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Edited Transcript of UNS.TO earnings conference call or presentation 7-Aug-19 12:00pm GMT

Q2 2019 Uni-Select Inc Earnings Call

Boucherville Aug 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Uni-Select Inc earnings conference call or presentation Wednesday, August 7, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent Windom

Uni-Select Inc. - President, CEO & Director

* Eric Bussieres

Uni-Select Inc. - Executive VP & CFO

* Me Louis Juneau

Uni-Select Inc. - Chief Legal & Administrative Officer and Corporate Secretary

* Neil Croxson

The Parts Alliance Ltd. - President & COO

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Conference Call Participants

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* Benoit Poirier

Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst

* Christopher Martino

Laurentian Bank Securities, Inc., Research Division - Analyst of Research

* Daryl Young

TD Securities Equity Research - Mining Research Associate

* Jonathan Lamers

BMO Capital Markets Equity Research - Analyst

* Zachary Evershed

National Bank Financial, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Good morning. My name is Simon, and I will be your conference operator today. At this time, I would like to welcome everyone to the Uni-Select Second Quarter Results Conference Call. (Operator Instructions)

(foreign language)

Mr. Juneau, you may begin your conference.

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Me Louis Juneau, Uni-Select Inc. - Chief Legal & Administrative Officer and Corporate Secretary [2]

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(foreign language)

Good morning, everyone, and thank you for joining the Uni-Select Second Quarter conference call. Presenting this morning are Brent Windom, President and CEO of Uni-Select and President and CEO of the Canadian Automotive Group; and Eric Bussières, Executive Vice President and Chief Financial Officer. Following their comments, we will open the call for questions.

Joining us today for your questions are Chris Adams, President and CEO of FinishMaster USA; and Neil Croxson, President and CEO of The Parts Alliance.

Please note that all the documents referred to in today's conference call, including this webcast presentation, can be found on our website at uniselect.com in the Investors section.

As noted on Slide 2, I would like to remind you about the caution regarding forward-looking statements, which is applied to our presentation and comments. Our amounts are expressed in U.S. dollars, express -- except as otherwise specified.

As noted on Slide 2, the corporation applied for the first time on January 1, 2019, 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 interim condensed consolidated financial statements present significant variances when compared to 2018. Furthermore, with the adoption of IFRS 16 on leases, the geography of certain items on the statements of earnings are impacted. Under the new standard, most leases are no longer treated as operating leases resulting into a higher EBITDA, while increasing the finance cost from interest expense on lease and liability and a higher depreciation linked to the write-off used to those assets. As a result, we consider the earnings before tax as the preferable comparative measure to explain our results and performance.

Please refer to the adoption of leases of IFRS 16 Leases section in the MD&A for further details.

With that, let me turn the call over to Brent.

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Brent Windom, Uni-Select Inc. - President, CEO & Director [3]

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Thank you, Louis. Good morning, everyone, and thank you for joining us.

Please turn to Page 5. But before I begin, I would like to thank each of our 6,000-plus team members for their dedication to our customers, along with their -- the execution of our continued improvement initiatives. We are pleased with the strong performance of the Canadian Automotive Group and by the execution of the performance improvement plan at FinishMaster. The Parts Alliance is operating in a difficult environment, and we are actively focusing on our cost structure and margins. This year, FinishMaster and TPA both faced some challenges, which led to a weaker quarter than normally would be the case. We will explain the reasons behind this in a moment.

Having said that, please turn to Page 6 for the overview of the second quarter results. For the second quarter, on a consolidated basis, organic growth stood at 1.2%, with CAG at a robust 5.5% and FinishMaster at 70 basis points, while TPA had a negative organic growth of 3.2%. The adjusted earnings before tax decreased 38% to $14 million or a margin of 3%. The variance is mainly explained by the ongoing pricing pressures in the evolving customer mix at FinishMaster. The reduced sales volume in the opening of greenfields at TPA and higher borrowing costs. It is partially compensated by the strong performance in the -- in our Canadian operations. Note that the IFRS 16 had a marginal impact of less than 10 basis points on the adjusted earnings before tax.

Furthermore, in the quarter, we generated strong cash flow from the operations of $97 million compared to $39 million last year as we proactively managed our working capital by optimizing our inventory levels and our supply chain financing. We were able to improve our cash position and ultimately, lower our debt level, which Eric will explain in more details in a moment.

Finally, in the second quarter, we continued to execute our performance improvement plan as we integrated 15 more stores, ending the quarter with 454 stores and generated an additional $8 million in annualized savings, ahead of what we expected for the quarter. In fact, the actions put in place relating to the PIP at FinishMaster are tracking ahead of schedule.

Let me provide more detailed update on the PIP. Please turn to Page 7. The table summarizes the different cost savings programs we have launched since 2017. Recall that at the end of the first quarter, we expected to realize $35 million in annualized savings by the end of 2020 with associated restructuring costs of $17.5 million. The good news is we were able to further increase the PIP savings. At FinishMaster, we increased it by $5 million from recently identified initiatives. In response to the uncertainty and challenging microeconomics in the U.K., we expanded the PIP at TPA as well by $5 million. Consequently, the PIP is now expected to generate $45 million in annualized savings by 2020 with associated restructuring costs of $20.5 million, of which $4 million are noncash costs.

At the end of the second quarter, we realized $29 million in annualized savings for the plan. For the actions taken this, year approximately $3 million benefited the second quarter.

Please turn to Page 8 to get a better idea of the timing. As can be observed from the table, the remaining annualized savings and restructuring costs will be realized in the second half of 2019. Furthermore, I would like to make an important point, more specific to the savings at the FinishMaster business. While the savings are tangible benefits for the long term, as we mentioned last quarter, the benefits will start to materialize more meaningfully starting in the second half of the year.

Briefly on the strategic alternative review on Page 9. The Board, the management and their advisers are actively working on various alternatives. And we also accelerated the PIP and significantly increased the savings. In fact, since January, we have increased the annualized target by $20 million.

Now let me go through each of the business segment in more details. Please turn to Page 10 for FinishMaster. Sales for the second quarter increased slightly to $212 million, up 60 basis points from the same quarter last year driven by organic growth. We are encouraged by the top line performance at FinishMaster as this is the fifth consecutive quarter for -- of positive organic growth. These results are due to the team's efforts of driving growth by: developing business volume; onboarding new customers, namely the MSOs and large national accounts.

In fact, we experienced this growth despite the collision claims being down 2.6% year-over-year according to the market data. As expected, the earnings before tax continued to be under pressure. However, in line with our expectations, it stood at 5.5% as compared to 8.1% last year. The bright spot is that over the last few months, we've seen tangible signs that our gross margin is stabilizing.

The earnings before tax in the quarter did benefit from the improved absorption of fixed costs in relation to organic growth and by realized cost savings from the PIP. In fact in the quarter, we consolidated 11 stores, increasing the total to 14 stores year-to-date. The integration process of the stores is going well, and we expect marginal impact to our revenues.

Furthermore, I mentioned -- as I mentioned, we expanded our cost-saving initiatives at FinishMaster by an additional $5 million. Therefore, we now expect to generate $15 million in annualized savings by the end of 2019. To put this in perspective, year-to-date, we realized $6 million of annualized savings from this program alone, an estimated approximately $2 million benefited the second quarter. For the balance of the year, we will accelerate the execution of the PIP and expect the benefits to start to hit the P&L in a more meaningful way starting in the second half of the year.

Turn to Page 11 please for Canada. Excluding FX, sales increased 6.5%. This increase was primarily driven by the organic growth of 5.5% and the contribution from acquisitions partially offset by the number of billing days. The strong organic growth was driven by loyalty programs, growing customers and the promotion of our private brands and the timing and the sales of PBE. Also recall that we had a soft comparable quarter last year. In addition, the Canadian market is strong overall despite the weakness in the prairies related to the oil and gas sector. We continue to integrate our latest acquisition of Autochoice Parts and Paint, an 18-store chain in the Atlantic region. The integration is progressing well and is on track. The acquisition has proven to be a positive addition to our network.

Consequently, our adjusted earnings before tax reached $11 million or 7.8% of sales, up from $7 million or 5% of sales last year. This significant increase was driven by improved performance by our network of company-owned stores, the difference in timing of rebates, FX and benefits from the PIP. In fact, to put this in perspective, year-to-date, we've realized $4 million of annualized savings from the PIP. And approximately $1 million benefited the quarter. But we believe that our results will continue to benefit from the PIP initiatives implemented in the latter part of 2018.

Now turning to The Parts Alliance in the U.K. segment, please, on Page 12. Excluding FX, sales were down 4.2% due to the negative organic growth of 3.2% and the number of billing days partially offset by the acquisitions made in 2018. While we experienced negative organic growth due to the market uncertainties, we estimate the market decline to be in the range of mid-single digits. It is important to understand that the fundamentals of the U.K. auto parts market remains solid. Also bear in mind that we are up against a very strong comparable quarter last year as we generated organic growth of over 8%.

As a result, our adjusted earnings before tax were down significantly from $6 million or 5.8% of sales last year to a loss of $1 million or 1.4% of sales. This decrease is primarily due to the lower sales volume, associated fixed cost absorption, recent investments in greenfields and the opening of the new distribution center in the year, which has had an impact on our results in the short term.

Note that we opened one greenfield this quarter, bringing the total to 18 since we acquired TPA, and we expect to open 2 more in the second half of the year, for a total of 5 in 2019. Given the market conditions, we have taken measures to adapt our cost structure and productivity model. The PIP costs from an additional $5 million of cost savings on an annualized basis by the end of 2019. These initiatives will not only benefit us in the short term and position -- but will position the business positively as we -- as the market recovers. Typically, the second half is softer than the first half for TPA. However, given the measures we are putting in place, we expect the results in the second half to be equal or stronger than the results of the first half.

I will now turn the call over to Eric to complete the financial review. Eric?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [4]

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Thank you, Brent. Good morning, everyone. Please turn to Page 15 for a brief overview of the pro forma EBITDA. With IFRS 16, it becomes difficult to compare 2019 adjusted EBITDA to last year. Consequently, we provided pro forma adjusted EBITDA to help in the understanding of our results. On a pro forma basis, the adjusted EBITDA pre-IFRS in the second quarter of 2019 would have stood at about $28.9 million, down 19% as compared to the $35.6 million last year for the same reasons mentioned by Brent earlier.

Please turn to Page 17 for consolidated profit. For the second quarter, we reported net earnings of $6.3 million or $0.15 per share versus net earnings of $17.9 million or $0.42 per share last year. Adjusted earnings for the quarter totaled $10.4 million or $0.25 per share versus $18.4 million or $0.44 per share last year. The decrease in adjusted earnings was mainly attributable to lower adjusted earnings before tax and a change in the proposed U.S. tax regulation announced on December 20, 2018, which are expected to impact the benefit from a financing structure.

Now let me comment on our cash flow on Page 18. In the second quarter of 2019, cash flow provided by operating activities were $97.2 million versus $38.9 million last year. This variation was mainly attributable to the timing of the vendor financing transaction, which positively impacted trades and other payables as well as by a reduction in inventory and a corporate tax installment. In fact, as Brent mentioned, we proactively manage our working capital. As a result, we generated $32.1 million of free cash flow for the quarter compared to $27.9 million last year. This variance is explained by lower level of income tax installment partly offset by additional capital investment.

Turning to Page 19. I would like to remind you that on our third quarter will be impacted by a onetime $55 million cash outflow due to change in payment terms from one of our large supplier. However, we expect this impact to be largely offset by internally generated cash flow.

Finally, I would like to highlight that today's Board of Directors declared a quarterly dividend of 9.25% share -- $0.0925 per shares, payable on October 15, 2019, to shareholders of record as of September 30, 2019. This represents a dividend yield of 3.2% at yesterday's closing price.

Turning to Page 20. As at June 30, 2019, our outstanding total net debt stood at $534 million versus $627 million 3 months earlier and $560 million as of January 1, 2019. The reduction from last quarter is due to favorable timing of vendor financing transactions and internally generated cash flows, which allows for $93 million of reimbursement of this credit facility. We expect our net debt position to remain relatively stable in the third quarter despite the $55 million cash outflow related to the change in payment terms from one of our large suppliers, which as I mentioned previously, is expected to be largely offset by internally generated cash flow.

Please turn to Page 22 for the outlook. We are maintaining the guidance we provided last quarter as we strongly believe the actions we are taking will lead to tangible benefits starting in the third quarter. To recap, we expect 2019 organic sales growth to be in the range of 1.25% to 3.25%, adjusted EBITDA margin to be in the range of 7.5% to 8.5% and adjusted earnings before tax margin to be in the range of 2.5% to 3.5%. Without narrowing these ranges at this time, we can state that we believe we will be in the mid to lower part of the range.

Furthermore, we expect CapEx to be in the range of $25 million to $30 million. Recall that our CapEx includes investment for the right-of-use of assets related to the leased vehicles, hardware equipment, software and other. And it excludes right-of-use of assets to real estate. We also expect the tax benefit to be in the range -- or tax rates to be in the range of 23% to 25%.

This completes the financial review of the second quarter and I'll turn the call over to Brent to conclude.

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Brent Windom, Uni-Select Inc. - President, CEO & Director [5]

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I would like to conclude by saying, for the balance of the year, we will continue to execute the PIP and FinishMaster and anticipate the margins to continue to stabilize. We will execute cost savings initiatives at TPA to counter the market softness in the U.K. and build on the solid performance and improvements in the CAG business.

Finally, we would like to thank our shareholders for their ongoing support. This concludes our presentation, and we're now ready to answer your questions. Simon?

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Questions and Answers

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Operator [1]

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(Operator Instructions)

(foreign language) Your first question comes from the line of Benoit Poirier with Desjardins Capital Markets.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [2]

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Yes. You gave some good color about the $10 million in additional savings you intend to realize in the U.K. and through FinishMaster. How should we be thinking about the impact on the margin? Is it basically to offset some upcoming softness you see? Or should we expect a boost and an incremental impact on the EBITDA? How should we be thinking about the additional $10 million saving?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [3]

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Look for TPA, Benoit, there's no question that the objective of that $5 million cost saving is to offset some of the degradation of the overall margins and stabilize, right? So as we said, we expect to have a second half in line with the first half, if not a little bit better. So that's the objective of those cost savings.

At FinishMaster, we've increased the PIP by $5 million and we expect this to be profitable for the quarter in the FinishMaster business. Having said that, keep in mind that it's the annualized run rate that we're talking about. Therefore, some of those benefits to materialize through the P&L will take a little bit of time. We're taking the actions, for instance, in Q2. We had a portion of it that realized in Q2, but a lot of this would actually be realized in the latter part of the year that will be reflected in the P&L. And same goes for what is left to be realized at FinishMaster.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [4]

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Okay. That's good color. And Eric, when you mentioned that in terms of the range, mid to the lower part of the range for the year. Were you referring to the EBITDA margin in it?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [5]

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No. I was referring to the guidance as all. Yes, all 3.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [6]

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Okay. All 3. Okay, okay. That's good color. And could you provide an update, I know that you mentioned some lines on the strategic review in the press release, but where are you exactly in the strategic review? If you could provide some color, that would be great.

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Brent Windom, Uni-Select Inc. - President, CEO & Director [7]

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Benoit, this is Brent. All we can really comment at this point is that we're -- that the Board of Directors is active with their advisers and they're looking at everything and every option. But at this point, we have nothing to really add.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [8]

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Okay, okay. Perfect. And in terms of covenants, you ended the quarter at 3.98%, meeting all the covenants set by the banks. How much cushion do you have right now versus the maximum level you could be at right now, Eric?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [9]

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We have a buffer, Benoit, and we're comfortable with the covenant structure that we have in place. And I think that the fact that we've managed to reduce our leverage in Q2 versus Q1, and as you know, we are in the seasonal business, so the covenants do reflect -- the covenant structure do reflect this is now the aspect of the business. So clearly, we're managing our working capital and managing our investments in order to sure -- to make sure that we're stay in compliance with our company's obligations. And I have the required buffer to sleep well at night at this point.

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Benoit Poirier, Desjardins Securities Inc., Research Division - VP and Industrials, Transportation, Aerospace, Industrial Products & Special Situation Analyst [10]

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Okay. Okay, perfect. And last one for me. Brent, you mentioned some color about the private brands. I would be curious right now, what is your exposure to private brands? And whether there is a new strategy to increase your exposure to private brands as a whole?

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Brent Windom, Uni-Select Inc. - President, CEO & Director [11]

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I would say it's, Benoit, we continue to focus on the [Under Car] alliance, which our private brands are positioned in that area in Canada. And we're going to -- we've seen significant growth in the last 6 to 9 months, and we're going to continue to accelerate that as much as the market will allow. So it's -- we're not expanding the scope from a number of product lines. We're really focusing on our share of wallet with our customers in the market.

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Operator [12]

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Your next question (foreign language) comes from the line of Chris Martino with Laurentian Bank Securities.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [13]

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You talked about the macro challenges in the U.K. And is there anything specific you're seeing there now that wasn't evident in Q1?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [14]

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Well, I would tell you personally, that I think we've seen further degradation in the economy of the U.K. and the ongoing discussion that are on Brexits are probably creating some uncertainty at the consumer level. And consumer confidence in the U.K. has actually reduced quite significantly in the last 12 months. So I mean -- I think that people are a bit in a wait-and-see of what's going -- what's going with that. And in parallel to this, you have a fairly softer economy in Europe as a whole. So I think those are evolution -- things that have evolved in the last 3 to 4 months.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [15]

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Okay. You did mention that you're expecting the second half in U.K. to be equal to or stronger than the first. So can you go into why that is given those macro challenges that you're seeing?

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Brent Windom, Uni-Select Inc. - President, CEO & Director [16]

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So I would answer, Chris, that we're taking the position that the top line revenue is going to be challenged for the balance of the year. And that's why we're putting the PIP plans in place now and taking the actions immediately. That will allow us to believe that we'll be able to have an EBITDA stronger to or equal to the first half of the year -- in the second.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [17]

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Okay. So specifically on the EBITDA profitability-wise, against a weaker top line.

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Brent Windom, Uni-Select Inc. - President, CEO & Director [18]

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Yes. That's correct. Yes.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [19]

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Okay. Okay. And in Canada, has there been some pull forward of sales from the second half, maybe given the strength there and your comments with respect to PBE?

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Brent Windom, Uni-Select Inc. - President, CEO & Director [20]

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No, not at all. I would say that it was consistent with the timing of last year, but we had strong PBE sales in the quarter. But there was nothing pulled forward in -- from Q3 to Q2 from PBE at all.

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [21]

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If I may, Brent, add a little bit of color. I mean the store has performed quite well this quarter, especially compared to Q2 last year. And I think that's a big component the performance in Canada.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [22]

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Okay. And then last one. How much of that $55 million outflow on the change of supplier terms has been realized as of this quarter?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [23]

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In Q3, you mean, just to be clear? I'll answer this.

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [24]

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Yes.

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [25]

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Are you referring to Q2?

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Christopher Martino, Laurentian Bank Securities, Inc., Research Division - Analyst of Research [26]

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Oh, end of Q2.

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [27]

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Very little at the end of Q2. The bulk of it is happening -- happened at the first part of the Q3.

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Operator [28]

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Your next question (foreign language) comes from the line of Jonathan Lamers with BMO Capital Markets.

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Jonathan Lamers, BMO Capital Markets Equity Research - Analyst [29]

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For, I guess, the different divisions, can you give us some color as to how organic sales are trending in July?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [30]

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So I would tell you that we've got 2 there. FinishMaster and the Canadian business are trending to our expectations. We're still seeing a soft market in the TPA.

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Jonathan Lamers, BMO Capital Markets Equity Research - Analyst [31]

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And for Parts Alliance, the business is lapping very strong comps last year. I know partly from the high level of greenfields that were built out. But I guess with the benefit of hindsight, do you have any visibility as to whether there were market share gains last year above and beyond the macro? And whether maybe some of that -- some of those market share gains are being given back this year?

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Neil Croxson, The Parts Alliance Ltd. - President & COO [32]

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Well, I would tell you that we are taking market share in the U.K., particularly driven by those greenfield sites where we're opening businesses in a market where we didn't have any presence historically.

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Jonathan Lamers, BMO Capital Markets Equity Research - Analyst [33]

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Okay. But on a same-store basis, you don't have any visibility, one way or the other, relative to the industry?

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Neil Croxson, The Parts Alliance Ltd. - President & COO [34]

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Well, the information available in the industry is somewhat vague. But what I would say from the anecdotal evidence we're hearing is that we're certainly maintaining, if not taking, market share.

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Jonathan Lamers, BMO Capital Markets Equity Research - Analyst [35]

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Okay, great. And I guess for FinishMaster, I would -- it seems that the organic sales are growing, but still seem a bit modest. Can you tell whether there's been any product mix change -- any change in the product mix choices by the customers that might be having a material impact on the volumes?

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Brent Windom, Uni-Select Inc. - President, CEO & Director [36]

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At this point, we've seen no change in the product mix that would indicate to us of that. I think the other thing I would just remind, Jonathan, is that we -- based on what we're seeing from the industry, we believe that the market is 2.6% down decline in work orders. And so quite frankly, we're not -- while 70 basis points is not something of large, but it's something that we're very positive with.

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Operator [37]

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Your next question (foreign language) comes from the line of Zachary Evershed with National Bank Financial.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [38]

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Just following up on an earlier question for the Canadian Automotive Group. The timing of volume rebates and sales was mentioned this quarter and last quarter as well, but that's not the result of sales being pulled forward. So what does the reference to timing mean then if there's no air pocket in Q3 or 4 created?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [39]

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This is linked to incentives that we receive linked to activities that we've conducted such as the Calgary DC, where we're getting some support. And when we open or make some acquisitions, we're able to crystallize better rebates in some cases. So that's more a question of -- we've taken the action and bought the products and the answer to those questions are yes. So there's no pull forward from that perspective.

I think we've articulated the strategy of Canada and then talked about the -- what we're doing on the DC out West. And we're certainly been putting that in place and being, operationally speaking, the Calgary DC is fully up and running, and we closed one of the DC in that region. So we're on the path of executing what we said.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [40]

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That's great. And you mentioned optimizing the supply chain financing. So just again, on the working capital, should we think about your working capital going forward as the new steady state being similar to Q2 if we're factoring in the burn in Q3?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [41]

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Well, I think what you'll see in Q3 is it will be a lot more coming from the internally generated cash flow, a little bit from the working cap, but more importantly, from the actual operations. And as you may recall, we are in a seasonal business, right? So my Q1, I intend to burn cash. Q2, I make a little bit of cash. Q3, Q4, I generate quite a bit of cash. So whereas the phenomenon, if you want, is in Q1, we didn't use as much the supply chain. There was timing elements associated with that. We were able to optimize that in Q2, and we expect to maintain the supply chain financing to a similar level going forward in Q3, Q4. So the bulk of the lift will come from our actual cash generated from operations.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [42]

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That's very helpful. One more for me. The extra savings that manifested at FinishMaster and The Parts Alliance. How did those come to be revealed? What was the process there?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [43]

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I'm not sure if I understand what -- when you say reveal, what you mean by that.

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Zachary Evershed, National Bank Financial, Inc., Research Division - Analyst [44]

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Well, the incremental $10 million that wasn't evident before.

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [45]

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Ah, well, look, when you do those type of activities, you identify the low-hanging fruit and you quantify those, right? So at FinishMaster, it has been a robust exercise done. What we found out is there was additional savings as we're doing it, we're experiencing and recognizing additional savings. And that's why we were able to increase that by $5 million. We've increased a little bit the number of branches that are part of the restructuring. And quite frankly, we found ways to optimize the organization that is not insignificant.

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Brent Windom, Uni-Select Inc. - President, CEO & Director [46]

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And as far as TPA, I would say, Neil and the team have realized that the downturn and the softness in the market in Q2, and we've decided that -- to be proactive in for the balance of the year. And we've began to look at the productivity measures and the way we can take cost out of the organization in a proactive way.

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Operator [47]

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(Operator Instructions)

(foreign language)

You next question (foreign language) comes from the line of Daryl Young with TD Securities.

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Daryl Young, TD Securities Equity Research - Mining Research Associate [48]

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My question is with respect to FinishMaster. We've heard during Q2 results from a number of the paint manufacturers that they're seeing declines in volumes year-over-year, but they've been effective in offsetting it with price increases. I'm just wondering if you can refresh us on how that dynamic works in terms of passing those price increases or how much you participate in those price increases as well on the volumes you're selling?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [49]

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Sure. So look, the -- it's a bit of -- it depends on the segments, right? So as we've explained in the past, large national accounts have the agreements directly with the manufacturer, and they may or may not be subject to the same timing of both price increases. So I think you need to isolate that segment. When manufacturers increase prices, the increase in list price at price. And therefore, the rest of the segments that are tied to, I would say, specific contracts with the manufacturer goes with distribution.

And in that case, it's for the distributor to pass along those price increases. And that's what we've been successful in doing on the shoot. It has been announced to-date. And it's certainly something that we keep our eyes on and making sure that when the -- when our -- basically our cost of purchases also go up at the same time, right? So it's all tied.

So we got to pass on some of those price increases, and we've been successful in doing so. And part of the margins, the position that we referred to, is associated with the price increases, but also actions that we've taken on our side to better manage our overall sales force.

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Daryl Young, TD Securities Equity Research - Mining Research Associate [50]

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Okay, great. And then in terms of the -- they've also mentioned inventory restocking across the industry for the collision repair -- sorry, for the providers to the collision repair. Could you maybe just give us a little bit of color on if you're seeing that as well and what your purchase volume look like -- looks like going forward?

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Brent Windom, Uni-Select Inc. - President, CEO & Director [51]

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Well, I would say, Daryl…

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Daryl Young, TD Securities Equity Research - Mining Research Associate [52]

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Your inventory levels?

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Brent Windom, Uni-Select Inc. - President, CEO & Director [53]

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So Daryl, I would say that we are very active in all 3 businesses right now, managing our supply chain and our inventory levels to be optimal for -- to supplying our customers without any disruption. So really trying to make sure that we unlock any cash that we can to retire our debt. And so I would say -- and that's certainly a focus for all the operators for now in the balance of the year. And certainly, we've done nothing significant other than really manage our business based on our sales volumes.

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [54]

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Yes. And we obviously are focused on maintaining fill rates. If you don't have perhaps the products on stock, you won't sell it. So you got to balance the inventory optimization with the size with the fill rates.

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Operator [55]

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Your next question (foreign language) comes from the line of Jonathan Lamers with BMO Capital Markets.

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Jonathan Lamers, BMO Capital Markets Equity Research - Analyst [56]

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A follow-up question on the PIP, Eric. For the residual $5.8 million of savings from the restructuring programs previously announced, the prior $35 million, do you have the split for that $5.8 million in terms of the segments? What -- how that -- what part is left for FinishMaster and what part is left for Canadian Automotive?

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [57]

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Look, you're saying what is to come or what we've realized?

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Jonathan Lamers, BMO Capital Markets Equity Research - Analyst [58]

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Sure, either way, which is by segment.

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [59]

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What we've realized against the $35 million to-date, right? Hang on. I just want to make sure I'm not -- so on the TPA side to be realized, we'll get about $5 million in front of us and where we've realized that TPA to-date is about $5 million, right, from the initiatives that we started back in 2017. At FinishMaster, to-date, we've realized approximately $10 million of the overall expected savings. And we expect about $10 million going forward, right? All in all.

And at CAG, we've taken the actions, and those actions are reflected or starting to reflect, right? There is not a lot of new action expected in Canada going forward. So we're reaping now the benefit of the action we took in 2018 and early part of 2019.

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Operator [60]

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And there are no further questions at this time. (foreign language) I turn the call back over to the presenters.

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Eric Bussieres, Uni-Select Inc. - Executive VP & CFO [61]

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Thank you.

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Brent Windom, Uni-Select Inc. - President, CEO & Director [62]

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We'd like to thank everyone for joining us, and we'll talk to you when we announce our Q3 results. Have a great day. Thank you.

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Operator [63]

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Ladies and gentlemen, this concludes today's conference call. You may now disconnect. (foreign language)