"We are taking proactive steps that will enable us to withstand the downturn and emerge even stronger and nimbler, while continuing to prioritize the health and safety of our people and customers with stringent distancing and cleanliness protocols across our operations," said
The following items are captured in this update to our stakeholders:
- Amendment to our senior credit facility agreement;
- Suspension of our dividend;
- Overview of cost management and other actions in response to COVID-19;
- Operational update including selected preliminary Q1 2020 results and revenue impacts to date in
April 2020 ; and, - Timing of our Q1 2020 results and Annual General Meeting.
Amendment to our Senior Credit Facility
The Company has amended its senior credit facility agreement to provide additional covenant headroom through to the end of Q2 2021.
In addition, the amendment provides for a suspension of curtailment payments under the floorplan facility through the end of
Suspension of our Dividend
In response to the effects COVID-19 is having on the business and the industry, the Board of Directors of the Company decided to suspend the quarterly dividend until further notice. We believe that this is a prudent decision to strengthen the Company's balance sheet until the full economic consequences of COVID-19 are better understood. This temporary suspension of our dividend represents approximately
Overview of Cost Management and Other Actions
The Company has taken the following additional actions to manage through the COVID-19 situation, with a focus on preserving cash and maintaining financial flexibility throughout this period of uncertainty.
Employee Layoffs
- The Company has laid off approximately 1,700, or 40% of
AutoCanada's workforce to date. Management anticipates positive cash and Adjusted EBITDA impacts to approximate$1.5 million per week. This is an unfortunate consequence of the sudden reduction in business activity and we anticipate hiring rapidly as business conditions improve. - In addition, the Company will realize the benefit of reduced compensation expenses associated with our variable cost structure.
Discretionary Vendor and Landlord Expenses
- The Company has deferred, reduced or eliminated most discretionary and non-essential operations and administrative spending. A large portion of these expenses are related to advertising costs. In addition, management has been working with a number of vendors and landlords to reduce costs through this period and/or defer payments on goods, services and rent beyond the second quarter of 2020. This work remains ongoing. Management anticipates positive cash and Adjusted EBITDA impacts from these initiatives to be in excess of
$10 million in Q2 2020.
Capital Expenditures
- The Company has reduced its growth and maintenance capital spending to a minimum and expects to incur no more than
$10 million in total capital spending in the year. As a reference point, total annual capital expenditures have averaged$28 million over the last two years.
Suspension of Dividend
- As indicated earlier, the Board has determined it appropriate to suspend our dividend during this period of limited visibility. This temporary suspension of our dividend represents approximately
$11 million in annualized cash savings, and approximately$8 million for the balance of 2020.
Non-Core Asset Portfolio
- Management will continue to work to liquidate its portfolio of non-core assets, valued at
$15 million as at the end of 2019. During the first quarter of 2020, proceeds of$1.1 million were realized on the sale of one of these properties.
Government Programs and Subsidies
- The Company expects to avail itself of all applicable government subsidy and deferral programs in both
Canada and in theU.S. Management continues to monitor policy and filing instruction detail to all such programs and expects to begin to realize some benefit in Q2 2020.
Board, Executive and Employee Compensation
- The Company's Executive Chairman,
Paul Antony , has voluntarily accepted a 50% reduction in salary for Q2 2020 and the Board of Directors has also voluntarily accepted a 50% reduction to their fees for Q2 2020. In addition, the Company's executive management team has voluntarily accepted a 25% reduction in their base salaries for Q2 2020. - The Company has also deferred all salary increases until further notice.
Actions Related to Hedging
- The Company will take a charge of
$1.8 million to Adjusted EBITDA in Q1 2020 to eliminate all forward contract exposure associated with its export / cross-border business. This was done to mitigate further risk of currency fluctuations impacting available cash, particularly during a period of limited cross-border activity. - The Company has successfully restructured nearly one-third of its interest rate swap portfolio which was established in late 2018 and early 2019. Subject to further interest rate fluctuation, this action is expected to drive cash savings to the Company of approximately
$1.6 million over the next twelve months ($1.2 million in fiscal 2020).
Operational Update and Selected Preliminary Q1 2020 Results
Selected preliminary results for the three months ended
- Q1 2020 revenue of approximately
$721 million , representing a decrease of 2% over the same period in 2019; - Total net indebtedness (total indebtedness less cash on hand and exclusive of IFRS 16 lease liabilities) was approximately
$173 million at the end of the quarter; and, - An increase in
AutoCanada's same store used-to-new vehicles sold ratio to 1.09 in Q1 2020 from 0.72 in Q1 2019.
In the latter part of Q1 2020 and into the start of Q2 2020, the unprecedented effects of the COVID-19 pandemic on the markets we serve resulted in a steep decline in our revenue. For the first two weeks of
As previously disclosed, we continue to operate in accordance with local government orders regarding the operation of non-essential businesses due to COVID-19. As such,
Across all our operations,
Since the outset of COVID-19, the Company has carefully followed the most current direction of government and related health agencies in our policies and procedures across our operations. To that end, we continue to implement stringent operating practices to ensure cleanliness and distancing and overall employee and customer safety, work from home protocols wherever possible, halting all non-essential travel, and following established guidelines in the event an infected employee is identified.
Timing of our Q1 2020 Results and AGM
We will remain actively engaged in managing the business through these unprecedented times and will exercise cost discipline while continuing to maximize value for our stakeholders."
1The Company has not yet completed its financial closing process for Q1 2020, and the selected unaudited results provided above are preliminary estimates. Actual results may differ materially from these estimates due to final adjustments, review by the Company's auditors and other developments that may arise between now and the time the financial results are finalized. These estimates are not a comprehensive statement of the Company's financial results for Q1 2020 and should not be viewed as a substitute for full financial statements prepared in accordance with International Financial Reporting Standards, and these estimates are not necessarily indicative of the results to be achieved for Q1 2020.
The Company's unaudited financial statements for Q1 2020 will not be available until
The preliminary results have been prepared by, and are the responsibility of, management of the Company. The Company's independent registered public accounting firm,
About
Forward-Looking Statements
Certain statements contained in this press release are forward-looking statements and information (collectively, "forward-looking statements") within the meaning of the applicable Canadian securities legislation. We hereby provide cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in these forward-looking statements. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "plan", "seek", "may", "intend", "likely", "will", "believe" and similar expressions) are not historical facts and are forward looking. In particular, this press release contains forward-looking statements with respect to, among other things, the impacts of the COVID-19 pandemic on our operations, financial condition and liquidity, the reinstatement of our dividend, the impacts of our efforts to preserve cash and maintain financial flexibility, the availability of government subsidy and deferral programs, the timing of our Q1 2020 results and annual general meeting and
The forward-looking statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Readers are cautioned that forward-looking statements are based on current expectations, estimates and projections that, by their nature, forward-looking statements involve a number of known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. These known and unknown risks and uncertainties include, but are not limited to: the impact of the COVID-19 pandemic on our operations, financial condition and liquidity and the duration of such impacts; potential changes in the regulatory and legislative environment; political uncertainty and instability in
Forward-looking statements involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict. Accordingly, actual results or outcomes may differ materially from those expressed in the forward-looking statements. In particular, in presenting its forward-looking statements,
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