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Rocky Mountain Dealerships Inc. Reports Fourth Quarter and Year-End 2019 Results

March, 11, 2020

Swift and direct action taken in 2019 positions RME defensively against on-going macro-economic headwinds

CALGARY, Alberta--(BUSINESS WIRE)-- Rocky Mountain Dealerships Inc. (TSX: RME, and hereinafter “RME”), Canada’s largest agriculture equipment dealer, today reported its financial results for the three and twelve months ended December 31, 2019. Unless otherwise stated, all amounts are expressed in Canadian dollars.

“In the fourth quarter of 2019, RME continued to respond to the challenging and ongoing macro-economic conditions swiftly and directly. Throughout the year, we continued to focus on those business factors within our control and that meant making some tough decisions. Significant uncertainty was created in March, when the Chinese government cut its canola trade with Canada. We expected this would create considerable sales headwinds and this proved to be true. In response, we took direct measures to rationalize costs across the entire RME network and this resulted in a reduction of $8.4 million in SG&A this year compared to 2018, $5.7 million of which was realized in the fourth quarter,” stated Garrett Ganden, President and CEO.

“By all measures, 2019 was a tough year. The Association of Equipment Manufacturers, Canada show deliveries of new agriculture equipment units in 2019 were at the lowest levels since 2004. However, despite low overall sales in 2019, we brought total equipment inventories back in-line with year-end 2018. Product support revenues improved in 2019 to $151.5 million, contributing approximately $7.9 million more than in 2018 on a full-year basis leading to improved sales mix and improved gross margins.

Overall, in 2019 we responded to the prevailing market conditions by addressing the aspects of our business that were within our control, namely inventory procurement and discretionary expenses. Looking forward to 2020, we are positioned to operate in what may continue to be an uncertain environment. We will focus on managing what is manageable and continue to be responsive to external forces while proactively empowering our branches to serve and meet the needs of our customers, hard-working farmers.”

SUMMARY OF THE YEAR ENDED DECEMBER 31, 2019

  • Gross margin percentage increased to 14.3% from 13.5% in the same period in 2018 as sales mix shifted towards higher-margin parts and service sales;
  • Reported sales of $775,070, a decrease of 26.3% compared with the same period in 2018 due primarily to negative customer sentiment driven by unresolved trade disputes;
  • Repurchased and cancelled 231 thousand of outstanding common shares pursuant to our NCIB;
  • Paid annual dividend of $0.49 per common share representing a current yield of approximately 8.2%.
 

SELECTED FINANCIAL INFORMATION

 

Quarter ended December 31,

 

Year ended December 31,

$ thousands

2019

 

2018

 

Change

 

% Change

 

2019

 

2018

 

Change

 

% Change

 

 

 

 

 

 

 

 

 

Sales

218,748

295,421

(76,673)

(26.0)

775,070

1,051,088

(276,018)

(26.3)

Cost of sales

191,233

255,257

(64,024)

(25.1)

664,533

909,626

(245,093)

(26.9)

Gross profit

27,515

40,164

(12,649)

(31.5)

110,537

141,462

(30,925)

(21.9)

Gross profit as a % of sales

12.6%

13.6%

(1.0%)

 

14.3%

13.5%

0.8%

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

20,496

26,186

(5,690)

(21.7)

90,880

99,262

(8,382)

(8.4)

Loss on derivative financial instruments

459

821

(362)

(44.1)

1,697

3,587

(1,890)

(52.7)

Loss on sale of disposal group

-

-

-

-

789

-

789

-

Earnings before finance costs and income taxes

6,560

13,157

(6,597)

(50.1)

17,171

38,613

(21,442)

(55.5)

Finance costs

4,728

3,804

924

24.3

18,573

14,017

4,556

32.5

Earnings (loss) before income taxes

1,832

9,353

(7,521)

(80.4)

(1,402)

24,596

(25,998)

(105.7)

Income tax expense (recovery)

510

2,602

(2,092)

(80.4)

(314)

6,756

(7,070)

(104.6)

Net earnings (loss)

1,322

6,751

(5,429)

(80.4)

(1,088)

17,840

(18,928)

(106.1)

 

 

 

 

 

 

 

 

 

Net earnings (loss) as a % of sales

0.6%

2.3%

(1.7%)

 

(0.1%)

1.7%

(1.8%)

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

Basic

0.07

0.34

(0.27)

(79.4)

(0.06)

0.90

(0.96)

(106.7)

Diluted

0.07

0.34

(0.27)

(79.4)

(0.06)

0.90

(0.96)

(106.7)

Dividends per share

0.1225

0.1225

-

-

0.4900

0.4750

0.0150

3.2

Book value / share – Dec 31

 

 

 

 

9.81

10.39

(0.58)

(5.6)

 

 

 

 

 

 

 

 

 

Non-IFRS Measures(1)

 

 

 

 

 

 

 

 

Adjusted Diluted Earnings per Share

0.08

0.34

(0.26)

(76.5)

0.03

0.95

(0.92)

(96.8)

Adjusted EBITDA

6,646

13,629

(6,983)

(51.2)

18,449

43,052

(24,603)

(57.1)

Operating SG&A

16,774

23,385

(6,611)

(28.3)

76,138

86,923

(10,785)

(12.4)

Operating SG&A as a % of sales

7.7%

7.9%

(0.2%)

 

9.8%

8.3%

1.5%

 

Operating Cash Flow before Changes in Floor Plan

(9,423)

(32,467)

23,044

71.0

20,010

(42,523)

62,533

147.1

(1) See further discussion in “Non-IFRS Measures” section below.

RESULTS FOR THE QUARTER ENDED DECEMBER 31, 2019

Unresolved trade disputes surrounding Canadian agriculture commodities continued to weigh on crop prices and farmer sentiment during the fourth quarter of 2019. The quarter also saw the continuation of the challenging and difficult harvest, which began in the later part of the third quarter, resulting in a portion of crops being left in the fields until spring. These factors continued to weigh negatively on customer equipment demand, while, on a positive note, both parts and service revenues were able to remain consistent with the prior year.

SALES AND MARGINS

  • Sales decreased 26.0% or $76,673 to $218,748 compared with $295,421 for the same period in 2018 due primarily to declines in new and used equipment sales of $55,042 and $21,071, respectively. These declines reflect the continued weaker 2019 demand and the overall negative farmer sentiment across the Canadian prairies.
  • Gross margin percentage decreased by 1.0% to 12.6% from 13.6% in the same period in 2018 as a result of lower margins realized on used equipment sales combined with a reduction in manufacturer incentives.
  • Gross profit dollars decreased by 31.5% or $12,649 to $27,515 from $40,164 for the same period in 2018 on reduced sales levels.

COST STRUCTURE

As a percentage of sales, Operating SG&A for the fourth quarter of 2019 was comparable to the same period in 2018, as the decline in sales was proportionally consistent to the reduction in Operating SG&A. Finance costs for the quarter ended December 31, 2019 increased 24.3% or $924 to $4,728 compared with $3,804 during the same period in 2018 due primarily to an increase in the average level of interest-bearing floor plan payable.

EARNINGS

  • Adjusted EBITDA for the quarter ended December 31, 2019 decreased by 51.2% or $6,983 to $6,646 compared with $13,629 for the same period in 2018.
  • Adjusted Diluted Earnings per Share decreased by $0.26 to $0.08 for the fourth quarter of 2019, compared with $0.34 for the same period of 2018.

RESULTS FOR THE YEAR ENDED DECEMBER 31, 2019

The Canadian agriculture equipment industry experienced significant declines in equipment sales in 2019, as unresolved trade disputes surrounding Canadian agriculture commodities weighed heavily on crop prices and farmer sentiment. In addition, poor weather conditions resulted in a challenging harvest, which limited yield and quality of our customers’ crops. On a positive note, our parts and service sales (which are less susceptible to macro-economic factors) positively contributed to our revenues as farmers choose to repair their equipment, rather than replace it.

SALES AND MARGINS

  • Sales decreased 26.3% or $276,018 to $775,070 compared with $1,051,088 for the same period in 2018 due primarily to negative customer sentiment driven by unresolved trade disputes.
  • Gross margin percentage increased by 0.8% to 14.3% from 13.5% in the same period in 2018 as sales mix shifted towards higher-margin parts and service sales.
  • Gross profit dollars decreased by 21.9% or $30,925 to $110,537 from $141,462 for the same period in 2018 on reduced sales.

COST STRUCTURE

  • As a percentage of sales, Operating SG&A for the year ended December 31, 2019 increased by 1.5% to 9.8% compared with 8.3% for the same period in 2018 as the decline in sales outpaced the reductions in Operating SG&A.
  • Finance costs for the year ended December 31, 2019 increased 32.5% or $4,556 to $18,573 compared with $14,017 during the same period in 2018 due primarily to an increase in the average level of interest-bearing floor plan.

EARNINGS

  • Adjusted EBITDA for the year ended December 31, 2019 decreased by 57.1% or $24,603 to $18,449 compared with $43,052 for the same period in 2018.
  • Adjusted Diluted Earnings per Share for the year ended December 31, 2019 decreased by $0.92 to $0.03 compared with $0.95 for the same period of 2018.

NORMAL COURSE ISSUER BID (“NCIB”)

During the year ended December 31, 2019, RME repurchased and cancelled 231 thousand of its outstanding common shares pursuant to an NCIB.

BALANCE SHEET AND INVENTORY

Inventory turns over the trailing twelve-months ended December 31, 2019 were 1.13 times, down from 1.73 times for fiscal 2018, reflecting the aforementioned decline in sales activity in combination with an increase in the average level of inventory on hand.

FINANCIAL STATEMENTS AND MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)

The MD&A as well as the audited financial statements and notes to the financial statements for the years ended December 31, 2019 and 2018, are available online at www.rockymtn.com and www.sedar.com.

NON-IFRS MEASURES

This news release references Adjusted Diluted Earnings per Share, Adjusted EBITDA, Operating SG&A, Operating SG&A as a % of sales and Operating Cash Flow before Changes in Floor Plan, all of which are non-IFRS measures. As these non-IFRS financial measures do not have standardized meanings prescribed by IFRS, they are unlikely to be comparable to similar measures presented by other issuers. Readers should not consider these measures in isolation or as a substitute for analysis of RME’s results as reported under IFRS. The definition and calculation for each non-IFRS measure is contained within RME’s MD&A for the year ended December 31, 2019 under the headings “Non-IFRS Measures” and “Reconciliation of Non-IFRS Measures to IFRS”, respectively. RME’s MD&A for the year ended December 31, 2019 is available online at www.rockymtn.com and www.sedar.com

CONFERENCE CALL

RME will host a conference call and webcast to discuss the quarter at 9:00 a.m. MT (11:00 a.m. ET) today. Please note that the format of the webcast incorporates a visual presentation for investors and analysts. To listen to the live webcast and watch the presentation please use the following link:

https://event.on24.com/wcc/r/2164356/8A5F4AAF3F6AA6457C79F17437EDAC6D

Within 24 hours of the event, the webcast will be available for replay at the link above until March 11, 2020.

Those interested in participating in the conference call may do so by calling 1-866-521-4909 (toll free) or (647) 427-2311.

An archived recording of the conference call will be available until March 30, 2020 by dialing 1-800-585-8367 (toll free) or 1-416-621-4642, Conference ID: 6198705. This archived recording will also be available at www.rockymtn.com.

2020 ANNUAL MEETING OF SHAREHOLDERS

RME also announced today that its Annual Meeting of Shareholders (the “Meeting”) will take place at 11:00 a.m. (MT) on Wednesday, April 29, 2020, in the showroom of Rocky Mountain Equipment, 260180 Writing Creek Crescent, Rocky View County, Alberta. Material related to the Meeting will be sent in due course to shareholders of record as at the close of business on March 10, 2020.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Certain information set forth in this news release, including, without limitation, statements that imply any future earnings, profitability, economic benefit or other financial results; statements regarding our strategy and ability to operate amid ongoing economic uncertainty; discussing or implying future payments of RME’s dividend; statements and statements regarding our scheduled earnings conference call and annual meeting of shareholders, are forward-looking information within the meaning of applicable Canadian securities laws. By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond RME’s control. While this forward-looking information is based on information and assumptions that RME’s management believes to be reasonable, there is significant risk that the forward-looking statements will prove not to be accurate. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future performance and events to differ materially from that expressed in the forward-looking statements. Accordingly, this news release is subject to the disclaimer and qualified by risks and other factors discussed by RME in its Annual Information Form dated March 10, 2020 under the heading “Risk Factors”, as well as in its MD&A for the quarter ended December 31, 2019. Except as required by law, RME disclaims any intention or obligation to update or revise forward-looking statements, and further reserves the right to change, at any time, at its sole discretion, its current practice of updating its guidance and outlooks.

ABOUT ROCKY MOUNTAIN DEALERSHIPS INC. (TSX: RME)

RME is Canada’s largest agriculture equipment dealer with branches located throughout Alberta, Saskatchewan, and Manitoba. Through its dealer network, RME sells, rents, and leases new and used agriculture equipment and offers product support and financing to its customers.

Additional information on RME is available at www.rockymtn.com and on SEDAR at www.sedar.com.

FOR INVESTOR AND MEDIA INQUIRIES, PLEASE CONTACT:
Rocky Mountain Dealerships Inc.
Clayton Paradis, 403-999-7658
cparadis@rockymtn.com

Source: Rocky Mountain Dealerships Inc.

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