EDMONTON, April 20, 2020 /CNW/ - AutoCanada Inc. ("AutoCanada" or the "Company") (TSX:ACQ) announced measures taken to enhance financial resilience in response to evolving market conditions due to COVID-19.  These measures are designed to address immediate challenges, while reinforcing the balance sheet given the pandemic is expected to continue for an unknown period of time.

"We are taking proactive steps that will enable us to withstand the downturn and emerge even stronger and nimbler, while continuing to prioritize the health and safety of our people and customers with stringent distancing and cleanliness protocols across our operations," said Paul Antony, Executive Chairman of AutoCanada.  "We also substantially strengthened the Company over the last four quarters in all key areas, including our management team, operations, revenue mix, and balance sheet.  While we expected these efforts to put us on offense in 2020 and we started the year strong, they've become foundational in my confidence that we will navigate the challenges posed by COVID-19 effectively.  I am also highly confident in our team, which includes a seasoned group of industry executives who have navigated complex environments before."

The following items are captured in this update to our stakeholders:

• Amendment to our senior credit facility agreement;
• Suspension of our dividend;
• Overview of cost management and other actions in response to COVID-19;
• Operational update including selected preliminary Q1 2020 results and revenue impacts to date in April 2020; and,
• Timing of our Q1 2020 results and Annual General Meeting.

Amendment to our Senior Credit Facility

The Company has amended its senior credit facility agreement to provide additional covenant headroom through to the end of Q2 2021. AutoCanada received covenant relief for our Total and Senior Net Funded Debt to Bank EBITDA and Fixed Charge Coverage Ratios with staged covenant thresholds through to Q2 2021. Effective July 1, 2021, all covenant thresholds revert to their prior levels.

In addition, the amendment provides for a suspension of curtailment payments under the floorplan facility through the end of June 2020 and an extension of repayments in respect of export vehicles.

Mike Borys, Chief Financial Officer of AutoCanada, added, "We entered this downturn on the heels of a recently completed refinancing of our debentures and renewal of our senior credit facility. Our balance sheet was at its strongest position in recent history, with a net debt leverage of 2.6x at the end of 2019. With the strong support of our lending syndicate, we are able to continue to operate through these challenging times. Further, AutoCanada's access to our $175 million revolver provides the Company with ample liquidity as required."

Suspension of our Dividend

In response to the effects COVID-19 is having on the business and the industry, the Board of Directors of the Company decided to suspend the quarterly dividend until further notice.  We believe that this is a prudent decision to strengthen the Company's balance sheet until the full economic consequences of COVID-19 are better understood.  This temporary suspension of our dividend represents approximately $11 million in annualized cash savings. The Company intends to reinstate a dividend in the future when a greater degree of visibility and normalcy returns.

Overview of Cost Management and Other Actions

The Company has taken the following additional actions to manage through the COVID-19 situation, with a focus on preserving cash and maintaining financial flexibility throughout this period of uncertainty.

Employee Layoffs

• The Company has laid off approximately 1,700, or 40% of AutoCanada's workforce to date. Management anticipates positive cash and Adjusted EBITDA impacts to approximate $1.5 million per week. This is an unfortunate consequence of the sudden reduction in business activity and we anticipate hiring rapidly as business conditions improve.
• In addition, the Company will realize the benefit of reduced compensation expenses associated with our variable cost structure.

Discretionary Vendor and Landlord Expenses

• The Company has deferred, reduced or eliminated most discretionary and non-essential operations and administrative spending. A large portion of these expenses are related to advertising costs. In addition, management has been working with a number of vendors and landlords to reduce costs through this period and/or defer payments on goods, services and rent beyond the second quarter of 2020. This work remains ongoing. Management anticipates positive cash and Adjusted EBITDA impacts from these initiatives to be in excess of $10 million in Q2 2020.

Capital Expenditures

• The Company has reduced its growth and maintenance capital spending to a minimum and expects to incur no more than $10 million in total capital spending in the year. As a reference point, total annual capital expenditures have averaged $28 million over the last two years.

Suspension of Dividend

• As indicated earlier, the Board has determined it appropriate to suspend our dividend during this period of limited visibility. This temporary suspension of our dividend represents approximately $11 million in annualized cash savings, and approximately $8 million for the balance of 2020.

Non-Core Asset Portfolio

• Management will continue to work to liquidate its portfolio of non-core assets, valued at $15 million as at the end of 2019. During the first quarter of 2020, proceeds of $1.1 million were realized on the sale of one of these properties.

Government Programs and Subsidies

• The Company expects to avail itself of all applicable government subsidy and deferral programs in both Canada and in the U.S. Management continues to monitor policy and filing instruction detail to all such programs and expects to begin to realize some benefit in Q2 2020.

Board, Executive and Employee Compensation

• The Company's Executive Chairman, Paul Antony, has voluntarily accepted a 50% reduction in salary for Q2 2020 and the Board of Directors has also voluntarily accepted a 50% reduction to their fees for Q2 2020. In addition, the Company's executive management team has voluntarily accepted a 25% reduction in their base salaries for Q2 2020.
• The Company has also deferred all salary increases until further notice.

Actions Related to Hedging

• The Company will take a charge of $1.8 million to Adjusted EBITDA in Q1 2020 to eliminate all forward contract exposure associated with its export / cross-border business. This was done to mitigate further risk of currency fluctuations impacting available cash, particularly during a period of limited cross-border activity.
• The Company has successfully restructured nearly one-third of its interest rate swap portfolio which was established in late 2018 and early 2019. Subject to further interest rate fluctuation, this action is expected to drive cash savings to the Company of approximately $1.6 million over the next twelve months ($1.2 million in fiscal 2020).

Operational Update and Selected Preliminary Q1 2020 Results

Selected preliminary results for the three months ended March 31, 2020 ("Q1 2020") are highlighted below¹:

• Q1 2020 revenue of approximately $721 million, representing a decrease of 2% over the same period in 2019;
• Total net indebtedness (total indebtedness less cash on hand and exclusive of IFRS 16 lease liabilities) was approximately $173 million at the end of the quarter; and,
• An increase in AutoCanada's same store used-to-new vehicles sold ratio to 1.09 in Q1 2020 from 0.72 in Q1 2019.

In the latter part of Q1 2020 and into the start of Q2 2020, the unprecedented effects of the COVID-19 pandemic on the markets we serve resulted in a steep decline in our revenue. For the first two weeks of April 2020 in both Canada and the U.S., new and used unit sales are down approximately 60% and 45%, respectively, as compared to the prior year. In Canada, parts, service and collision repair revenues are down in aggregate by approximately 33% as compared to the prior year; in the U.S., these same segments showed a year-over-year decline of approximately 58%, reflecting the more restrictive 'shelter in place' orders imposed by Illinois.

As previously disclosed, we continue to operate in accordance with local government orders regarding the operation of non-essential businesses due to COVID-19. As such, AutoCanada is providing service operations and limited sales in New Brunswick, Ontario and Illinois, service operations only in Quebec, and full operations in the balance of Canada.

Across all our operations, AutoCanada will continue to safely support customers with their vehicle servicing and purchasing requirements, and customers are encouraged to contact their local dealership as needed.

Since the outset of COVID-19, the Company has carefully followed the most current direction of government and related health agencies in our policies and procedures across our operations. To that end, we continue to implement stringent operating practices to ensure cleanliness and distancing and overall employee and customer safety, work from home protocols wherever possible, halting all non-essential travel, and following established guidelines in the event an infected employee is identified.

Timing of our Q1 2020 Results and AGM

AutoCanada will rely on exemptions recently granted by Canadian securities regulatory authorities to postpone the filing of our financial report for the first quarter of 2020, the associated MD&A and related filings for the first quarter of 2020, all of which it anticipates filing on Wednesday, June 3, 2020 after the close of markets. The additional time allows management greater perspective on our balance of year outlook when reporting Q1 2020 results. The Company will hold a conference call and webcast to discuss Q1 2020 results on Thursday, June 4, 2020 at 7:00 am Mountain Time (9:00am Eastern).  AutoCanada will hold its annual general meeting on Thursday, June 25, 2020.  Details of the Q1 2020 webcast will be provided in a separate press release and details of the annual general meeting will be provided in our management information circular.

AutoCanada's management and other insiders are currently subject to a trading black out that reflects the principles set out in Section 9 of National Policy 11-207 of the Canadian Securities Administrators and will remain subject to such black out until after the Q1 2020 results are filed.

Mr. Antony continued, "We are taking the necessary and proactive steps during this challenging economic environment to emerge with a stronger operating framework. As noted previously, we entered this downturn with one of the Company's strongest balance sheets in recent history, combined with affirmed and strong relationships with our lenders. With the initiatives taken to date to strengthen our business, we have ample liquidity to sustain our operations through a prolonged COVID-19 situation. We will continue to respond according to market conditions as they evolve.

We will remain actively engaged in managing the business through these unprecedented times and will exercise cost discipline while continuing to maximize value for our stakeholders."

¹The Company has not yet completed its financial closing process for Q1 2020, and the selected unaudited results provided above are preliminary estimates. Actual results may differ materially from these estimates due to final adjustments, review by the Company's auditors and other developments that may arise between now and the time the financial results are finalized. These estimates are not a comprehensive statement of the Company's financial results for Q1 2020 and should not be viewed as a substitute for full financial statements prepared in accordance with International Financial Reporting Standards, and these estimates are not necessarily indicative of the results to be achieved for Q1 2020.

The Company's unaudited financial statements for Q1 2020 will not be available until June 3, 2020. The preliminary results provided in this press release constitute forward-looking statements within the meaning of applicable securities laws, are based on a number of assumptions and are subject to a number of risks and uncertainties. Please see the section below entitled "Forward-Looking Statements".

The preliminary results have been prepared by, and are the responsibility of, management of the Company. The Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, has not reviewed the preliminary results nor have they performed any procedures with respect to the preliminary results. Neither PricewaterhouseCoopers LLP nor any other independent accountants express an opinion or any other form of assurance with respect to the preliminary results.

About AutoCanada

AutoCanada is a leading North American multi-location automobile dealership group currently operating 63 franchised dealerships, comprised of 26 brands, in eight provinces in Canada as well as a group in Illinois, USA. AutoCanada currently sells Chrysler, Dodge, Jeep, Ram, FIAT, Alfa Romeo, Chevrolet, GMC, Buick, Cadillac, Ford, Infiniti, Nissan, Hyundai, Subaru, Audi, Volkswagen, Kia, Mazda, Mercedes-Benz, BMW, MINI, Volvo, Toyota, Lincoln, and Honda branded vehicles. In 2019, our dealerships sold approximately 71,000 vehicles and processed approximately 900,000 service and collision repair orders in our 1,047 service bays generating revenue in excess of $3 billion. Additional information about AutoCanada is available at the Company's website at www.autocan.ca and at www.sedar.com.

Forward-Looking Statements

Certain statements contained in this press release are forward-looking statements and information (collectively, "forward-looking statements") within the meaning of the applicable Canadian securities legislation. We hereby provide cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in these forward-looking statements. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "projection", "vision", "goals", "objective", "target", "schedules", "outlook", "anticipate", "expect", "estimate", "could", "should", "plan", "seek", "may", "intend", "likely", "will", "believe" and similar expressions) are not historical facts and are forward looking. In particular, this press release contains forward-looking statements with respect to, among other things, the impacts of the COVID-19 pandemic on our operations, financial condition and liquidity, the reinstatement of our dividend, the impacts of our efforts to preserve cash and maintain financial flexibility, the availability of government subsidy and deferral programs, the timing of our Q1 2020 results and annual general meeting and AutoCanada's financial results for Q1 2020.

The forward-looking statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Readers are cautioned that forward-looking statements are based on current expectations, estimates and projections that, by their nature, forward-looking statements involve a number of known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. These known and unknown risks and uncertainties include, but are not limited to: the impact of the COVID-19 pandemic on our operations, financial condition and liquidity and the duration of such impacts; potential changes in the regulatory and legislative environment; political uncertainty and instability in North America and internationally and changes in political leadership in North America and elsewhere; volatility in interest and tax rates; operating risks inherent in the automotive retail industry; and changes in general economic conditions including the capital and credit markets.

Forward-looking statements involve estimates and assumptions and are subject to risks, uncertainties and other factors some of which are beyond our control and difficult to predict. Accordingly, actual results or outcomes may differ materially from those expressed in the forward-looking statements. In particular, in presenting its forward-looking statements, AutoCanada has made assumptions respecting, among other things the impact of the COVID-19 pandemic on our operations, financial condition and liquidity and the duration of such impacts.

AutoCanada cautions that the foregoing list of assumptions, risks and uncertainties is not exhaustive. The Company's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website at www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. The forward-looking statements contained in this press release speak only as of the date hereof and AutoCanada assumes no obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable securities laws.

SOURCE AutoCanada Inc.