Corporation. Over the course of 2019, due to the uncertainty and
challenging macroeconomics in the United Kingdom as well as to the competitive environment in the United States, the Corporation
successively expanded the PIP, adding new accretive initiatives.
The Corporation recognized, for the quarter and the twelve‐month period ended December 31, 2019, restructuring and other charges
totalling $4,989 and $17,503 ($6,269 for both the quarter and the twelve‐month period ended December 31, 2018). These charges are
detailed as follows:
Restructuring charges(1)
Other charges as incurred(2)
Non‐cash costs related to the write‐down of assets(3)
Fourth quarters
Twelve‐month periods
2019
‐
2,763
2,226
4,989
2018
5,055
1,214
‐
6,269
2019
4,605
6,953
5,945
17,503
2018
5,055
1,214
‐
6,269
(1) Mainly severance and termination benefits.
(2) Primarily comprising consulting fees related to the optimization of the logistical processes, inventory liquidation, moving costs and retention bonuses.
(3) Mainly impairment of property and equipment. (Refer to note 13 in the consolidated financial statements for further details.)
Review of strategic alternatives
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., which lead to the review of strategic
alternatives. The strategic review concluded on December 18, 2019, following the issuance of the convertible debentures.
The Corporation recognized, for the quarter and the twelve‐month period ended December 31, 2019, charges totalling $5,331 and $9,758
($2,270 and $7,466 respectively for 2018). These charges are detailed as follows:
Severance
Retention bonuses
Other fees(1)
Fourth quarters
Twelve‐month periods
2019
‐
1,026
4,305
5,331
2018
63
898
1,309
2,270
2019
‐
3,578
6,180
9,758
2018
4,653
1,504
1,309
7,466
(1)
Primarily comprising consulting fees related to the review of strategic alternatives and financing fees related to the issuance of the convertible
debentures.
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 totalling $106
and $854 for the quarter and twelve‐month period ended December 31, 2018. These charges included acquisition costs of $294 for the
twelve‐month period and other charges related to the acquisition of $106 and $560 respectively for the quarter and twelve‐month period
ended December 31, 2018.
2019 ANNUAL REPORT UNI‐SELECT 33
E B I T D A
Following the adoption of IFRS 16 ‐ Leases, the Corporation considers that EBT is the preferred comparative measure to explain its results
and performance, rather than EBITDA as previously used. (Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.)
The following reconciliation of the proforma adjusted EBITDA has been prepared for illustrative and informative purposes only.
Net earnings (loss)
Income tax expense
Depreciation and amortization
Finance costs, net
EBITDA
EBITDA margin
Special items
Adjusted EBITDA
Adjusted EBITDA margin
Rent expenses included in the measurement of lease obligations (1)
Proforma adjusted EBITDA
Proforma adjusted EBITDA margin
Fourth quarters
Twelve‐month periods
2019
(49,447)
(2,083)
16,042
7,491
(27,997)
(6.8%)
55,927
27,930
6.8%
(7,582)
20,348
4.9%
2018
(2,363)
(489)
10,265
5,370
12,783
3.0%
8,645
21,428
5.1%
‐
21,428
5.1%
%
2019
(19,845)
2,456
(319.0)
64,187
29,660
76,458
4.4%
53,473
30.3 129,931
7.5%
%
2018
36,497
8,180
39,702
20,561
104,940 (27.1)
6.0%
14,589
119,529
6.8%
8.7
(28,921)
‐
(5.0) 101,010
5.8%
119,529 (15.5)
6.8%
(1)
Includes new leases contracted over the last 12 months for the expansion of company‐owned stores and distribution centres.
F I N A N C E C O S T S , N E T
Finance costs, net
In % of sales
FOURTH QUARTERS
The increase in finance costs, compared to the same quarter in
2018, is attributable, in part, to the interest expense on lease
obligations, representing 30 basis points; essentially the result of
the adoption of IFRS 16 ‐ Leases on January 1, 2019, combined with
new leases contracted over the last 12 months for the expansion of
company‐owned stores and distribution centres. As well, the higher
average
in higher borrowing costs,
level of debt, resulted
representing approximately 20 basis points.
Fourth quarters
Twelve‐month periods
2019
7,491
1.8%
2018
5,370
1.3%
2019
29,660
1.7%
2018
20,561
1.2%
TWELVE‐MONTH PERIODS
The increase in finance costs, compared to the corresponding period
in 2018, refers to the same factors affecting the quarter. The interest
expense on lease obligations and higher borrowing costs represent
30 and 20 basis points respectively for the year.
(Refer to note 5 in the consolidated financial statements for further details.)
2019 ANNUAL REPORT UNI‐SELECT 34
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
In % of sales
Fourth quarters
Twelve‐month periods
2019
16,042
3.9%
2018
10,265
2.4%
2019
64,187
3.7%
2018
39,702
2.3%
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The increase in depreciation and amortization, compared to the
same quarter in 2018, is attributable to the depreciation of
right‐of‐use assets, representing 140 basis points; essentially the
result of the adoption of IFRS 16 ‐ Leases on January 1, 2019,
combined with new leases contracted over the last 12 months for
the expansion of company‐owned stores and distribution centres.
The increase in depreciation and amortization, compared to the
corresponding period in 2018, refers to the same factor affecting the
quarter. The impact of the depreciation of right‐of‐use assets
represents 140 basis points for the year.
(Refer to note 6 in the consolidated financial statements for further details.)
E B T
Following the adoption of IFRS 16 ‐ Leases, the Corporation considers that EBT is the preferred comparative measure to explain its results
and performance, rather than EBITDA as previously used. (Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.)
Net earnings (loss)
Income tax expense
EBT
EBT margin
Special items
Amortization of intangible assets related to the acquisition of
The Parts Alliance
Adjusted EBT
Adjusted EBT margin
FOURTH QUARTERS
Fourth quarters
Twelve‐month periods
2019
(49,447)
(2,083)
(51,530)
(12.5%)
55,927
1,040
5,437
1.3%
%
2018
(2,363)
(489)
(2,852) (1,706.8)
(0.7%)
8,645
1,299
7,092
1.7%
(23.3)
2019
(19,845)
2,456
(17,389)
(1.0%)
53,473
4,652
40,736
2.3%
%
2018
36,497
8,180
44,677 (138.9)
2.6%
14,589
5,142
64,408
3.7%
(36.8)
TWELVE‐MONTH PERIODS
The adjusted EBT margin decreased by 40 basis points, compared to
the same quarter in 2018. This variance is mainly explained by
pricing pressure and evolving customer mix in the FinishMaster U.S.
segment, as well as the lower volume of sales recorded during the
quarter impacting buying conditions and the absorption of fixed
costs. Furthermore, the adjusted EBT margin was affected by the
opening of greenfields.
The adjusted EBT margin decreased by 140 basis points, compared
to the corresponding period in 2018. This variance is mainly
explained by pricing pressure and evolving customer mix in the
FinishMaster U.S. segment, the opening of greenfields, as well as
higher borrowing costs, in relation to the debt level.
These elements were partially compensated by overall savings
realized in relation to the PIP.
These elements were partially compensated by overall savings
realized in relation to the PIP and lower professional fees. The
benefits from the PIP were more significant during the fourth
quarter, reducing the variance of the adjusted EBT margin compared
to last year and previous quarters.
2019 ANNUAL REPORT UNI‐SELECT 35
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
2019
(2,083)
4.0%
2018
(489)
17.1%
2019
2,456
(14.1%)
2018
8,180
18.3%
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The variance of the income tax rate, compared to the same quarter
in 2018, is mainly attributable to the special items, especially the
non‐deductible impairment loss on goodwill of $45,000 recorded
during the quarter.
Excluding the impact of special items, the income tax rate decreased
by 7.3% for the quarter, attributable to a difference in tax rates from
foreign jurisdictions and the different geographic “Earnings (loss)
before income taxes,” partially offset by the unfavourable 2018 U.S.
proposed regulations, affecting the tax benefit from a financing
structure.
The variance of the income tax rate, compared to the corresponding
period in 2018, is mainly attributable to the special items, especially
the non‐deductible
loss on goodwill of $45,000
recorded during the fourth quarter, as well as the taxable portion of
the gain on the sale of the ProColor program recorded during the
third quarter, which was offset by the utilization of capital losses
previously unrecognized.
impairment
Excluding the impact of special items, income tax rate increased by
4.4% for the year, mainly in relation to the unfavourable 2018 U.S.
proposed regulations, affecting the tax benefit from a financing
structure.
(Refer to note 7 in the consolidated financial statements for further details.)
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 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 intangible assets related to the acquisition of
The Parts Alliance, net of taxes
Adjusted earnings per share
Fourth quarters
Twelve ‐month periods
2019
(49,447)
53,144
863
4,560
(1.17)
1.26
0.02
0.11
2018
%
2019
2018
%
(2,363) (1,992.6)
(19,845)
36,497 (154.4)
6,741
1,052
5,430
(16.0)
(0.06) (1,850.0)
0.16
0.03
0.13
(15.4)
46,755
10,811
3,861
30,771
(0.47)
1.11
0.09
0.73
4,165
51,473
(40.2)
0.86 (154.7)
0.26
0.10
1.22
(40.2)
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
Adjusted earnings, compared to the same quarter
in 2018,
decreased by $870 or 16.0%, mainly resulting from a lower adjusted
EBT, as well as a different income tax rate.
Adjusted earnings, compared to the corresponding period in 2018,
decreased by $20,702 or 40.2%, affected by the same factors
mentioned in the quarter.
2019 ANNUAL REPORT UNI‐SELECT 36
C O N S O L I D A T E D Q U A R T E R L Y O P E R A T I N G R E S U L T S
The Corporation’s sales follow seasonal patterns: sales are typically stronger during the second and the third quarters for the
FinishMaster U.S. and the Canadian Automotive Group segments, and during the first and the second quarters for The Parts Alliance U.K.
segment. Sales are also impacted by business acquisitions as well as by the conversion effect of the Canadian dollar and the British pound
into the US dollar.
The following table summarizes the main financial information drawn from the consolidated interim financial reports for each of the last
eight quarters.
2019
2018
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Fourth
Quarter
Third
Quarter
Second
Quarter
First
Quarter
Sales
FinishMaster U.S.
Canadian Automotive Group
The Parts Alliance U.K.
EBITDA
EBITDA margin
Adjusted EBITDA
Adjusted EBITDA margin
EBT(1)
EBT margin(1)
Adjusted EBT(1)
Adjusted EBT margin(1)
Special items
Net earnings (loss)
Adjusted earnings
Basic earnings (loss) per share
Adjusted basic earnings per share
Diluted earnings (loss) per share
Dividends declared per share (C$)
198,271
122,321
92,010
215,735
137,233
97,790
212,249
143,445
100,481
204,510
113,113
102,414
203,440
122,460
93,555
412,602
450,758
456,175
420,037
419,455
(27,997)
(6.8%)
27,930
6.8%
(51,530)
(12.5%)
5,437
1.3%
51,365
11.4%
37,742
8.4%
26,898
6.0%
14,343
3.2%
55,927
(13,623)
(49,447)
4,560
(1.17)
0.11
(1.17)
0.0925
24,617
10,739
0.58
0.25
0.58
0.0925
0.76:$1
1.23:$1
31,734
7.0%
35,808
7.8%
8,540
1.9%
13,877
3.0%
4,074
6,318
10,422
0.15
0.25
0.15
0.0925
0.75:$1
1.29:$1
21,356
5.1%
28,451
6.8%
(1,297)
(0.3%)
7,079
1.7%
7,095
(1,333)
5,050
(0.03)
0.12
(0.03)
0.0925
0.75:$1
1.30:$1
214,209
131,128
103,508
448,845
29,712
6.6%
34,924
7.8%
14,382
3.2%
20,887
4.7%
5,212
10,594
15,528
0.25
0.37
0.25
12,783
3.0%
21,428
5.1%
(2,852)
(0.7%)
7,092
1.7%
8,645
(2,363)
5,430
(0.06)
0.13
(0.06)
0.0925
0.76:$1
1.29:$1
0.0925
0.77:$1
1.30:$1
210,954
139,572
111,045
461,571
35,443
7.7%
35,557
7.7%
21,042
4.6%
22,261
4.8%
114
17,875
18,399
0.42
0.44
0.42
0.0925
0.77:$1
1.36:$1
201,379
110,669
110,046
422,094
27,002
6.4%
27,620
6.5%
12,105
2.9%
14,168
3.4%
618
10,391
12,116
0.25
0.29
0.25
0.0925
0.79:$1
1.39:$1
Average exchange rate for earnings (C$)
0.76:$1
Average exchange rate for earnings (£)
1.29:$1
(1) With the adoption of IFRS 16 ‐ Leases, the Corporation considers that EBT is the preferred comparative measure to explain its results and performance.
(Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.)
2019 ANNUAL REPORT UNI‐SELECT 37
ANALYSIS OF RESULTS BY SEGMENT
On January 1, 2019, the Corporation applied, for the first time, IFRS 16 ‐ Leases using the modified retrospective transition approach and did
not restate comparative amounts of the year prior to its adoption as permitted. As a result, the 2019 consolidated financial statements
present significant variances when compared to 2018. The 2019 consolidated statement of earnings includes reduced rent expenses from
the elimination of the classification as operating leases, higher finance costs from the interest expense on lease obligations and higher
depreciation of right‐of‐use assets. Consequently, the Corporation considers that EBT is the preferred comparative measure to explain the
results and performance of the segments, rather than EBITDA as previously used. (Refer to the “Adoption of IFRS 16 ‐ Leases” section for
further details.)
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 U.S.:
distribution of automotive refinish and industrial coatings and related products representing
FinishMaster, Inc. in the U.S. market.
Canadian Automotive Group:
distribution of automotive aftermarket parts, including refinish and industrial coatings and related
products, through Canadian networks.
The Parts Alliance U.K.:
distribution of automotive original equipment manufacturer (“OEM”) and aftermarket parts, serving
local and national customers across the U.K.
Corporate Office and Others:
head office expenses and other expenses mainly related to the financing structure.
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
Erosion of sales from the integration of company‐owned stores
Organic growth
FOURTH QUARTERS
The FinishMaster U.S. segment is reporting a decrease in sales of
2.5%, compared to the same quarter last year. Sales were affected
by the erosion of sales resulting from the
integration of
company‐owned stores and a negative organic growth. The erosion
of sales was more significant during the fourth quarter than last
quarters, reflecting the full impact of the 22 company‐owned stores
already integrated as at September 30, 2019.
This segment experienced a softer quarter, reporting negative
organic growth of 1.2%, facing an aggressive competitive landscape
and softness in the refinish market, while integrating seven
company‐owned stores (29 since the beginning of the year). These
elements were partially compensated by the growth of the national
account business and price increases.
Fourth quarters
Twelve‐month periods
2019
198,271
2018
203,440
2019
830,765
2018
829,982
(5,169)
2,639
(2,530)
%
(2.5)
1.3
(1.2)
783
3,636
4,419
%
0.1
0.4
0.5
TWELVE‐MONTH PERIODS
The FinishMaster U.S. segment is reporting a growth in sales of 0.1%,
compared to the same period last year, organic growth being offset
by the erosion of sales resulting from the
integration of
29 company‐owned stores during the twelve‐month period of 2019.
The 0.5% of organic growth reported by this segment for the
twelve‐month period is essentially attributable to the sales team
initiatives, growing national business, as well as price increases,
overcoming a competitive landscape and softness in the refinish
market, while executing the PIP.
2019 ANNUAL REPORT UNI‐SELECT 38
EBT
EBT
EBT margin
Special items
Adjusted EBT
Adjusted EBT margin
FOURTH QUARTERS
Fourth quarters
Twelve‐month periods
2019
7,407
3.7%
1,847
9,254
4.7%
%
8.7
8.8
2018
6,813
3.3%
1,693
8,506
4.2%
2019
33,926
4.1%
9,354
43,280
5.2%
2018
%
56,100
39.5
6.8%
1,693
57,793
7.0%
25.1
TWELVE‐MONTH PERIODS
The adjusted EBT margin improved by 50 basis points when
compared to the same quarter last year, benefitting from realized
savings in relation to the PIP, as well as from lower professional fees
and bad debt expenses.
The adjusted EBT margin decreased by 180 basis points when
compared to the corresponding period last year, affected by an
evolving customer mix as well as pricing pressure, compressing the
gross margin.
These elements more than offset the negative impact of an
unfavorable evolving customer mix and pricing pressure,
compressing the gross margin.
The quarter fully benefitted from 22 company‐owned stores already
integrated as at September 30, 2019, as well as from the additional
seven company‐owned stores
integrated during the quarter.
Initiatives as part of the PIP have been beneficial to the quarterly
the
adjusted EBT margin, exceeding
comparative quarter for the first time this year.
the performance of
These elements were partially compensated by realized savings
resulting from initiatives as part of the PIP, the integration of
29 company‐owned stores during the year, as well as a lower bad
debt expense from continuous collection efforts.
The in‐depth review initiated in January 2019 to address and align
the business model to changing market conditions, consists of
headcount reduction, closure of company‐owned stores as well as a
review of the organizational structure, in addition to the reduction
of costs introduced in 2018. These initiatives progressed, as
planned, with the integration of 29 company‐owned stores during
the twelve‐month period.
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
Fourth quarters
Twelve‐month periods
2019
122,321
2018
122,460
2019
516,112
2018
503,829
(139)
227
(223)
(1,611)
(1,746)
%
(0.1)
0.2
(0.2)
(1.3)
(1.4)
12,283
12,249
(1,013)
(11,438)
12,081
%
2.4
2.4
(0.2)
(2.2)
2.4
TWELVE‐MONTH PERIODS
The Canadian Automotive Group segment is reporting similar sales
than the corresponding quarter of 2018, as the contribution of
business acquisitions compensated for the negative organic growth.
This segment reported negative organic growth of 1.4% for the
quarter, affected by a different timing in sales of paint, body and
equipment, which was favourable to the performance of the first
half of the year. This element was, in part, compensated by the
promotion of private brands.
Sales for this segment, once adjusted for the effect of the Canadian
dollar on its conversion to the US dollar, increased by 4.8%,
compared to the corresponding period in 2018. This increase was
driven by organic growth of 2.4% and the contribution of business
acquisitions of 2.2%.
Organic growth reported by this segment for the twelve‐month
period is attributable to initiatives focused on customer service and
additional volume from current growing customers.
2019 ANNUAL REPORT UNI‐SELECT 39
EBT
EBT
EBT margin
Special items
Adjusted EBT
Adjusted EBT margin
FOURTH QUARTERS
Fourth quarters
Twelve‐month periods
2019
(33)
0.0%
3,647
3,614
3.0%
%
(101.1)
(44.1)
2018
3,122
2.5%
3,346
6,468
5.3%
2019
39,200
7.6%
(13,868)
25,332
4.9%
%
138.0
27.8
2018
16,473
3.3%
3,346
19,819
3.9%
TWELVE‐MONTH PERIODS
The adjusted EBT margin decreased by 230 basis points, compared
to the same quarter in 2018.
The fourth quarter of 2018 was driven by additional annual
performance rebates, as well as by a reversal of the short‐term and
long‐term compensation. These elements were not repeated in
2019.
However, the current quarter benefitted from savings related to the
PIP, as well as from the accretive acquisition of AutoChoice
Parts & Paint Limited.
The adjusted EBT margin improved by 100 basis points, compared
to the corresponding period
in 2018, benefitting from the
performance of the company‐owned stores, stimulated by the
initiatives of optimization recently implemented as part of the PIP,
as well as from higher volume of sales, mainly provided by the
acquisition of AutoChoice Parts & Paint Limited. As well, gains on
foreign exchange were recorded during the twelve‐month period of
2019, while losses were recorded last year.
These elements were, in part, offset by higher charges of short‐term
and long‐term compensation, in line with the annual performance.
In relation to the PIP, the Canadian Automotive Group segment
integrated the distribution centres in Saskatoon and Calgary into a
larger one in Calgary, which started operating during the first
quarter of 2019. In addition, this segment opened a superstore in
the Montréal metropolitan
two
company‐owned stores. These initiatives are permitting optimized
services and supply chain processes.
integrated
area
and
2019 ANNUAL REPORT UNI‐SELECT 40
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 .
Sales
Sales
Sales variance
Conversion effect of the British pound
Erosion of sales from the integration of company‐owned stores
Acquisitions
Organic growth
FOURTH QUARTERS
Sales for this segment, once adjusted for the effect of the British
pound on its conversion to the US dollar, decreased by 1.3%
compared to the same quarter last year, affected by the erosion of
0.8% resulting from the integration of six company‐owned stores
(10 since the beginning of the year) and a negative organic growth
of 0.5%.
Organic growth for the segment was impacted by macroeconomic
challenges in the U.K. and the prolonged period of uncertainty
surrounding Brexit, partially compensated by the contribution of
recently opened greenfields. The Parts Alliance U.K. segment is
focusing its efforts on initiatives to stimulate sales, which include
growing web sales and signing new national accounts.
EBT
EBT
EBT margin
Special items
Adjusted EBT
Adjusted EBT margin
FOURTH QUARTERS
The adjusted EBT margin decreased by 90 basis points, compared to
the same quarter in 2018, the direct effect of lower volume of sales,
impacting the absorption of fixed costs. In addition, the adjusted
EBT margin is affected by investments in the expansion and
optimization of the network. New and expanded locations are
expected to impact the EBT margin until reaching the optimized
operational level, which may vary between 12 and 24 months.
These elements were, in part, compensated by savings resulting
from initiatives in accordance with the PIP. During the current
quarter, The Parts Alliance U.K. segment streamlined
its
organizational structure. This
initiative, combined with the
alignment of working hours to peak operating hours, for its
company‐owned stores, implemented during the third quarter,
provides more flexibility to face softness in the market. As well,
six company‐owned stores were integrated.
Fourth quarters
Twelve‐month periods
2019
92,010
2018
93,555
2019
392,695
2018
418,154
(1,545)
333
753
‐
(459)
%
(1.7)
0.4
0.8
‐
(0.5)
(25,459)
18,682
781
(1,892)
(7,888)
%
(6.1)
4.5
0.2
(0.5)
(1.9)
TWELVE‐MONTH PERIODS
Sales for this segment, once adjusted for the effect of the British
pound on its conversion to the US dollar, decreased by 1.6%
compared to the same period last year. This variance is mainly
attributable to negative organic growth of 1.9%, which was, in part,
compensated by the contribution of business acquisitions.
Organic growth for the segment was impacted by lower sales of
electrical products resulting from a mild winter in contrast to a hard
winter last year, the loss of a sales contract in the last quarter of
2018, the erosion related to the 10 company‐owned stores
integrated during the year, as well as by macroeconomic challenges
and the uncertainty of Brexit. These elements were partially
compensated by the contribution of recently opened greenfields.
During the twelve‐month period, five greenfields were opened, for
a total of 20 since its acquisition, expanding the footprint in the U.K.
Fourth quarters
Twelve‐month periods
2019
220
0.2%
102
322
0.3%
%
385.7
(72.1)
2018
(77)
(0.1%)
1,230
1,153
1.2%
2019
(147)
0.0%
3,229
3,082
0.8%
2018
%
17,962 (100.8)
4.3%
1,230
19,192
(83.9)
4.6%
TWELVE‐MONTH PERIODS
The adjusted EBT margin decreased by 380 basis points, compared
to the corresponding period in 2018, globally for the same factors
stated in the quarter.
As part of the PIP, during the first quarter of 2019, this segment
inaugurated its new national distribution centre, situated in the
heart of the U.K., providing the flexibility to grow while improving
efficiency. Initiatives announced in August 2019 to adapt the
business model to macroeconomic challenges, consisting of
productivity and margin improvement, as well as cost control, were
mostly achieved at year‐end, improving the position of this segment
for the future. In addition, 10 company‐owned stores were
integrated during the year.
2019 ANNUAL REPORT UNI‐SELECT 41
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
Fourth quarters
Twelve‐month periods
EBT
Special items
Amortization of intangible assets related to the acquisition of
The Parts Alliance
Adjusted EBT
FOURTH QUARTERS
2018
%
(12,710) (365.2)
2019
(90,368)
54,758
2018
%
(45,858) (97.1)
8,320
4,652
(30,958)
5,142
(32,396)
4.4
14.2
2019
(59,124)
50,331
1,040
(7,753)
2,376
1,299
(9,035)
TWELVE‐MONTH PERIODS
The improvement of the adjusted EBT, compared to the same
quarter in 2018, is mainly attributable to a lower level of
professional fees incurred during the current quarter of 2019.
Furthermore, the fourth quarter last year was affected by a charge
from the equity swap instruments associated with stock‐based
compensation in relation to the share price.
The improvement of the adjusted EBT, compared to the same period
in 2018, is mainly attributable to a lower level of professional fees
incurred in 2019, as well as lower long‐term compensations in
relation to performance and the share price of the Corporation.
These elements were offset by higher borrowing costs from a higher
average debt compared to last year.
These elements were partially offset by higher borrowing costs from
a higher average debt during the quarter compared to last year.
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
2019
3,520
2018
13,398
2019
33,332
2018
94,579
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The reduction in cash flows from operating activities, compared to
the same quarter in 2018, is attributable to a different timing of
purchases and vendor financing transactions.
These outflows were, in part, compensated by reduced purchases of
inventory and lower corporate tax instalments.
The reduction in cash flows from operating activities, compared to
the corresponding period in 2018, is mainly explained by a change
of payment terms from a supplier and a different timing of vendor
financing transactions, as well as by larger payments of interest on
the long‐term debt.
These elements were partially compensated by a reduction in
inventory, an improved collection of trade receivables and lower
corporate tax instalments.
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
2019
(5,153)
2018
(38,178)
2019
(14,054)
2018
(86,193)
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The lower level of cash outflows for investing activities, compared
to the same quarter in 2018, mainly resulted from reduced
investments in business acquisitions and capital expenditures during
the current quarter. In 2018, the Corporation acquired AutoChoice
Parts & Paint Limited and invested in larger distribution centres in
Canada and in the U.K., as part of the PIP.
Lower cash outflows were required for
investing activities,
compared to the same period in 2018, as a result of lower business
acquisition activities and a reduced level of customer investments in
2019, combined with the proceeds from the sale of the ProColor
program at the end of the third quarter this year.
2019 ANNUAL REPORT UNI‐SELECT 42
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
2019
15,577
2018
21,979
2019
7,819
2018
(30,594)
FOURTH QUARTERS
TWELVE‐MONTH PERIODS
The decrease in cash flows from financing activities, compared to
the same quarter in 2018, is mainly due to higher repayments of
long‐term debt, while keeping on hand more cash stemming from
the issuance of convertible debentures for future purposes.
The variance in cash flows from financing activities, compared to the
same period in 2018, is mainly explained by higher repayments of
long‐term debt in 2018, using the excess of cash available at the
beginning of the year. The Corporation closed the 2019 year with
more cash on hand stemming from the issuance of convertible
debentures, to be used for future purposes.
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
Fourth quarters
Twelve‐month periods
2019
3,520
26,060
29,580
(5,379)
(137)
24,064
2018
13,398
3,009
2019
33,332
93,980
16,407
127,312
2018
94,579
5,163
99,742
(8,675)
(21,649)
(19,391)
41
7,773
(5)
(449)
105,658
79,902
TWELVE‐MONTH PERIODS
The increase in free cash flows, compared to the same quarter in
2018, is mainly explained by a lower level of corporate tax
instalments and investments in capital expenditures during the
current quarter.
The improvement in free cash flows, compared to the same period
in 2018, is mainly explained by the lower level of income tax
instalments in 2019, partially offset by larger payments of interest
on long‐term debt.
2019 ANNUAL REPORT UNI‐SELECT 43
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 to manage and mitigate liquidity risk.
L O N G ‐ T E R M D E B T A N D C R E D I T F A C I L I T I E S
On January 1, 2019, the Corporation applied, for the first time, IFRS 16 ‐ Leases using the modified retrospective transition approach and did
not restate comparative amounts of the year prior to its adoption as permitted. As a result, the 2019 consolidated financial statements
present significant variances when compared to 2018. The 2019 consolidated financial position includes new liabilities (lease obligations) of
$97,003 recognized on January 1, 2019. (Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.)
The following table presents the composition of the long‐term debt:
Maturity
Effective interest rate
Revolving credit facility, variable rates (1) (2)
Lease obligations ‐ vehicles, variable rates
Lease obligations ‐ buildings, variable rates (3)
Others
2023
‐
‐
2021
3.51% to 7.00%
‐
‐
‐
Instalments due within a year
Long‐term debt
Current
portion
4,027
24,552
15
28,594
Dec. 31,
2019
372,472
10,979
101,298
18
484,767
28,594
Jan. 1,
2019
414,741
11,987
97,003
11
523,742
26,674
456,173
497,068
Dec. 31,
2018
414,741
11,987
‐
11
426,739
4,136
422,603
(1)
(2)
(3)
As at December 31, 2019, a nominal amount of $375,956 was used under the Corporation’s revolving credit facility ($418,220 as at December 31, 2018).
The difference with the carrying amount presented above is composed of deferred financing costs.
As at December 31, 2019, a principal amount of $296,291 of the revolving credit facility was designated as a hedge of net investments in foreign
operations ($302,865 as at December 31, 2018).
Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.
Revolving credit facility
In 2018, the Corporation entered into an amended and restated credit agreement (the “agreement”). The agreement provided 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. In December 2019, the total maximum principal amount available was
reduced from $625,000 to $575,000. The revolving credit facility can be repaid at any time without penalty and is available in Canadian
dollars, US dollars, Euros or British pounds. The 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.
As at December 31, 2019, the unused portion, subject to financial covenants, amounted to $199,000 ($207,000 as at December 31, 2018).
Letter of credit facility
In 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.
C O N V E R T I B L E D E B E N T U R E S
On December 18, 2019, the Corporation issued convertible senior subordinated unsecured debentures for aggregate principal amount of
C$125,000. The convertible debentures are being offered at a price of C$1,000 per C$1,000 principal amount of debentures and bear
interest at a rate of 6.00% per annum, payable semi‐annually in arrears on June 18 and December 18 of each year. The convertible
debentures have a maturity date of 7 years from their date of issue and are convertible at the option of the holder into common shares of
the Corporation at a price of C$13.57 per share, representing a conversion rate of 73.69 shares per C$1,000 principal amount of debentures.
The equity component of the debentures was determined as the difference between the fair value of the convertible debentures and the
fair value of the liability component, which was calculated using an effective rate of 8.25%.
2019 ANNUAL REPORT UNI‐SELECT 44
The table below indicates the movement in the liability component:
Balance, beginning of year
Convertible debentures issuance
Recognition of equity component
Accreted interest
Effects of fluctuations in exchange rates
December 31,
2019
‐
95,026
(11,200)
64
615
84,505
2018
‐
‐
‐
‐
‐
‐
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, 2019, Uni‐Select benefited from additional deferred payments of accounts payable in the amount of $143,978 and
used $229,562 of the program ($213,478 and $291,582 respectively as at December 31, 2018). The authorized limit with the financial
institutions is $300,000. These amounts are presented in “Trade and other payables” in the 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, 2019, are as follows:
Currencies (sold/bought)
Maturity
Average rate (1) Notional amount (2)
CAD/USD
GBP/USD
GBP/EUR
Up to February 2020
Up to March 2020
Up to March 2020
0.75
1.31
1.17
4,118
1,891
2,217
(1)
(2)
Rates are expressed as the number of units of the currency bought for one unit of currency sold.
Exchange rates as at December 31, 2019, 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 $42,500 for interest rate swaps denominated in US dollars ($67,500 as at
December 31, 2018), and £70,000 for interest rate swaps denominated in British pounds (same as at December 31, 2018). 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 payment costs
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, 2019, the equity swap agreements covered the equivalent of 214,277 common shares of the Corporation (364,277 as at
December 31, 2018).
2019 ANNUAL REPORT UNI‐SELECT 45
F U N D R E Q U I R E M E N T S
The Corporation can 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 2020 are summarized as follows:
‐ Capital expenditure for the network modernization, hardware equipment and software applications, as well as the partial renewal
of the vehicle fleet;
‐ Customer investment;
‐ Dividend payments; and
‐
Investments in relation to the PIP.
C O N T R A C T U A L O B L I G A T I O N S
Minimum future payments
Principal repayments due on long‐term debt (except lease obligations and financing costs), convertible debentures as well as lease
obligations as of December 31, 2019 are presented as follows:
Revolving credit facility and others(1)
Lease obligations – vehicles(2)
Lease obligations – buildings(2)
Convertible debentures(3)
2020
15
4,027
24,552
‐
2021
3
3,222
21,056
‐
2022
‐
2,166
15,538
‐
2023
2024 Thereafter
375,956
1,153
12,019
‐
‐
394
8,177
‐
‐
17
19,956
84,505
(1)
(2)
(3)
Does not include financing costs and obligations related to interest on debt.
Includes obligations related to interest.
Includes obligations related to accreted interest only.
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, 2020, the Corporation expects to make contributions of approximately $1,644 for its defined benefit
pension plans. (Refer to note 16 in the consolidated financial statements for further details.)
O F F B A L A N C E S H E E T A R R A N G E M E N T S
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 $43,768 as at December 31, 2019 (at rates of
60% or 75% and for a maximum of $42,479 as at December 31, 2018). 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.
Letter of credit
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.
Under the terms of its credit facility, the Corporation has issued letters of credit amounting to $7,137 as at December 31, 2019 ($7,337 as
at December 31, 2018).
2019 ANNUAL REPORT UNI‐SELECT 46
Commitments
The Corporation has various lease contracts that have not yet commenced as at December 31, 2019. The future lease payments for these
non‐cancellable lease contracts are $277 within one year, $1,273 within five years and $296 thereafter.
CAPITAL STRUCTURE
On January 1, 2019, the Corporation applied, for the first time, IFRS 16 ‐ Leases using the modified retrospective transition approach and did
not restate comparative amounts of the year prior to its adoption as permitted. As a result, the 2019 consolidated financial statements
present significant variances when compared to 2018. The 2019 consolidated financial position includes new liabilities (lease obligations)
recognized on January 1, 2019, of $97,003. To allow a better comparability, financial position ratios and variances should be compared with
reconciled figures as at January 1, 2019, when applicable, instead of December 31, 2018. (Refer to the “Adoption of IFRS 16 ‐ Leases” section
for further details.)
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
Convertible debentures
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 ratio
Adjusted return on average total equity ratio
Dividend payout ratio
Dec. 31,
2019
484,767
449,059
84,505
506,994
43.2%
82.0%
3.46
(3.9%)
5.2%
22.2%
Jan. 1,
2019
523,742
515,706
‐
Dec. 31,
2018
426,739
418,703
‐
519,930
523,882
49.8%
100.7%
3.50
7.0%
9.1%
21.9%
44.4%
81.5%
3.50
7.0%
9.1%
21.9%
(1)
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.
Management continuously monitors its working capital items to improve the cash conversion cycle, in particular, on optimizing inventory
levels in all business segments.
The improvement in debt ratios, when compared with reconciled figures as at January 1, 2019, is principally attributable to the issuance of
the convertible debentures (presented as liability in the consolidated statement of financial position but classified as equity in the
calculation of the ratios), which were used to repay a portion of the long‐term debt. (Refer to section “Non‐IFRS financial measures” for
further details.)
The variance of the adjusted return on average total equity is essentially resulting from lower adjusted earnings.
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, 2019, the Corporation met all the requirements.
2019 ANNUAL REPORT UNI‐SELECT 47
D I V I D E N D S
For the year 2019, the Corporation declared dividends amounting to C$0.370 per share (C$0.370 in 2018).
On February 19, 2020, the Corporation declared the first quarterly dividend of 2020 of C$0.0925 per share, payable on April 21, 2020, to
shareholders of record as of March 31, 2020.
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, 2020, 42,387,300 common shares were outstanding.
Fourth quarters
Twelve‐month periods
2019
42,387
42,387
2018
42,387
42,301
2019
42,387
42,387
2018
42,387
42,254
Repurchase and cancellation of common 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 2019, the NCIB was not renewed by the
Corporation.
In relation to this NCIB, there was no common share repurchase or cancellation during the year ended December 31, 2019.
During the year ended December 31, 2018, 92,696 common shares were repurchased in connection with the NCIB announced in April 2018.
The shares were repurchased for a cash consideration of $1,422 including a share repurchase and cancellation premium of $1,232 applied
as a reduction of retained earnings.
Issuance of common shares
During the year ended December 31, 2019, there was no common share issued. During the year ended December 31, 2018, the Corporation
issued 206,184 common shares at the exercise of stock options for a cash consideration of $2,331. The weighted average price of the
exercise of stock options was C$14.94 for the year.
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, 2019, 207,169 options were granted to management employees and officers of the Corporation
(181,679 options for 2018), with an average exercise price of C$19.17 (C$28.61 in 2018). During the year, no options were exercised
(206,184 options for 2018) and 38,740 options were forfeited or expired (340,360 options for 2018).
As at December 31, 2019, options granted for the issuance of 709,923 common shares (541,494 common shares as at December 31, 2018)
were outstanding under the Corporation’s stock option plan, and 1,228,071 common shares (1,396,500 common shares as at
December 31, 2018) were reserved for additional options under the stock option plan.
For the year ended December 31, 2019, compensation expense of $719 ($1,339 for 2018) was recorded in the “Net earnings”, with the
corresponding amounts recorded in “Contributed surplus”. (Refer to note 15 in the consolidated financial statements for further details.)
Deferred share unit (“DSU”) plan
For the year ended December 31, 2019, the Corporation granted 169,950 DSUs (83,423 DSUs for 2018) and 28,629 DSUs were redeemed
(86,292 DSUs for 2018). Compensation expense of $552 ($206 in 2018) was recorded during the year, and 291,789 DSUs were outstanding
as at December 31, 2019 (150,468 DSUs as at December 31, 2018). As at December 31, 2019, the compensation liability was $2,427 ($2,114
as at December 31, 2018) and the fair value of the equity swap agreement was a liability of $3,179 (liability of $1,332 as at
December 31, 2018).
2019 ANNUAL REPORT UNI‐SELECT 48
Performance share unit (“PSU”) plan
For the year ended December 31, 2019, the Corporation granted 173,839 PSUs (135,709 PSUs for 2018) and redeemed 86,461 PSUs
(248,601 PSUs for 2018). Compensation expense reversal of $144 ($661 in 2018) was recorded during the year, and 247,481 PSUs were
outstanding as at December 31, 2019 (160,103 PSUs as at December 31, 2018). As at December 31, 2019, the compensation liability was
nil ($317 as at December 31, 2018) and the fair value of the equity swap agreement was nil (liability of $1,726 as at December 31, 2018).
FINANCIAL POSITION
On January 1, 2019, the Corporation applied, for the first time, IFRS 16 ‐ Leases using the modified retrospective transition approach and did
not restate comparative amounts of the year prior to its adoption as permitted. As a result, the 2019 consolidated financial statements
present significant variances when compared to 2018. The 2019 consolidated financial position includes new long‐term assets (right‐of‐use
assets) and liabilities (lease obligations) recognized on January 1, 2019, of $87,628 and $97,003 respectively. To allow a better comparability,
financial position variances should be compared with reconciled figures as at January 1, 2019, instead of December 31, 2018. (Refer to the
“Adoption of IFRS 16 ‐ Leases” section for further details.)
During the period, the financial position, when compared to January 1, 2019, due to the adoption of IFRS 16 ‐ Leases, has been impacted
by business acquisitions, special items, as well as the conversion effect of the Canadian dollar and the British pound into the US dollar.
The following table shows an analysis of selected items from the consolidated statements of financial position:
Dec. 31,
2019
Jan. 1,
2019
Dec. 31,
2018
Impact of
business
acquisitions/
dispositions
Impact of
special
items
Impact on
conversion
C$/US$ and
£/US$
Net
variances
Short‐term
Trade and other receivables
250,861
248,507
247,732
Inventory
516,169
524,335
524,335
Trade and other payables
448,530
531,380
532,676
136
149
1,277
‐
(1,933 )
17,418
6,586
9,629
(4,368)
(16,011)
9,646
(111,191)
Long‐term
Investments and advances to merchant
members
Intangibles assets
Goodwill
Long‐term debt (including short‐term
36,831
46,039
46,039
197,751
210,331
210,331
333,030
372,007
372,007
‐
(204)
(241)
‐
‐
(45,000 )
215
3,590
6,264
(9,423)
(15,966)
‐
portion)
484,767
523,742
426,739
937
(19,541 )
7,269
(27,640)
Explanations for net variances:
Trade and other receivables: The variance is essentially derived from the negative organic growth reported during the fourth quarter.
Inventory: The lower level of inventory is resulting from initiatives, as part of the PIP, aiming to reduce excess inventory, while offering the
same quality level of service to customers.
Trade and other payables: The decrease is mainly resulting from large payments of trade payables as part of the vendor financing program
during the year, as well as reduced purchases of inventory as part of initiatives mentioned above.
Investments and advances to merchant members: The reduction is mainly explained by the amortization of customer investments
combined with reimbursements from customers, which are exceeding new investments. In 2018, additional customer investments were
granted by the FinishMaster U.S. segment in relation to new business volume wins.
Intangible assets: The decrease is attributable to the amortization exceeding the additions of the period, since there was no significant
investment in business acquisitions in 2019.
Goodwill: Reduction in goodwill is mostly due to the impairment loss recorded during the fourth quarter in relation to the prolonged
uncertainty surrounding Brexit and affecting the cash‐generating unit in the U.K.
Long‐term debt: The Corporation used a portion of the proceeds from the convertible debentures to reduce borrowings under the revolving
credit facility.
2019 ANNUAL REPORT UNI‐SELECT 49
RELATED PARTIES
For the years ended December 31, 2019 and 2018, 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, 2019 and 2018, the compensation to key management personnel was as follows:
Salaries and short‐term employee benefits
Severances and retention bonuses
Stock‐based benefits at grant value
Post‐employment benefits (including contributions to defined benefit pension plans)
Years ended
December 31,
2019
5,545
2,510
3,101
194
2018
5,254
3,626
3,300
235
11,350
12,415
There were no other related‐party transactions with key management personnel for the years ended December 31, 2019 and 2018.
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 coatings 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 coatings 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.
2019 ANNUAL REPORT UNI‐SELECT 50
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. The Corporation 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. The Corporation provides its customers with access to efficient and modern technologies in the areas of data management,
warehouse management and telecommunications.
In addition, the automotive industry is predicted to experience changes in the years to come, including potential increases in ride‐sharing
services, advances in electric vehicle production, collision avoidance systems, data‐generated vehicles and driverless technology. Being in
the aftermarket, the Corporation is able to anticipate those trends and take actions to mitigate those impacts by adapting the product
offering and the inventory management.
Environmental
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.
2019 ANNUAL REPORT UNI‐SELECT 51
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 HE O P E R A T I O N A L C O N T E X T
Coronavirus
Due to the number of products for the automotive industry that are manufactured in China, the Corporation has and will continue to
monitor closely the potential impacts of the novel coronavirus on its businesses. At this time, no interruptions to its supply have occurred.
The Corporation is in constant contact with its China‐based manufacturers and its national brand supply partners. The Corporation is also
watching the potential impacts to the port and shipping delays that can be impacted by the extended Chinese New Year shutdowns. The
Corporation is expecting short term delays at this time.
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.
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.
Manufacturer and customer consolidation
The loss of or reduced purchases by any of the Corporation’s larger customers, or the consolidation of manufacturers or Multi‐Shop
Operators (“MSOs”) or distributors and/or customers, could result in changes to business conditions, working capital levels, product
requirements or otherwise could have a material adverse effect on its business, financial condition and operating results.
2019 ANNUAL REPORT UNI‐SELECT 52
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.
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 C O M M O N S H A R E S
Common shares price fluctuation
Trading prices of the Corporation’s common shares can fluctuate significantly due to a variety of factors, many of which are outside its
control. Several factors can cause volatility in the Corporation’s share price including changes in revenues or earnings, changes in revenues
or earnings estimates by the investment community and speculation about the financial condition or operating results. General market
conditions and international economic factors and events can also affect the share price, the Corporation’s ability to achieve anticipated
results or to pay dividends in the future.
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
The Corporation does not use financial instruments for trading or speculative purposes.
(For further details about risks associated with financial instruments, refer to section “Financing” and to note 20 in the consolidated financial
statements.)
Liquidity
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.
Credit
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.
2019 ANNUAL REPORT UNI‐SELECT 53
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
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.
CHANGES 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 9
The Corporation applied, for the first time, IFRS 16 ‐ Leases. (Refer to the “Adoption of IFRS 16 ‐ Leases” section for further details.)
F U T U R E A C C O U N T I N G C H A N G E S
At the date of authorization of these consolidated financial statements, certain amendments and interpretations to existing standards have
been published by the International Accounting Standards Board (“IASB”) but are not yet effective and have not been adopted earlier by
the Corporation. These new standards and interpretations are not expected to have a material impact on the Corporation’s consolidated
financial statements.
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.
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.
2019 ANNUAL REPORT UNI‐SELECT 54
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, 2019 and 2018, except for the goodwill
impairment loss recorded in 2019 in connection with the United Kingdom CGU described in note 4, no impairment losses or reversals of
previous losses have been recorded on the Corporation’s non‐current assets. (Refer to notes 4 and 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: At the inception of a contract, the Corporation uses judgment in determining whether the contract is, or contains, a 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. (Refer to notes 13 and 14 in the consolidated financial statements
for further details.) 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.
2019 ANNUAL REPORT UNI‐SELECT 55
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,
2019
2018
0.75
1.28
0.77
1.31
0.77
1.34
0.73
1.27
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 U.K. 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 U.K. 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 President and Chief Executive Officer and the Executive Vice President and 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, 2019, the President and Chief Executive Officer and the Executive Vice President and 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, 2019, in
accordance with the NI 52–109 guidelines. This evaluation enabled the President and Chief Executive Officer and the Executive Vice
President and 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, 2019, 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.
2019 ANNUAL REPORT UNI‐SELECT 56
OUTLOOK
The transformational steps undertaken over the past years have been necessary to stabilize the three business segments, enabling the
Corporation to initiate a culture of continuous improvement in its operations and to capitalize on growth opportunities.
Brent Windom
Eric Bussières
President and Chief Executive Officer
Executive Vice President and Chief Financial Officer
Approved by the Board of Directors on February 19, 2020.
2019 ANNUAL REPORT UNI‐SELECT 57
CONSOLIDATED
FINANCIAL
STATEMENTS
December 31, 2019
Management’s report
Independent auditor’s report
Consolidated statements of earnings (loss)
Consolidated statements of comprehensive income (loss)
Consolidated statements of changes in equity
Consolidated statements of cash flows
Consolidated statements of financial position
Notes to consolidated financial statements
59
60
62
63
64
65
66
67
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 19, 2020.
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.
Brent Windom
President and Chief Executive Officer
Eric Bussières
Executive Vice President and Chief Financial Officer
Boucherville (Canada)
February 19, 2020
2019 ANNUAL REPORT UNI‐SELECT 59
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, 2019, January 1, 2019 and December 31, 2018 and the consolidated
statements of earnings (loss), comprehensive income (loss), 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, 2019, January 1, 2019 and December 31, 2018, and its consolidated financial performance and
its consolidated cash flows for the years ended December 31, 2019 and 2018 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
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 in this auditor’s report. 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.
2019 ANNUAL REPORT UNI‐SELECT 60
INDEPENDENT AUDITOR’S REPORT (CONTINUED)
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.
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 19, 2020
(1) CPA auditor, CA public accountancy permit no. A120803
2019 ANNUAL REPORT UNI‐SELECT 61
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(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 (loss) before income taxes
Income tax expense
Net earnings (loss)
Earnings (loss) per share
Basic and 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,
2019
2018
1,739,572
1,751,965
1,189,236
1,176,796
550,336
575,169
309,270
111,135
53,473
76,458
29,660
64,187
(17,389)
2,456
(19,845)
315,166
140,474
14,589
104,940
20,561
39,702
44,677
8,180
36,497
(0.47)
0.86
42,387
42,387
42,254
42,419
2019 ANNUAL REPORT UNI‐SELECT 62
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of US dollars)
Note
Net earnings (loss)
Other comprehensive income (loss)
Items that will subsequently be reclassified to net earnings (loss):
Effective portion of changes in the fair value of cash flow hedges
(net of income tax of $281 ($208 in 2018))
Years ended
December 31,
2019
2018
(19,845)
36,497
(790)
603
Net change in the fair value of derivative financial instruments designated as cash flow hedges
transferred to net earnings (loss) (net of income tax of $54 ($15 in 2018))
5
(152)
44
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
Items that will not subsequently be reclassified to net earnings (loss):
Remeasurements of long‐term employee benefit obligations
(net of income tax of $802 ($620 in 2018))
Total other comprehensive income (loss)
Comprehensive income (loss)
5,966
(7,376)
6,976
12,000
(15,831)
(22,560)
16
(2,226)
1,801
9,774
(10,071)
(20,759)
15,738
The accompanying notes are an integral part of these consolidated financial statements.
2019 ANNUAL REPORT UNI‐SELECT 63
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of US dollars)
Note
Equity
component
of the
convertible
debentures
Retained
earnings
Attributable to shareholders
Accumulated
other
comprehensive
income (loss)
(note 21)
Total
equity
Share
capital
(note 19)
Contributed
surplus
Balance, December 31, 2017
97,585
5,184
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
Balance, December 31, 2018
IFRS 16 adjustment
Balance, January 1, 2019
Net loss
Other comprehensive income (loss)
Comprehensive income (loss)
Contributions by and distributions to
shareholders:
Issuance of convertible debentures
(net of income taxes of $2,968)
Dividends
Stock‐based compensation
15
3
17
15
‐
‐
‐
(190)
2,331
518
‐
‐
2,659
‐
‐
‐
‐
‐
(518)
‐
1,339
821
100,244
6,005
‐
100,244
‐
6,005
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
719
719
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
432,470
(17,262)
517,977
36,497
1,801
38,298
‐
(22,560)
(22,560)
36,497
(20,759)
15,738
(1,232)
‐
‐
(12,081)
‐
(13,313)
‐
‐
‐
‐
‐
‐
(1,422)
2,331
‐
(12,081)
1,339
(9,833)
457,455
(39,822)
523,882
(4,944)
452,511
(19,845)
(2,226)
(22,071)
992
(38,830)
(3,952)
519,930
‐
12,000
12,000
(19,845)
9,774
(10,071)
8,232
‐
‐
8,232
‐
(11,816)
‐
(11,816)
‐
‐
‐
‐
8,232
(11,816)
719
(2,865)
Balance, December 31, 2019
100,244
6,724
8,232
418,624
(26,830)
506,994
The accompanying notes are an integral part of these consolidated financial statements.
2019 ANNUAL REPORT UNI‐SELECT 64
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
OPERATING ACTIVITIES
Net earnings (loss)
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 recovered (paid)
Cash flows from operating activities
INVESTING ACTIVITIES
Business acquisitions
Business disposals
Net balance of purchase price
Cash held in escrow
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
Issuance of convertible debentures
Net increase (decrease) in merchant members’ deposits in the guarantee fund
Repurchase and cancellation of common 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.
2019 ANNUAL REPORT UNI‐SELECT 65
Note
Years ended
December 31,
2019
2018
4
5
6
7
9
10
4
14
9
9
17
19
19
(19,845)
36,497
53,473
29,660
64,187
2,456
20,784
1,038
(93,980)
(27,918)
3,477
33,332
14,589
20,561
39,702
8,180
17,193
(2,884)
(5,163)
(18,681)
(15,415)
94,579
(294)
(23,670)
19,528
(643)
‐
‐
(7,082)
(1,670)
(16,645)
(38,858)
6,237
6,282
(21,649)
(19,391)
3,025
(3,475)
(138)
1,589
(3,269)
(124)
(14,054)
(86,193)
245,909
271,541
(321,179)
(291,126)
95,026
(82)
‐
‐
(11,855)
7,819
575
27,672
8,036
35,708
‐
328
(1,422)
2,331
(12,246)
(30,594)
(428)
(22,636)
30,672
8,036
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of US dollars)
Note
Dec. 31,
Jan. 1,
Dec. 31,
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
Current portion of long‐term debt and merchant members’ deposits in the
guarantee fund
Derivative financial instruments
Total current liabilities
Long‐term employee benefit obligations
Long‐term debt
Convertible debentures
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
2019
2019
(note 3)
2018
35,708
1,654
8,036
3,591
8,036
3,591
11
250,861
248,507
247,732
20
12
13
14
14
20
7
4
2,712
16,789
16,789
516,169
524,335
524,335
10,331
10,502
10,502
‐
442
442
817,435
812,202
811,427
36,831
171,420
197,751
333,030
‐
46,039
171,584
210,331
372,007
940
46,039
83,956
210,331
372,007
940
29,927
17,506
15,870
1,586,394
1,630,609
1,540,570
448,530
531,380
532,676
97
3,227
8,603
3,002
3,580
2,939
3,987
2,876
4,062
4,173
3,987
2,876
4,230
3,058
17, 18
20
28,678
3,328
26,768
3,058
495,465
574,588
555,062
15, 16
16,902
12,799
12,799
17
17
18
20
7
456,173
497,068
422,603
84,505
5,587
477
1,503
315
‐
5,424
1,212
1,424
‐
‐
5,424
1,212
1,424
‐
18,473
18,164
18,164
1,079,400
1,110,679
1,016,688
506,994
519,930
523,882
1,586,394
1,630,609
1,540,570
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
2019 ANNUAL REPORT UNI‐SELECT 66
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 19, 2020.
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.
2019 ANNUAL REPORT UNI‐SELECT 67
2 ‐
B ASI S OF PRESENT ATION ( CONTINUED)
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, 2019 and 2018, except for the goodwill
impairment loss recorded in 2019 in connection with the United Kingdom CGU described in note 4, no impairment losses or reversals of
previous losses have been recorded on the Corporation’s non‐current assets. Refer to notes 4 and 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, 2019 and 2018.
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: At the inception of a contract, the Corporation uses judgment in determining whether the contract is, or contains, a 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 (notes 13 and 14). 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.
2019 ANNUAL REPORT UNI‐SELECT 68
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, 2019 are as follows:
121222 Holdco Limited
Parts Alliance Group Limited
Uni‐Select Pacific Inc.
121333 Limited
FinishMaster, Inc.
Uni‐Select, LLC
Uni‐Select Prairies Inc.
Uni‐Select Canada Stores Inc.
Uni‐Select Purchases, G.P.
FinishMaster Services, Inc.
German Swedish & French Car Parts Limited
Uni‐Sélect Eastern Inc.
Uni‐Select Luxembourg 2018 SARL
Uni‐Select Purchases Inc.
Uni‐Sélect Québec Inc.
PA Topco Limited
Uni‐Sélect Lux Holdco 2018 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,
2019
2018
0.75
1.28
0.77
1.31
0.77
1.34
0.73
1.27
2019 ANNUAL REPORT UNI‐SELECT 69
3 ‐
S IGNIFI CANT ACCO UNT IN G PO LI CI ES ( CONTI NUED)
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
Right‐of‐use assets ‐ Buildings
Furniture and equipment
Computer equipment and system software
Automotive equipment
Right‐of‐use assets ‐ Vehicles
Leasehold improvements
Methods
Periods / Rate
Diminishing balance
Straight‐line and diminishing balance
Straight‐line
Straight‐line and diminishing balance
Straight‐line and diminishing balance
Straight‐line and diminishing balance
Diminishing balance
Straight‐line
8%
30 to 50 years / 5%
Lease term
7 to 10 years / 20%
3 to 5 years / 30%
5 years / 30%
30%
Lease term (1)
(1)
Excluding renewal options for additional periods, if any.
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
4 to 20 years
5 to 10 years / 30%
Amortization methods, useful lives and residual values are reviewed at each reporting date
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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
In general, leases are recognized as a right‐of‐use asset and a corresponding lease obligation. On initial recognition, assets acquired under
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 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 (loss).
For exceptions, such as short‐term leases and leases of low‐value assets, leased assets and their corresponding lease obligation are not
recognized in the Corporation’s consolidated statements of financial position. Payments made under these leases are recognized in “Other
operating expenses” on a straight‐line basis over the term of the lease.
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.
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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 (loss).
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.
The Corporation has entered into equity swap agreements in order to manage common shares market price risk relating to the DSUs and
PSUs.
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S IGNIFI CANT ACCO UNT IN G PO LI CI ES ( CONTI NUED)
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 lease obligations and financing costs), convertible debentures 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 profit
or loss, 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.
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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.
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 (loss), 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.
2019 ANNUAL REPORT UNI‐SELECT 74
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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 (loss), 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 (loss)
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 2019
The Corporation applied, for the first time, IFRS 16 “Leases” that does not require restatement of previous consolidated financial
statements. The nature and effect of these changes are disclosed below.
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 obligation in the consolidated statements 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 Corporation has applied the modified retrospective transition approach and did not restate comparative amounts of the year prior to
its adoption, as permitted by IFRS 16. Under this approach, the cumulative effect of initially applying IFRS 16 was recognized as an
adjustment to the opening balance of retained earnings at the date of the initial application. IFRS 16 has affected primarily the accounting
for the Corporation’s real estate operating leases. The Corporation has elected to apply the following transitional practical expedients:
-
-
-
-
Apply the new standard to contracts that were previously identified as leases applying IAS 17;
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 asset leases on a straight‐line basis as “Other operating expenses” in the consolidated
statements of earnings (loss).
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S IGNIFI CANT ACCO UNT IN G PO LI CI ES ( CONTI NUED)
Under the new standard, the Corporation recognized new assets (right‐of‐use assets) and liabilities (lease obligations) of $87,628 and
$97,003 ($22,538 in the current portion of long‐term debt and $74,465 in the long‐term debt), respectively, as well as deferred tax assets
of $1,636. The following table presents a reconciliation of the elements impacted by IFRS 16 as part of the consolidated statements of
financial position as at January 1, 2019:
Trade and other receivables
Total current assets
Property and equipment
Deferred tax assets
TOTAL ASSETS
Trade and other payables
Balance of purchase price, net
Provision for restructuring charges
Current portion of long‐term debt
Total current liabilities
Long‐term debt
TOTAL LIABILITIES
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Jan. 1, 2019
IFRS 16
adjustment
Dec. 31, 2018
248,507
812,202
171,584
17,506
1,630,609
531,380
3,580
2,939
26,768
574,588
497,068
1,110,679
519,930
1,630,609
775
775
87,628
1,636
90,039
(1,296)
(482)
(1,234)
22,538
19,526
74,465
93,991
(3,952)
90,039
247,732
811,427
83,956
15,870
1,540,570
532,676
4,062
4,173
4,230
555,062
422,603
1,016,688
523,882
1,540,570
The following table presents reconciliation of lease obligations as at January 1, 2019:
Minimum lease payments under operating contracts as at December 31, 2018
Practical expedients for:
Short‐term leases
Low‐value asset leases
Leases commencing in 2019
Lease‐type obligations (service components)
Effect from the use of extension or termination options and variable payments
Effect from discounting at the incremental borrowing rate as of January 1, 2019
Lease obligations recognized due to initial application of IFRS 16 as at January 1, 2019
January 1, 2019
160,193
(1,262)
(1,393 )
(26,770)
(5,146)
(16,286)
(12,333)
97,003
The lease obligations were discounted using the Corporation’s incremental borrowing rate as at January 1, 2019, in line with transition
methodology selected by the Corporation. The weighted average discount rate was 5.0%.
For the year ended December 31, 2019, expenses for short‐term leases, variable lease payments and leases of low‐value assets respectively
totalling $1,708, $1,195 and $476 were recorded in the “Other operating expenses”.
Future accounting changes
At the date of authorization of these consolidated financial statements, certain amendments and interpretations to existing standards have
been published by the International Accounting Standards Board (“IASB”) but are not yet effective and have not been adopted earlier by
the Corporation. These new standards and interpretations are not expected to have a material impact on the Corporation’s consolidated
financial statements.
2019 ANNUAL REPORT UNI‐SELECT 76
4 ‐
SPECIAL ITEMS
Special items comprise elements 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 period. Special items are detailed as
follows:
Impairment loss on goodwill
Net gain on business disposal
Restructuring and other charges related to the Performance Improvement Plan
Review of strategic alternatives
Net transaction charges related to The Parts Alliance acquisition
Years ended
December 31,
2019
45,000
(18,788)
17,503
9,758
‐
53,473
2018
‐
‐
6,269
7,466
854
14,589
Impairment loss on goodwill (see note 14)
During the fourth quarter of 2019, the Corporation recognized an impairment loss on goodwill totalling $45,000 in connection with its
United Kingdom cash‐generating unit due to market softness in Europe and uncertainties surrounding Brexit.
Net gain on business disposal
On September 30, 2019, the Corporation completed the sale of all the assets pertaining to its ProColor banner program, a separate division
of its business that was launched in 2001 and that was supporting a network of 172 collision repair shops at the time of the transaction.
As of December 31, 2019, total sale price amounted to $19,528. The assets sold, mainly composed of property and equipment, generated
a net gain of $18,788 during the year ended December 31, 2019.
Restructuring and other charges related to the Performance Improvement Plan
In January 2019, the Corporation announced a broad performance improvement and rightsizing plan for the FinishMaster U.S. segment,
which mainly consists of headcount reduction and the integration of locations, while optimizing the supply chain. The 25/20 Plan announced
during the fourth quarter of 2018 and the FinishMaster U.S. segment performance improvement and rightsizing plan combined together
are now referred to as the ″Performance Improvement Plan″ (“PIP”) of the Corporation. Over the course of 2019, due to the uncertainty
and challenging macroeconomics in the United Kingdom as well as to the competitive environment in the U.S., the Corporation successively
expanded the PIP, adding new accretive initiatives.
The Corporation recognized for the year ended December 31, 2019, restructuring and other charges totalling $17,503 ($6,269 for 2018).
These charges are detailed as follows:
Restructuring charges (1)
Other charges as incurred (2)
Non‐cash costs related to the write‐down of assets (3)
Years ended
December 31,
2019
4,605
6,953
5,945
17,503
2018
5,055
1,214
‐
6,269
(1) Mainly severance and termination benefits.
(2)
Primarily comprising consulting fees related to the optimization of the logistical processes, inventory liquidation, moving costs and
retention bonuses.
(3) Mainly impairment of property and equipment (note 13).
2019 ANNUAL REPORT UNI‐SELECT 77
4 ‐
S P ECIA L IT EM S ( CON TIN U ED)
The variances in the provision for restructuring charges are detailed as follows:
Balance, beginning of period, December 31
Plus: IFRS 16 adjustment (note 3)
Balance, beginning of period, January 1
Restructuring charges recognized during the year
Provision used during the year
Effects of fluctuations in exchange rates
December 31,
2019
4,173
(1,234)
2,939
4,605
(4,516)
199
3,227
2018
‐
‐
‐
5,055
(848)
(34)
4,173
Review of strategic alternatives
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., which lead to the review of strategic
alternatives. The strategic review concluded on December 18, 2019, following the issuance of the convertible debentures.
The Corporation recognized for the year ended December 31, 2019, charges totalling $9,758 ($7,466 for 2018). These charges are detailed
as follows:
Severance
Retention bonuses
Other fees (1)
Years ended
December 31,
2019
‐
3,578
6,180
9,758
2018
4,653
1,504
1,309
7,466
(1) Primarily comprising consulting fees related to the review of strategic alternatives and financing fees related to the issuance of the
convertible debentures.
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 totalling $854
for the year ended December 31, 2018. These charges included acquisition costs of $294 and other charges related to the acquisition of
$560.
5 ‐
FINANCE COSTS, NET
Interest on long‐term debt
Interest on lease obligations
Interest on convertible debentures
Accreted interest on convertible debentures (note 17)
Amortization of financing costs
Net interest expense on the long‐term employee benefit obligations (note 16)
Reclassification of realized losses (gains) on derivative financial instruments designated as cash flow hedges to
net earnings (loss)
Interest on merchant members’ deposits in the guarantee fund and others
Interest income from merchant members and others
Years ended
December 31,
2019
21,698
6,285
199
64
939
485
(206)
380
29,844
(184)
29,660
2018
18,495
500
‐
‐
908
500
59
315
20,777
(216)
20,561
2019 ANNUAL REPORT UNI‐SELECT 78
6 ‐ DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment
Depreciation of right‐of‐use assets
Amortization of intangible assets
7 ‐
INCOME TAXES
Income tax expense
Current tax expense
Deferred tax expense
Origination and reversal of temporary differences
Years ended
December 31,
2019
16,309
28,437
19,441
64,187
2018
15,170
4,783
19,749
39,702
Years ended
December 31,
2019
15,786
2018
13,366
(13,330)
2,456
(5,186)
8,180
Reconciliation of the income tax expense
The following table presents the 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 (loss):
Income taxes at the Corporation’s statutory tax rate – 26.6% (1) (26.7% in 2018)
Effect of tax rates in foreign jurisdictions
Tax benefit from a financing structure
Goodwill impairment
Non‐taxable portion of gain on business disposal
Utilization of capital tax losses previously unrecognized
Non‐deductible expenses and others
Years ended
December 31,
2019
(4,625)
2,473
‐
8,550
(2,574)
(2,574)
1,206
2,456
2018
11,929
(1,835)
(4,544)
‐
‐
‐
2,630
8,180
(1)
For the year ended December 31, 2019, the applicable statutory tax rate is 26.6% (26.7% in 2018). The Corporation’s applicable
statutory tax rate is the Canadian federal and provincial combined tax rates applicable in the jurisdiction in which the Corporation
operates. The decrease is due to the reduction of the Québec income tax rate in 2019, from 11.7% to 11.6% (11.8% to 11.7% in 2018).
2019 ANNUAL REPORT UNI‐SELECT 79
7 ‐
I NCOM E TAX ES ( CON TIN U ED)
Recognized deferred tax assets and liabilities
Non‐capital loss 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
Convertible debentures
Others
Opening
balance
12,284
IFRS 16
adjustment
(note 3)
‐
Adjusted
opening
balance
12,284
Recognized
in net loss
14,334
December 31, 2019
Recognized
in OCI or
equity
‐
Recognized
as part of
business
combinations
‐
Effects of
fluctuations
in exchange
rates
702
Closing
balance
27,320
12,980
(2,759)
‐
1,636
12,980
(1,123)
(2,117)
(1,476)
‐
‐
3,141
‐
3,141
(45)
802
1,222
(28,333)
‐
(829)
(2,294)
‐
‐
‐
‐
1,636
1,222
(28,333)
‐
(829)
(658)
(308)
2,692
‐
250
13,330
‐
‐
(2,968)
335
(1,831)
‐
‐
‐
‐
157
‐
‐
157
137
(341)
11,000
(2,940)
19
3,917
(319)
(235)
(22)
515
456
595
(25,719)
(2,990)
271
11,454
December 31, 2018
Non‐capital loss 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
Opening
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
Recognized
in net
earnings
4,118
Recognized
in OCI
‐
Recognized as
part of
business
combinations
‐
Effects of
fluctuations
in exchange
rates
(260)
2,391
1,072
248
(784)
(652 )
(1,207)
5,186
‐
‐
(620)
‐
‐
(223)
(843)
‐
‐
‐
‐
(1,145)
‐
(1,145)
Dec. 31,
2019
29,927
18,473
11,454
(472)
(42)
(18)
55
1,179
(3)
439
Jan. 1,
2019
17,506
18,164
Closing
balance
12,284
12,980
(2,759)
3,141
1,222
(28,333)
(829)
(2,294)
Dec. 31,
2018
15,870
18,164
(658)
(2,294)
As at December 31, 2019, the Corporation had capital losses and deductible temporary differences of $60,610 ($78,074 as at
December 31, 2018) 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.
The Corporation recognized no deferred tax liability on retained earnings of its foreign subsidiaries as these earnings are considered to be
indefinitely reinvested. If these earnings are distributed in the form of dividends or otherwise, the Corporation may be subject to corporate
income tax or withholding tax in Canada and/or abroad.
2019 ANNUAL REPORT UNI‐SELECT 80
8 ‐
EARNINGS (LOSS) PER SHARE
The following table presents a reconciliation of basic and diluted earnings (loss) per share:
Net earnings (loss) considered for basic and diluted earnings (loss) per share (1)
Weighted average number of common shares outstanding for basic earnings (loss) per share
Impact of the stock options (2)
Weighted average number of common shares outstanding for diluted earnings (loss) per share (1)
Earnings (loss) per share – basic and diluted
Years ended
December 31,
2019
(19,845)
2018
36,497
42,387,300 42,253,987
164,851
42,387,300 42,418,838
‐
(0.47)
0.86
(1)
(2)
For the year ended December 31, 2019, the conversion impact of convertible debentures was excluded from the calculation of diluted
earnings (loss) per share as the conversion impact was anti‐dilutive.
For the year ended December 31, 2019, options to acquire 709,923 common shares (541,494 in 2018) were excluded from the
calculation of diluted earnings (loss) 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
Changes in working capital items
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,
2019
3,922
15,803
468
(109,657)
(4,516)
(93,980)
2018
(21,286)
(75,885)
(825)
93,681
(848)
(5,163)
As at December 31, 2019, acquisition of property and equipment of $300 ($2,504 as at December 31, 2018) remained unpaid and did not
have an impact on cash.
The following table presents reconciliation between the opening and closing balances in the consolidated statements of financial position
for “Long‐term debt”, including the “Current portion of long‐term debt” (refer to note 17 for further details):
Repayment of long‐term debt
Balance, beginning of year
IFRS 16 adjustment (note 3)
Increase in long‐term debt
Repayment of long‐term debt
Increase in lease obligations
Non‐cash decrease in lease obligations
Lease obligations acquired through business combinations
Amortization of financing costs (note 5)
Effects of fluctuations in exchange rates
December 31,
2019
426,739
97,003
523,742
245,909
(321,179)
29,078
(991)
‐
939
7,269
484,767
2018
448,581
‐
448,581
271,541
(291,126)
5,472
‐
232
908
(8,869)
426,739
For the year ended December 31, 2019, repayment of long‐term debt includes cash outflow for leases totalling $27,112 ($13,113 for 2018).
2019 ANNUAL REPORT UNI‐SELECT 81
10 ‐ BUSINESS COMBINATIONS
In 2018, the Corporation acquired the net assets of 1 company operating in the United Kingdom and the shares of 1 company operating in
Canada. These companies were acquired in the normal course of business. In 2018, an initial cost of $25,295 was preliminarily allocated to
the acquired assets and liabilities and comprised a balance of purchase price of $1,625 held in escrow. As of December 31, 2018, the
following aggregate fair value amounts were recognized for each class of the acquirees’ net assets at the dates of acquisition: trade and
other receivables for $2,632, inventory for $9,089, property and equipment for $471, intangible assets for $6,640, goodwill for $10,578,
trade and other payables for $2,662, deferred tax liabilities for $1,456 and other net assets for $3. For tax purposes, goodwill is expected
to be partially deductible.
In connection with these acquisitions, the Corporation incurred $401 of acquisition costs in 2018, which were expensed as “Other operating
expenses” through the consolidated statements of earnings (loss). During 2018, the acquisitions have contributed a total of $2,364 to sales,
since their respective acquisition date.
As at December 31, 2019, the Corporation finalized the purchase price allocation of all companies acquired in 2018. Total final cost of these
acquisitions was $24,254, comprising a balance of purchase price of $1,625 held in escrow as of December 31, 2019. It resulted in
reclassifications of $204 from customer relationships to goodwill, $266 from inventory to goodwill, $157 from goodwill to deferred tax
liabilities, $848 from goodwill to balance of purchase price and $294 from other net assets to goodwill.
11 ‐ TRADE AND OTHER RECEIVABLES
Trade receivables
Current portion of investments and advances to merchant members (note 12)
12 ‐
INVESTMENTS AND ADVANCES TO MERCHANT MEMBERS
Incentives granted to customers
Shares of companies
Long‐term deposits
Advances to merchant members (1)
Current portion of investments and advances to merchant members
Non‐current portion of investments and advances to merchant members
Dec. 31,
2019
230,796
20,065
Jan. 1,
Dec. 31,
2019
227,996
20,511
2018
227,221
20,511
250,861
248,507
247,732
December 31,
2019
55,006
461
166
1,263
56,896
20,065
36,831
2018
63,597
442
‐
2,511
66,550
20,511
46,039
(1)
Interest rates varying between 3.95% and 6.95% (3.95% and 6.95% in 2018), receivable in monthly installments, maturing on various
dates until 2022.
2019 ANNUAL REPORT UNI‐SELECT 82
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2019 ANNUAL REPORT UNI‐SELECT 83
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14 ‐
INTANGIBLE ASSETS AND GOODWILL
Cost
Accumulated depreciation
Net book value, January 1, 2018
Additions
Acquisitions through business combinations (note 10)
Transfers
Amortization (note 6)
Effect of fluctuations in exchange rates
Balance, December 31, 2018
Cost
Accumulated amortization
Net book value, end of year 2018
Additions
Impairment (note 4)
Transfers (note 10)
Amortization (note 6)
Effect of fluctuations in exchange rates
Balance, December 31, 2019
Cost
Accumulated amortization (1)
Net book value, end of year 2019
Intangible assets
Goodwill
Customer
relationships
and others
Trademarks
Software (2)
Total
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
‐
‐
‐
‐
45
‐
(204)
3,430
3,475
‐
‐
‐
‐
(45,000)
(204)
(14,376)
(5,065)
(19,441)
(241)
‐
6,264
1,021
37,618
1,903
144,490
666
3,590
15,643
197,751
333,030
37,618
223,795
45,472
306,885
333,030
‐
(79,305)
(29,829)
(109,134)
‐
37,618
144,490
15,643
197,751
333,030
(1) The average remaining amortization period of the intangible assets with useful lives is 3 years for software and 10 years for customer
relationships and others.
(2) As at December 31, 2019, software includes the capitalized portion of costs and the accumulated amortization, amounting to $10,236
and $7,891 respectively ($9,805 and $6,581 respectively as at December 31, 2018), 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 United States and Canada units were determined to be
lower than their recoverable amounts, and no impairment loss was recognized. For the United Kingdom unit, the carrying amount was
determined to be higher than its recoverable amount, and an impairment loss of $45,000 was recognized (note 4).
2019 ANNUAL REPORT UNI‐SELECT 84
1 4 ‐
I NT A N GI B L E AS S ET S A ND GO OD WI L L ( CO NT I N UE D )
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 2019 was determined similarly as in 2018. 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 2019 and 2018.
Cash flows for a further five‐year period were projected using constant growth rates of 2.0% (2.0% in 2018) 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 13.5% (12.8% in 2018) for the US operations, 11.1% (12.4% in 2018) for the Canadian operations and 13.5%
(11.2% in 2018) 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 3.2% (4.0% in 2018) for the US operations, 2.8% (3.3% in 2018) for
the Canadian operations and 2.5% (3.0% in 2018) for the United Kingdom operations.
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 of the United States and Canada CGU to exceed its recoverable amount. For the United Kingdom CGU, no sensitivity test was
performed since an impairment loss was recorded as a result of the impairment tests performed during 2019 and therefore its carrying
amount approximate the recoverable amount. Any reasonable possible change in the key assumptions used could cause the carrying value
of this CGU to be above its recoverable amount and result in further impairment.
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, 2019, 207,169 options were granted to management employees and officers of the Corporation
(181,679 options for 2018), with an average exercise price of C$19.17 (C$28.61 in 2018). During the year, no options were exercised
(206,184 options for 2018) and 38,740 options were forfeited or expired (340,360 options for 2018).
As at December 31, 2019, options granted for the issuance of 709,923 common shares (541,494 common shares as at December 31, 2018)
were outstanding under the Corporation’s stock option plan, and 1,228,071 common shares (1,396,500 common shares as at
December 31, 2018) were reserved for additional options under the stock option plan.
A summary of the Corporation’s stock option plan for the years ended December 31, 2019 and 2018 is presented as follows:
December 31,
2019
Weighted
average
exercise
price
C$
28.94
19.17
‐
19.17
26.62
24.84
Number of
options
906,359
181,679
(206,184)
(340,360)
541,494
33,865
2018
Weighted
average
exercise
price
C$
26.51
28.61
14.94
30.77
28.94
30.19
Number of
options
541,494
207,169
‐
(38,740)
709,923
110,477
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Exercisable, end of year
2019 ANNUAL REPORT UNI‐SELECT 85
1 5 ‐
S T O C K B AS ED ‐ C OMP E NSA T I O N ( CONTI NU E D)
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
19.17
Exercisable price
C$
33.94
29.64
28.84
28.61
Options outstanding
Options exercisable
December 31, 2019
Weighted
average
remaining
contractual
life (years)
Number
outstanding
11,764
12,653
442,216
74,861
168,429
709,923
3.01
4.01
4.61
5.47
6.01
4.99
Weighted
average
exercise
price
C$
33.94
29.64
28.84
28.61
19.17
26.62
Number
exercisable
11,764
9,490
‐
37,431
51,792
110,477
Weighted
average
exercise
price
C$
33.94
29.64
28.84
28.61
19.17
24.84
Options outstanding
Options exercisable
December 31, 2018
Weighted
average
remaining
contractual
life (years)
4.01
5.01
5.61
6.47
5.68
Number
outstanding
11,764
12,653
442,216
74,861
541,494
Weighted
average
exercise
price
C$
33.94
29.64
28.84
28.61
28.94
Weighted
average
exercise
price
C$
33.94
29.64
28.84
28.61
30.19
Number
exercisable
8,823
6,327
‐
18,715
33,865
For the year ended December 31, 2019, compensation expense of $719 ($1,339 for 2018) was recorded in the “Net earnings (loss)”, with
the corresponding amounts recorded in “Contributed surplus”.
The fair value of the stock options granted on January 2, 2019 was determined using the binomial option pricing model. The assumptions
used in the calculation of their fair value were as follows:
Grant date fair value
Dividend yield
Expected volatility
Forfeiture rate
Risk‐free interest rate
Expected life
Exercise price
Share price
C$
%
%
%
%
years
C$
C$
2019
4.16
1.90
25.01
6.67
1.86
7.00
19.17
19.17
2018
6.41
1.30
23.58
6.67
1.96
7.00
28.61
28.61
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, 2019, the Corporation granted 169,950 DSUs (83,423 DSUs for 2018) and 28,629 DSUs were redeemed
(86,292 DSUs for 2018). Compensation expense of $552 ($206 in 2018) was recorded during the year, and 291,789 DSUs were outstanding
as at December 31, 2019 (150,468 DSUs as at December 31, 2018). As at December 31, 2019, the compensation liability was $2,427 ($2,114
as at December 31, 2018) and the fair value of the equity swap agreement was a liability of $3,179 (liability of $1,332 as at
December 31, 2018).
2019 ANNUAL REPORT UNI‐SELECT 86
1 5 ‐
S T O C K B AS ED ‐ C OMP E NSA T I O N ( CONTI NU E D)
Performance share unit (“PSU”) plan
For the year ended December 31, 2019, the Corporation granted 173,839 PSUs (135,709 PSUs for 2018) and redeemed 86,461 PSUs
(248,601 PSUs for 2018). Compensation expense reversal of $144 ($661 in 2018) was recorded during the year, and 247,481 PSUs were
outstanding as at December 31, 2019 (160,103 PSUs as at December 31, 2018). As at December 31, 2019, the compensation liability was
nil ($317 as at December 31, 2018) and the fair value of the equity swap agreement was nil (liability of $1,726 as at December 31, 2018).
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 $4,776 for the year ended December 31, 2019 ($4,165 for 2018).
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
Actuarial loss from changes in experience adjustments
Actuarial loss from changes in demographic assumptions
Effects of movements in exchange rates
Balance, end of year
December 31,
2019
2018
58,700
1,690
635
2,505
(3,050)
6,541
522
446
2,724
70,713
67,027
2,135
684
2,386
(3,148)
(5,342)
‐
‐
(5,042)
58,700
2019 ANNUAL REPORT UNI‐SELECT 87
16 ‐ P OST ‐EMPLOYMENT B ENEFI T OBLIGATIONS (CONTI NUED)
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
Components of plan assets
Investments in equity funds
Investments in fixed income funds
Investments in other funds
December 31,
2019
2018
48,332
2,020
1,813
635
(3,050)
(255)
4,481
2,262
56,238
54,469
1,886
1,784
684
(3,148)
(238)
(2,921)
(4,184)
48,332
December 31,
2019
%
53.8
21.0
25.2
100.0
2018
%
52.7
20.3
27.0
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,
2019
56,238
(70,713)
(14,475)
2018
48,332
(58,700)
(10,368)
The expense for defined benefit pension plans recognized in “Employee benefits” and in “Finance costs, net” in the consolidated statements
of earnings (loss) 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
Actuarial loss from changes in experience adjustments
Actuarial loss from changes in demographic assumptions
Return on plan assets (excluding amounts included in interest income)
2019 ANNUAL REPORT UNI‐SELECT 88
Years ended
December 31,
2019
1,690
485
255
2,430
2018
2,135
500
238
2,873
Years ended
December 31,
2019
6,541
522
446
(4,481)
3,028
2018
(5,342)
‐
‐
2,921
(2,421)
16 ‐ P OST ‐EMPLOYMENT B ENEFI T OBLIGATIONS (CONTI NUED)
The significant actuarial assumptions at the reporting date are as follows (weighted average assumptions as at December 31):
Average discount rate
Average 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,
2019
3.42
3.25
88.4
91.0
86.9
89.6
2018
4.10
3.50
87.8
90.1
86.7
89.1
%
%
years
years
years
years
For the year ended December 31, 2020, the Corporation expects to make contributions of approximately $1,644 for its defined benefit
pension plans.
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:
Average discount rate
Increase of 1%
Decrease of 1%
Average 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,
2019
%
(14.5)
19.0
1.7
(1.6)
(2.2)
2.4
2018
%
(14.1)
18.7
2.2
(2.1)
(2.1)
2.3
17 ‐ LONG‐TERM DEBT, CREDIT FACILITIES AND CONVERTIBLE DEBENTURES
Maturity
Effective interest rate
Revolving credit facility, variable rates (1) (2)
Lease obligations ‐ vehicles, variable rates
Lease obligations ‐ buildings, variable rates (3)
Others
2023
‐
‐
2021
3.51% to 7.00%
‐
‐
‐
Instalments due within a year
Long‐term debt
Current
portion
‐
4,027
24,552
15
Dec. 31,
2019
372,472
10,979
101,298
18
Jan. 1,
Dec. 31,
2019
414,741
11,987
97,003
11
2018
414,741
11,987
‐
11
28,594
484,767
523,742
426,739
28,594
26,674
4,136
456,173
497,068
422,603
(1) As at December 31, 2019, a nominal amount of $375,956 was used under the Corporation’s revolving credit facility ($418,220 as at
December 31, 2018). The difference with the carrying amount presented above is composed of deferred financing costs.
(2) As at December 31, 2019, a principal amount of $296,291 of the revolving credit facility was designated as a hedge of net investments
in foreign operations ($302,865 as at December 31, 2018).
See note 3 for further details following the adoption of IFRS 16.
(3)
2019 ANNUAL REPORT UNI‐SELECT 89
17 ‐
L ON G‐T ERM D EBT , CR ED IT FA CILI TIES A N D CON V ERTIB L E D EB ENT UR ES ( C ONT I NUE D )
Revolving credit facility
In 2018, the Corporation entered into an amended and restated credit agreement (the “agreement”). The agreement provided 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. In December 2019, the total maximum principal amount available was
reduced from $625,000 to $575,000. The revolving credit facility can be repaid at any time without penalty and is available in Canadian
dollars, US dollars, Euros or British pounds. The 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.
Letter of credit facility
In 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, 2019, $7,137 of letters of credit have been issued ($7,337 as at December 31, 2018).
Convertible debentures
On December 18, 2019, the Corporation issued convertible senior subordinated unsecured debentures for aggregate principal amount of
C$125,000. The convertible debentures are being offered at a price of C$1,000 per C$1,000 principal amount of debentures and bear
interest at a rate of 6.00% per annum, payable semi‐annually in arrears on June 18 and December 18 of each year. The convertible
debentures have a maturity date of 7 years from their date of issue and are convertible at the option of the holder into common shares of
the Corporation at a price of C$13.57 per share, representing a conversion rate of 73.69 shares per C$1,000 principal amount of debentures.
The equity component of the debentures was determined as the difference between the fair value of the convertible debentures and the
fair value of the liability component, which was calculated using an effective rate of 8.25%.
The table below indicates the movement in the liability component:
Balance, beginning of year
Convertible debentures issuance
Recognition of equity component
Accreted interest (note 5)
Effects of fluctuations in exchange rates
December 31,
2019
‐
95,026
(11,200)
64
615
84,505
2018
‐
‐
‐
‐
‐
‐
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, 2019,
the interest rate in effect was 3.95% (3.95% at December 31, 2018). 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
December 31,
2019
5,671
84
5,587
2018
5,518
94
5,424
2019 ANNUAL REPORT UNI‐SELECT 90
19 ‐ SHARE CAPITAL
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 (42,387,300 common shares (42,273,812 in 2018))
Issuance of common shares on the exercise of stock options (206,184 in 2018)
Transfer upon exercise of stock options
Repurchase and cancellation of common shares (92,696 in 2018)
Balance, end of year (42,387,300 common shares (42,387,300 in 2018))
December 31,
2019
2018
100,244
‐
‐
‐
100,244
97,585
2,331
518
(190)
100,244
Repurchase and cancellation of common 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 2019, the NCIB was not renewed by the
Corporation.
In relation to this NCIB, there was no common share repurchase or cancellation during the year ended December 31, 2019.
During the year ended December 31, 2018, 92,696 common shares were repurchased in connection with the NCIB announced in April 2018.
The shares were repurchased for a cash consideration of $1,422 including a share repurchase and cancellation premium of $1,232 applied
as a reduction of retained earnings.
Issuance of common shares
During the year ended December 31, 2019, there was no common share issued. During the year ended December 31, 2018, the Corporation
issued 206,184 common shares at the exercise of stock options for a cash consideration of $2,331. The weighted average price of the
exercise of stock options was C$14.94 for the year ended December 31, 2018.
Dividends
A total of C$0.370 per common share was declared by the Corporation for the year ended December 31, 2019 (C$0.370 for 2018).
2019 ANNUAL REPORT UNI‐SELECT 91
20 ‐ FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The classification of financial instruments as well as their carrying amounts and fair values, other than those where the carrying amount is
a reasonable approximation of fair value, are summarized as follows:
Financial assets (liabilities) measured at amortized cost
Advances to merchant members
Long‐term debt (except lease obligations and financing costs)
Convertible debentures
Merchant members’ deposits in the guarantee fund
Financial assets (liabilities) measured at fair value through
profit or loss
Derivative financial instruments
Foreign exchange forward contracts
Interest rate swaps – Short‐term (1)
Interest rate swaps – Long‐term (1)
Equity swap agreements
(1) Derivatives designated in a hedge relationship.
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
2019
Fair
value
December 31,
2018
Carrying
amount and
Fair value
1,263
Level 2
2,511
(375,974)
Level 2
(418,231)
(84,505)
Level 2
‐
Carrying
amount
1,263
(375,974)
(84,505)
(5,671)
(5,671)
Level 2
(5,518)
(136)
(13)
(315)
(136)
Level 2
(13)
(315)
Level 2
Level 2
442
940
‐
(3,179)
(3,179)
Level 2
(3,058)
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 lease obligations 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 convertible debentures was determined by calculating the present value of the interest rate spread that exists between
the actual convertible debentures and the rate that would be negotiated with the economic conditions at the reporting date. The fair value
of convertible debentures approximates their carrying value as these financial instruments were issued very close to the 2019 reporting
date and, thus, the interest rates applicable to the Corporation’s convertible debentures 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.
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.
2019 ANNUAL REPORT UNI‐SELECT 92
20 ‐
FI NAN CIAL IN ST RUM ENT S AN D RISK M A NAGEM ENT ( CO NTI NU ED)
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, 2019, are as follows:
Currencies (sold/bought)
Maturity
Average rate (1) Notional amount (2)
CAD/USD
GBP/USD
GBP/EUR
Up to February 2020
Up to March 2020
Up to March 2020
0.75
1.31
1.17
4,118
1,891
2,217
(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, 2019, 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 $42,500 for interest rate swaps denominated in US dollars ($67,500 as at
December 31, 2018), and £70,000 for interest rate swaps denominated in British pounds (same as at December 31, 2018). 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 payment costs
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, 2019, the equity swap agreements covered the equivalent of 214,277 common shares of the Corporation (364,277 as at
December 31, 2018).
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.
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.
2019 ANNUAL REPORT UNI‐SELECT 93
20 ‐
FI NAN CIAL IN ST RUM ENT S AN D RISK M A NAGEM ENT ( CO NTI NU ED)
As at December 31, 2019, past‐due accounts receivable represents $11,393 or 6.5% ($9,755 or 5.5% as at December 31, 2018) and an
allowance for doubtful accounts of $6,088 ($6,597 as at December 31, 2018) 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
Write‐offs
Currency translation adjustment
Balance, end of year
December 31,
2019
6,597
2,459
(3,125)
157
6,088
2018
5,776
3,381
(2,393)
(167)
6,597
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 $575,000 and $20,000 respectively as at
December 31, 2019 (625,000 and $20,000 respectively as at December 31, 2018). Refer to note 17 for further details. The Corporation
benefits from an available amount on its credit facilities of approximately $199,000 as at December 31, 2019 ($207,000 as at
December 31, 2018).
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 lease obligations and financing costs)
Lease obligations ‐ vehicles
Lease obligations ‐ buildings
Convertible debentures
Merchant members’ deposits in the guarantee fund
Derivative financial instruments
Foreign exchange forward contracts
Interest rate swaps
Equity swap agreements
December 31, 2019
Carrying
amount
Maturing
under one
year
One to
three years
Over three
years
426,956
1,338
574
3,002
375,974
10,979
101,298
84,505
5,671
1,010,297
136
328
3,179
1,013,940
426,956
1,338
97
3,002
15
4,027
24,552
‐
84
460,071
136
13
3,179
463,399
‐
‐
477
‐
3
5,388
36,594
‐
‐
42,462
‐
315
‐
42,777
‐
‐
‐
‐
375,956
1,564
40,152
84,505
5,587
507,764
‐
‐
‐
507,764
2019 ANNUAL REPORT UNI‐SELECT 94
20 ‐
FI NAN CIAL IN ST RUM ENT S AN D RISK M A NAGEM ENT ( CO NTI NU ED)
Non‐derivative financial instruments
Trade and other payables
Interest payable
Balance of purchase price, net
Dividends payable
Long‐term debt (except lease obligations and financing costs)
Lease obligations ‐ vehicles
Merchant members’ deposits in the guarantee fund
Derivative financial instruments
Equity swap agreements
Non‐derivative financial instruments
Trade and other payables
Interest payable
Balance of purchase price, net
Dividends payable
Long‐term debt (except lease obligations and financing costs)
Lease obligations ‐ vehicles
Merchant members’ deposits in the guarantee fund
Derivative financial instruments
Equity swap agreements
January 1, 2019
Maturing
under one
year
One to
three years
Over three
years
3,058
959,871
3,058
527,473
December 31, 2018
Maturing
under one
year
One to
three years
Over three
years
Carrying
amount
512,246
1,163
4,792
2,876
418,231
11,987
5,518
956,813
Carrying
amount
513,542
1,163
5,274
2,876
418,231
11,987
5,518
958,591
512,246
1,163
3,900
2,876
4
4,132
94
524,415
513,542
1,163
4,062
2,876
4
4,132
94
525,873
3,058
961,649
3,058
528,931
‐
‐
892
‐
7
7,303
‐
8,202
‐
8,202
‐
‐
‐
‐
418,220
552
5,424
424,196
‐
424,196
‐
‐
1,212
‐
7
7,303
‐
8,522
‐
8,522
‐
‐
‐
‐
418,220
552
5,424
424,196
‐
424,196
(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, 2019, 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, 2019, including the impact of interest rate swap agreements and convertible debentures, the fixed
rate portion of financial debt represents approximately 28% (37% as at December 31, 2018). Refer to note 17 for further details.
For the year ended December 31, 2019, a 25‐basis‐point rise or fall in interest rates, assuming that all other variables remain the same,
would have resulted in a $545 increase or decrease in the Corporation’s net earnings, and an impact of $249 in OCI. These changes are
considered to be reasonably possible based on an observation of current market conditions.
2019 ANNUAL REPORT UNI‐SELECT 95
21 ‐ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, January 1, 2018
Other comprehensive income (loss)
Balance, December 31, 2018
IFRS 16 adjustment (note 3):
Other comprehensive income
Balance, January 1, 2019
Other comprehensive income (loss)
Balance, December 31, 2019
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
Cumulative
translation
account
20,244
(7,376)
12,868
992
13,860
5,966
19,826
(37,559)
(15,831)
(53,390)
‐
(53,390)
6,976
(46,414)
53
647
700
‐
700
(942)
(242)
Total
(17,262)
(22,560)
(39,822)
992
(38,830)
12,000
(26,830)
22 ‐ COMMITMENTS AND GUARANTEES
Commitments
The Corporation has various lease contracts that have not yet commenced as at December 31, 2019. The future lease payments for these
non‐cancellable lease contracts are $277 within one year, $1,273 within five years and $296 thereafter.
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 $43,768 as at December 31, 2019 (at rates of
60% or 75% and for a maximum of $42,479 as at December 31, 2018). 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.
2019 ANNUAL REPORT UNI‐SELECT 96
23 ‐ RELATED PARTIES
For the years ended December 31, 2019 and 2018, 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, 2019 and 2018, the compensation to key management personnel was as follows:
Salaries and short‐term employee benefits
Severances and retention bonuses
Stock‐based benefits at grant value
Post‐employment benefits (including contributions to defined benefit pension plans)
Years ended
December 31,
2019
5,545
2,510
3,101
194
11,350
2018
5,254
3,626
3,300
235
12,415
There were no other related party transactions with key management personnel for the years ended December 31, 2019 and 2018.
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, convertible debentures 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
Dec. 31,
2019
43.2 %
82.0 %
(3.9)%
Jan. 1,
2019
49.8 %
100.7 %
7.0 %
Dec. 31,
2018
44.4 %
81.5 %
7.0 %
Ratio of funded debt on earnings before finance costs, depreciation and amortization
and income taxes
5.87
4.91
3.99
The improvement in debt ratios, when compared with reconciled figures as at January 1, 2019, is principally attributable to the issuance of
the convertible debentures (presented as liability in the consolidated statement of financial position but classified as equity in the
calculation of the above ratios), which were used to repay a portion of the long‐term debt.
The interest rate applicable on the revolving credit 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, 2019, and 2018, and January 1, 2019. The
Corporation’s overall strategy with respect to capital risk management remains unchanged from the prior year.
2019 ANNUAL REPORT UNI‐SELECT 97
25 ‐ SEGMENTED INFORMATION
The Corporation is providing information on four reportable segments:
FinishMaster U.S.:
distribution of automotive refinish and
FinishMaster, Inc. in the U.S. market;
industrial coatings and related products representing
Canadian Automotive Group: distribution of automotive aftermarket parts, including refinish and industrial coatings and related
products, through Canadian networks;
The Parts Alliance U.K.:
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 (loss).
Following the adoption of IFRS 16 (note 3), the Corporation considers that the “Earnings (loss) before income taxes” is the preferred
comparative measure to assess the performance of the segments, rather than the “Earnings before finance costs, depreciation and
amortization and income taxes” as previously used.
FinishMaster
U.S.
2018
2019
Canadian
Automotive Group
2018
2019
Sales
830,765
829,982
516,112
503,829
The Parts Alliance
U.K.
2018
418,154
2019
392,695
Corporate Office
and Others
2018
2019
Years ended
December 31,
2019
Total
2018
‐
‐ 1,739,572 1,751,965
Segment income
(loss) (1)
Special items
(note 4) (2)
Segment income
43,280
57,793
25,332
19,819
3,082
19,192
(35,610)
(37,538)
36,084
59,266
9,354
1,693
(13,868)
3,346
3,229
1,230
54,758
8,320
53,473
14,589
(loss) reported (3)
33,926
56,100
39,200
16,473
(147)
17,962
(90,368)
(45,858)
(17,389)
44,677
Income tax expense
Net earnings (loss)
2,456
8,180
(19,845)
36,497
(1) The chief operating decision maker uses primarily one measure of profit to make decisions and assess performance, being earnings
(loss) before income taxes plus special items.
(2) The Corporate Office and Others segment includes the impairment loss on goodwill (notes 4 and 14) recognized in connection with
the United Kingdom since the performance of The Parts Alliance U.K. segment is not affected by the result of the impairment test
performed during 2019.
(3) Per consolidated statements of earnings (loss), corresponds to “Earnings (loss) before income taxes”.
2019 ANNUAL REPORT UNI‐SELECT 98
25 ‐
SEGMENT ED I NFO RM ATIO N ( CON TIN U ED)
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 (1)
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
(1)
See note 3 for further details following the adoption of IFRS 16.
Years ended
December 31,
2019
2018
830,765
516,112
392,695
1,739,572
829,982
503,829
418,154
1,751,965
December 31, 2019
United
States
51,163
93,378
7,900
201,951
Canada
60,285
24,395
‐
57,944
United
Kingdom
59,972
42,360
29,718
73,135
Total
171,420
160,133
37,618
333,030
United
States
61,353
102,834
7,900
201,951
United
States
25,460
102,834
7,900
201,951
January 1, 2019
United
Kingdom
61,432
44,666
28,697
114,313
Total
171,584
173,734
36,597
372,007
December 31, 2018
United
Kingdom
32,290
44,666
28,697
114,313
Total
83,956
173,734
36,597
372,007
Canada
48,799
26,234
‐
55,743
Canada
26,206
26,234
‐
55,743
2019 ANNUAL REPORT UNI‐SELECT 99
SHAREHOLDER INFORMATION
DIVIDENDS DECLARED IN 2019
Declared
February 20, 2019
May 2, 2019
August 7, 2019
November 13, 2019
EXCHANGE LISTING
TSX: UNS
DIVIDEND POLICY
The Corporation’s practice is to declare quarterly dividends,
Record Date
Payable Date
March 31, 2019
June 30, 2019
April 16, 2019
July 16, 2019
September 30, 2019
October 15, 2019
December 31, 2019
January 21, 2020
C$
0.0925
0.0925
0.0925
0.0925
ANNUAL GENERAL MEETING OF SHAREHOLDERS
May 14, 2020, at 1:30 PM (ET)
Hôtel Mortagne
Îles Percées Rooms B and C
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, are
CORPORATE OFFICE
170 Industriel Blvd.
designated as eligible dividends for tax purposes. The Corporation
Boucherville, QC J4B 2X3
does not have a dividend reinvestment plan.
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
450 641-2440
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 the
confidentially raise accounting, internal controls and ethical
Corporation’s website at uniselect.com.
inquiries 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
Fédération des caisses Desjardins du Québec
JP Morgan Chase Bank, N.A.
Laurentian Bank of Canada
The Toronto-Dominion Bank
HSBC Bank Canada
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, 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 and may not be used, changed, copied,
altered, or quoted without the written consent of the respective
owners. All rights reserved.
© Uni-Select Inc. 2020. All rights reserved.
Printed in Canada
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U N I S E L E C T . C O M
170 Industriel Boulevard
Boucherville, QC J4B 2X3