Mr. Louis Juneau, Chief Legal Officer and Corporate Secretary, you may begin your conference.

Thank you, Jessa. Good morning, everyone, and thank you for joining us for the Uni-Select fourth quarter conference call.

Presenting this morning are André Courville, Interim President and Chief Executive Officer; and Eric Bussières, Chief Financial Officer. Following their comments, we will open the call for questions.

Joining us today for your questions are Chris Adams, President and COO, of FinishMaster USA; Brent Windom, President and COO of Automotive Canada; and Neil Croxson, Chief Financial Officer of The Parts Alliance. Please note that all 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. All amounts are expressed in U.S.

dollars, except as otherwise specified. With that, let me turn the call over to André.

Thank you, Louis. Good morning everyone.

I hope everybody has a good coffee. It’s cold again this morning in Montreal, that’s why we’re going to try to warm you up to the results.

So this morning, I want to play some emphasis on the fact that Uni-Select boards and management are clearly aligned with shareholders and the common goal of enhancing long-term value. Over the past year, we have pursued and delivered several parallel initiatives to build value for our shareholders.

These initiatives included our 25/20 Plan, which has provided favorable results today. Going forward, we intend to build on this success.

Our revenues for the year were up 21% to $1.8 billion compared to $1.4 billion in 2017, primarily due to the TPA acquisition. Organic sales growth was 1.5% positive, organic growth in all these three segments.

Adjusted EBITDA stood at $120 million or 6.8% of sales, compared to $118 million or 8.1% of sales in 2017, mainly due to pricing and competitive pressures at FinishMaster. Adjusted net earnings stood at $51 million or $1.22 per share, versus $55 million or $1.30 per share.

Here are few operational highlights for 2018. During the year, we opened 15 greenfields, integrated 14 stores, sold one store and acquired 21 stores.

At the end of the year, we had a consolidated network of 468 company-owned stores. In addition, during the year, the corporation amended and extended its credit agreement by one year providing for $100 million upsides in the unsecured long-term revolving credit facility through the conversion and immediate cancellation of unsecured term facility outstanding balance.

The facility has now a five-year maturity. Please turn to Page 5.

Recall that we have launched the 2020 initiative in Q3 2017 to generate annual recurring savings of $20 million. The focus was on reducing our costs to serve by accelerating thing that capture of certain synergies linked to the various acquisitions.

improved transit duty levels and bring more valuable within our cost structure. Last quarter, as you recall, we increased our accelerations, the program by an additional $5 million in annualized – sorry, cost savings, bringing the total recurring savings to at least $25 million by 2020.

Recall the program the 25/20 Plan as of December 31, 2018; we have realized $18.7 million in annualized savings under the plan. Turning to Page 6 please.

In January, they are being on the work of the 25/20 Plan; we initiated an in-depth review of U.S. operations with the objective of identifying specific performance improvement and rightsizing actions to address the changing market conditions and supposed to position the FinishMaster U.S.

segment for the future. The four key elements of the plan consist of company-owned consolidations, optimization, margin recovery and spending reductions.

The development and implementation are being led by Rob Molenaar, who have significant industry specific and ascertained expertise including deep knowledge of the automobile – automotive, I’m sorry, for revenue space for over 25 years of experience at one of the largest global paint manufacturers. He has also been an Uni-Select board member since 2017.

Chris Adams, President and COO of FinishMaster, U.S. will continue to focus on sales and marketing as well as day-to-day operation of the FinishMaster U.S.

segment. Both Rob and Chris report directly to me.

The 25/20 Plan and the FinishMaster U.S. segment’s rightsizing plan combined together will now be referred to as the Performance Improvement Plan.

The combined Performance Improvement Plan is now expected to generate total of $35 million in annualized cost savings by 2020 and incurred restructuring and other charges in the range of $14 million to $18 million. In sum, since the start of these activities in Q3 2017, we realized $18.7 million in annualized cost savings and $7.6 million in the restructuring and other charges.

Turning to Page 7 please. In September 2018, the Board made management changes and announced the formation of a Special Committee of independent members of the Board of Directors to oversee a review of strategic alternatives and appointed JPMorgan as its advisor.

The Board of Directors and management team continue to review, analyze and evaluate a comprehensive range of alternatives with the goal of maximizing value for our shareholders. Given the process, the corporation does not intend to provide further updates until the Board of Directors approves a definitive transaction or strategic alternative, or otherwise determines that further disclosure is appropriate.

There are no guarantees that the review of strategic alternatives will result in a transaction, or if a transaction is undertaken, as to its terms or timing. As the progression progresses in the strategic alternatives review, the Board has initiated a search for a new President and CEO of Uni-Select and mandated the firm Egon Zehnder International Inc.

to lead the search. The search has been performed in parallel with the strategic alternatives review in all scenarios relating to that process assess remain under consideration.

During this period, I will continue to act as the Interim President and CEO. On that note, I’d like to turn the call over to Eric to review the fourth quarter results.

Thank you, André and good morning everyone. Please turn to Page 9.

Before I comment on the results, I would like to remind you about the impact of seasonality on Uni-Select’s results. As you can see, the fourth quarter is generally a soft quarter in the year.

Let me begin with our consolidated fourth quarter results on Page 10. Overall, our fourth quarter results were disappointing and we’re not satisfied with it.

There are three subjects that I will address in more details. First, the very low margin at FinishMaster and what we’re doing about it.

Second, the lower sales and higher EBITDA margin at our Canadian operations. And finally, software sales and margin at TPA.

For the fourth quarter, on a consolidated basis, sales increased 1.1% to $420 million primarily driven by organic growth and acquisition, partly offset by foreign exchange. Adjusted EBITDA decreased 23% to $21 million or a margin of 5.1%, primarily explained by pricing pressure at FinishMaster, partly offset by the Canadian operations benefiting from annual performance rebates and the 25/20 Plan and the overall superior absorption of fixed costs from an increased volume of sales.

In the quarter, we took $7.6 million in the restructuring and other charges related to our 25/20 Plan. Finally, we acquired 21 stores integrated two open three greenfields and sold one store.

Let me go through each business segment in more details. Please turn to Page 11 for FinishMaster.

Revenue increased to $203 million, up 2.3% from last year, driven by organic growth of 3.9%, partly offset by the number of billing dates. We are encouraged by the top-line performance at FinishMaster as it is the third consecutive quarter of positive organic growth.

These factors are attributable to the sales team efforts on driving growth by developing business volume and onboarding new customers. However, the adjusted EBITDA margin fell sharply to 6.6% from 9.9% last year.

As a result of pricing pressure in the various refinish activities including, but not limited to the evolving customer mix to a greater exposure to multi-shop operators and national accounts. More specifically, manufacturers are increasing prices and our ability to pass on the price increase to our customers have been reduced more so in the second half of 2018 in light of competitive pressure.

In addition, the percentage of ASOs and national accounts in our customer mix continued to grow in the fourth quarter resulting in incremental discounts. In the fourth quarter, our margin was impacted by approximately 50 basis points of a one-time cost due to inventory cost adjustments and legal fees.

Furthermore, we estimate that refinish paint volume in the U.S. has declined 2% to 4% in 2018 and we do not expect volume growth in 2019.

In fact, we expect 2019 paint volume to slightly decline from 2018 level. Therefore, the refinish market is undergoing changes, we believe are structural in nature and we need to adjust our cost base and our cost-to-serve model accordingly.

Recall that we started to address these issues in the third quarter of 2017 when we launched the 2020 initiative. We accelerated the program in the last quarter with the 25/20 Plan as we saw more incremental opportunity to reduce expenses.

The poor performance of FinishMaster in the fourth quarter required further action from our parts. As a result, we developed a broad plan to rightsize the business model while enhancing and accelerating the optimization of our cost-to-serve model.

André described the highlights of the Performance Improvement Plan early. By the end of 2019, we expect the rightsizing plan of FinishMaster to generate $10 million in cost savings on an annualized basis.

To put this in perspective, the plan is back loaded – back-end loaded with benefit expected to start in the second half of the year. Turning now to Page 12 for Canada.

Our fourth quarter results and sales were down – sorry, our fourth quarter sales were down 5.5% to $123 million, primarily driven by foreign exchange. The timing of Holiday season, which resulted in jobbers and installers building for different periods versus last year as well as advanced sales in the third quarter due to announced price increase.

Also this year, the weather, when compared to last year, was not conducive for collision repairs. These factors were partly offset by acquisition and the number of billing dates.

As a result, organic growth was negative 0.5% in the quarter and positive 0.5% for the year in line with expectations. However, our adjusted EBITDA margin increased to 7.6% from 5.1% last year driven by annual performance rebate and margin improvement from all three network channels.

It is important to highlight that the annual performance rebates are normally spread out during the year. This year, more rebates were accounted for in the fourth quarter versus last year.

Excluding these rebates, our margin would have been higher than last year, but not in the same order of magnitude. Furthermore, I wanted to point out that our Paint, Body & Equipment segment performed very well in the quarter despite the paint volume being down 6% to 8% in 2019 – in 2018 in Canada according to our own estimates.

In that context, our team did a phenomenal job of growing sales and managing costs. As we mentioned in the last quarter, we also started to focus on optimizing our network.

In the quarter, we sold one store and are in the process of merging two stores – two distribution centers in the west into one new large center in Calgary. Also, we have other logistic opportunities to improve our network that we will be evaluating with the scope of the Performance Improvement Plan.

I do however want to be clear that when we are consolidating stores, in most cases, we’re not losing volume, but reducing our cost-to-serve model, providing better service to our customer and ultimately improving margins. In addition, in the quarter, we continued to roll out the Bumper to Bumper and to deploy the point-of-sale systems, PartsWatch.

Finally in November, we made a strategic acquisition of Autochoice Parts & Paints with 18 stores in the Atlantic region. With this transaction, we added a solid team and a stable base of business organization carrying diverse product category including automotive parts, paint, body supplies to the Uni-Select’s family.

These Atlantic stores are very nice addition to our corporate stores network in Canada and to compliment our strong network of independent jobber customers. For 2019, we would like to highlight that we have some customers in the oil and gas business out west that are experiencing some difficulties.

This turbulence could result in lower volume for us in the year. We will provide with you more information when it is available.

Now, turning to our Parts Alliance UK segment on page 13. Our fourth quarter revenue was $93.6 million up slightly versus last year, primarily due to organic growth of 2.8%, partly offset by foreign exchange.

The organic growth was driven by recent opening of greenfield. In fact, during the quarter, we opened three greenfields, the total is 13 in 2018 and 15 since its acquisition expanding the footprint in the UK.

Sales in the quarter were also impacted by the loss of the sales contract mainly for the supply of batteries while we were work diligently to replace volumes. We will put some pressure on our organic growth and margin for the next three quarters.

Just to put this in perspective, no one customer represent more than 3% of sales at TPA. Recall as well that sales in December are seasonally soft and the loss of battery volume was exacerbated by the mild weather compared to last year.

Adjusted EBITDA margin was slightly down from 4% to 3.8, primarily due to recent investment in greenfield. In fact, greenfield opening negatively impacted the margin by 75 basis points in the quarter.

Therefore, excluding this impact, margin would have been approximately 4.6%. This factor was probably compensated by higher volume and increased absorption of fixed costs.

In the quarter TPA executed its Performance Improvement Plan to reviewed its supply chain and closed two store, reduced its workforce and inaugurated a new national distribution center situated in the heart of the UK. This will allow us with the ability to grow while improving efficiencies.

TPA has also acquired two stores in the quarter expanding its network. The integration of TPA in the Uni-Select's family went smoothly in 2018 and we are happy with the first full year of performance at TPA.

As a part of this process, information technology solution were either standardized, deployed or integrated over 20 company-owned stores of TPA and TPA is now 52-109 compliant. For 2019, TPA will continue to open greenfield and execute its Performance Improvement Plan.

While the first quarter is typically a strong quarter for TPA, we expect somewhat slower growth considering the loss of a sales contract. The uncertainty regarding Brexit, the decrease in the UK pound the strong quarter reported last year.

Turning to page 17 for consolidated profit. for the fourth quarter, we incurred net loss of $2.4 million or $0.06 per share versus net earnings of $8.7 million or $0.21 per share last year.

Adjusted earnings for the quarter totaled $5.4 million or $0.13 per share versus $11.6 million or $0.27 per share last year. The decrease in adjusted earnings was mainly attributable to lower adjusted EBITDA as well as additional financial costs and depreciation, amortization related to capital investments.

Now, let me comment on our quarterly cash flow on page 18. In the fourth quarter, cash flow from operating activities provided $13 million in liquidity versus $46 million last year.

This variation was negatively impacted by change in working capital license. Notably, investment inventory to benefit from annual performance rebate, prevent logistical issues with Brexit and to fill new distribution centers as part of the Performance Improvement Plan.

These factors were partly offset by reduction in receivables due to improved collection. As a result, the lower cash flow from operating – operations and higher CapEx generated $14 million of free cash flow from the quarter compared to $17 million last quarter – last year, sorry.

For the year, we generated $94.6 million in cash flow from operations and $80 million of free cash representing a cash conversion of 66% – 67% sorry, due to interest on debt to finance acquisition, income tax installment and CapEx related to the opening of new distribution centers. in 2018, we use $107 million for a combination of acquisition, net customer investment, CapEx, leases and dividends.

Turning to Page 19. At the end – at the year-end, our outstanding total debt remains stable versus last year at $419 million.

As a result, the funded debt-to-adjusted EBITDA ratio stood at 3.5 times at the end of the year. We were not in a position to be use our debt in the fourth quarter, considering that we made acquisition invested in our inventory, encouraged special items, cash disbursement and generated lower than expected EBITDA.

Now, let me turn to the outlook on Page 21. Within the market reality and the challenges in the company that are – is facing, it is difficult to provide specific guidance by segments.

As a result, we are providing guidance on a consolidated basis. We expect to be able to narrow their range as we progress the year.

One important point to keep in mind is that the guidance that we are providing is based on pre- IFRS 16. during our Q1 2019 call, we will adjust our guidance to post-IFRS implementation.

for 2019, we expect organic growth to be in the range of 1.25% to 3.25% and adjusted EBITDA margin to be in the range of 5.75% to 6.75%. We also expect CapEx to be in the range of $25 million to $30 million.

Recall that our CapEx includes investments for capital leases, vehicle fleet, hardware equipment, software and others. We also expect tax rate to be in the range of 22% to 24%.

Turning to Page 22, last quarter, we informed the market that one of our large supplier was changing his payment terms in 2019. As a result, in 2019, we will have a cash outflow of approximately $55 million, which will likely be spread throughout the year.

Although this is a one-time impact, it will have an impact on our cash position. Therefore, given this one-time cash outflow and the ongoing Performance Improvement Plan and the associated rightsizing kind of FinishMaster, we do not expect to reduce our leverage in 2019.

Based on the foregoing, we’re on track to reach 2.5 times funded debt-to-adjusted EBITDA in 2021 excluding any potential acquisition. A few points to keep in mind for the first quarter.

For the Canadian operations, the first quarter is typically soft and this year will be no exception. In addition, while TPA first quarter is typically strong, it will be softer than the norm this year.

With the challenges we are facing at FinishMaster, you can expect their first quarter margin to be lower than the same period last year. given the seasonal cash flow pattern, we expect our leverage to increase in the first quarter.

Finally, I will briefly discuss IFRS 16, which is the new accounting standard for leases. For Uni-Select, it will be essentially affect the accounting for the corporate real estate operating leases.

We will provide more color on this in Q1 2019, but wanted to give you a heads-up on certain financial impacts. On a pro forma basis for 2018, our analysis suggests that our EBITDA would have increased by about $25 million.

Our earnings per shares would have decreased by about $0.03 per share. Our cash flow from operating activities would have increased by $25 million while our cash out flow for financing activities would increase by a similar amount.

All those being equal, the EPS impact for 2019 is currently estimated to be approximately $0.02 per share. We will be adopting this new standard based on the application, the modified, retrospective transition approach selected by the corporation starting in the first quarter.

However, we will not restate prior year. as I mentioned earlier, we will be adjusting our guidance to the new standard next quarter.

I will now pass the call back to André.

Thank you, Eric. I would just like to conclude by saying that we are not satisfied with the FinishMaster results obviously and we are taking concrete actions with the Performance Improvement Plan to generate, an additional $10 million of annualized savings.

in parallel, we continued to progress well in our strategic alternative review. The total Performance Improvement Plan is expected now to generate $35 million of annualized savings by the end of 2020.

Take note that our first quarter results will be softer than last year and our leverage will remain at current levels by the end of 2019 as Eric explained. Finally, we think all stakeholders with the ongoing support in these challenging times.

This concludes our presentation and we are now ready for questions. Thank you, everyone.

Yes. Good morning.

Good morning, Benoit.

Yes. My first question is on FinishMaster.

could you talk about the pricing pressure and the evolving customers mix and how it has evolved over the last quarter? It seems that there has been some changes overall from a quarter ago.

So, if you could quantify and also the exposure to national accounts how it has been increasing over the last year.

Eric will do and then Chris can add to the point, Benoit.

So, I think where we’re seeing Benoit is that there is a shift towards the national accounts, where – as you know, we sort of described these segments in three different or four components. We’ve got the national accounts, the MSOs, the traditional segment and the industrial segments, right.

So focusing on the refinish aspect, therefore exuding the industrial segment. The way you should think about it is with the ongoing consolidation in the announcement, for instance, of the Caliber acquisition with ABRA.

those factors are bringing a higher percentage of national accounts to us. There is also a movement of some MSOs being purchased by national accounts, which also is putting a pressure on margins.

And there’s some traditional accounts that are being purchased by MSOs are national accounts. So, you have an industry that is actually shifting and bringing more consolidation, right and our plan and our cost cutting exercise that we’re launching is to address those changes.

Okay. And what would be your exposure to national accounts right now as opposed to a year ago, Eric?

well, it has increased by about 5% to 6%, Benoit, if I recall correctly, between Q4 – Q4 2017 versus Q4 2018. What you guys should understand is that the margins are quite different when we do business with national accounts.

The reality is it remains the fastest-growing segment and we took a view of a – there is a long-term benefit for the business that we need to be involved in that business.

Okay.

And also part that Benoit, that’s why in the cost-to-serve model and this plan of annualized savings will be to address how we serve those clients in the future. So, we can increase the margin.

Yes. And when we look at the UK, it seems also that you’re increasing your exposure to national accounts.

So, could it lead also to some margin erosion overtime with The Parts Alliance?

No, I wouldn’t be – I wouldn’t be willing to say that Benoit, I think in reality I would say that our exported to national account has diminished a little bit when we referred to the battery contract that we talked about, that was more sort of a national type contract. So, I wouldn’t be willing to say that.

Okay. And with respect to your Canadian Automotive business, what is your exposure to oil and gas right now and how big it could be down?

It seems that it could materially impact your outlook, your growth, organic growth outlook for the Canadian automotive business in 2019. So, I’m just curious to get more color about the expectation.

Yes. So look, I would tell – I’ll ask Brent to compliment, but I would tell you the reason why we wanted to mention that on the call.

You will remember it in 2014, 2015, we had some impact with what happened in the oil patch at the time with the Canadian business. And I wouldn’t be willing to say that our exposure has increased or decreased, so that markets pretty stable since 2015.

The question becomes more about how the operators of the oil and gas patch will react to what the current pricing pressure that they’re experiencing in the market. And I’ll let Brent maybe compliment.

Benoit, I would say that we – right now, we’re studying it. We know that it potentially could have impacts and that’s reasonably forecast, it will sort of give that color as we get through the first quarter, we’ll have a better feel for it.

But right now, it’s not material to or at this point, but we believe it could be so more to come on that.

Okay, okay. And with respect to free cash flow, could you provide some color on how – what your leverage could be throughout the 2019 and also what is your cushion with respect to the current comments you have in place?

We understand that the leverage ratio will go up, but this is also on the fact that there’s a few to be made to your supplier, but also the fact that EBITDA is going to decline. So, I’m just curious, if you could elaborate about the cushion you have and your – the expectation there.

Yes. We’ll look currently, Benoit.

We expect our leverage to be similar at the end of 2019 than it was at 2018, right. As I said, we unfortunately don’t expect to deleverage in the year as it relates to the seasonality, we will be managing our expenses and our working capital accordingly to better address the seasonality of our cash flow and ensure that we are in compliance with our financial obligations.

Okay. And the last one for me, I’ll get back on the queue after.

But in terms of a strategic review, I understand that you cannot give a lot of color, but is there any details about the timing or the level of interest you’ve seen so far?

Well, as we said, in the text, there’s no additional news on that side the committee, select committee, the board and management are still looking to all of the possibilities after five months, who are obviously more advanced than when we started. And we are expecting to move this forward in the next coming months.

But I’m not going to give you a final date, but we are working diligently with the committee, the advisors and still looking to all those different drops that needs to be aligned, but the progress is very good. And I don’t think I can say more at this point in time.

Okay, thanks. I’ll get back in the queue.

Thanks.

Hey, good morning.

Good morning.

Just to understand a little bit more, the commentary in the remarks and the kit is that for FinishMaster, manufacturers are increasing price, but your ability to pass through the price is a little bit more difficult. I’m just having a little bit of difficulty understanding exactly why that might be occurring for you guys.

Yes. Mike, I would just say it depends on the volume of the customer, the market, the competition within the market.

So, there’s certainly markets, where we experienced the ability to pass on increases, but it just depends on a number of competitive factors. Certainly one being – there’s more and more – as customers grow and we see consolidation, there’s more customers working directly with the manufacturers as well.

But for you – like for you guys, you worked so closely with the suppliers, I mean why – can’t the conversation simply turn around and say, look, we can’t pass this through, we need to rethink this, is it – like can you push back on them?

Well look, we’re obviously having conversations with our customers and the manufacturers on a broad-based basis, Michael. The reality is the segment has become more competitive with consolidation happening in the industry and the fact that the national accounts are presenting a bigger share of the wallet for us, has put further burden on it.

but no mistake, there’s a lot of competition on the traditional segments, which is historically the most profitable segments. There are a lot of players in the distribution segments are fighting for those customers.

And that’s really what’s happening in the background.

Okay. And are you seeing any other paint manufacturers increase market share or trying to disrupt the market right now and are moving away?

Well, look, no question it’s competitive out there as it was before. Well, I think that’s each manufacturer is our – have a strategy of their own and they’re trying to execute on those strategies, but it is a competitive landscape.

But I’m not sure I would describe it as more competitive or less competitive. I think certain manufacturers have decided to focus more on certain segment of the refinish business.

Okay. And then just to circle back on your covenants, I mean, can you review what your covenants are and if you were to reach your covenants, what – is there any repercussions that we should think about?

Well, first of all, we’re not saying or signaling that we would be in reach. All I’m saying is we will manage our spin and manage our working capital accordingly, Michael?

That’s all I’m going to say.

Okay. I mean, I’m just – you have a $55 million outflow in Q2 that we need to take into consideration.

I think your negative working capital in Q1. So, can you give an idea of where…

First of all, as I stated in my remarks, the $55 million will be spread throughout the year and we have a good comfort that we will be able to spread those payments over a period of time. So, it’s not just on Q2 and you’re correct that in the last call that we had indicated that the major cash out and expect it to be in Q2.

We’ve been able to make some decisions and the payment terms and agreements with various suppliers. So, it will be spread out throughout the year, which alleviates some of the pressure.

Okay. And finally, the $18.7 million that you’ve highlighted, that is if we think about that, if you had not undergone the initiatives, would we then – your EBITDA would have been $18.7 million lower this year that.

Well, I wouldn’t say this year, just to be clear, keep in mind that this is annualized run rate. So obviously, if I take the equivalent of – I’ll take an example just for discussion purposes, right?

If I take cost out in November of 2018 of $1 million, I obviously don’t have the $1 million benefit in 2018. It’s a $1 million of cost that I’m pulling out that will be a reduction over 12 months.

So when we say $18.7 million, I want to be clear that this is on an annualized run rate basis, which means that if I do nothing else and I let the operation run for the next 12 months, I will have reduced over that 12 months period a $18.7 million of costs. So the timing unit, keep in mind there is a finding element, but predominantly speaking, yes, we took the $18.7 million of costs and this is mainly through people and facilities.

Okay. That’s all my questions.

Thanks.

Thank you again.

Good morning.

Good morning. just picking up on that last question, Eric, do you have the number for how much of the $18.7 million benefited the 2018 results?

Well, what I’ll tell you is, for the 2018 results, it’s a roughly, we incurred about the $8.6 million of annualized savings during the year, right? So at the start of 2017 – sorry, at the end of 2017, we had about $10 million of annualized savings realized.

So, we’ve increased our ability to those savings by about $8.6 million during the year, not all that $8.6 million did not fall as of Jan 1, 2017. I just gave you some guidance in terms of 10 secured at the end of the 2017, $10.1 million actually, and we realize an additional $8.6 million during the 2018 exercise to finish at $18.7 million.

Okay. And of the $10 million of incremental cost savings that were identified today, will those fully benefit the 2020 earnings?

Yes. It’s definitely what the expectations are from the management’s perspective and that’s definitely the way the plans have been structured.

Okay. And on FinishMaster’s margin, can you just remind us the gross margin difference between your sales to the MSOs and to the traditional independence?

Well, look, on a broad basis, I’m not going to get into the numbers per se, its competitive elements in that, but obviously, we’ve always said the MSO business was at the lower end of the spectrum of margins and you would expect the customer with the smaller volume purchase, don’t get those – the same type of incentives?

Right. So, I’m not sure if you can answer this, but I think the question on people’s minds would be where could EBITDA margins for FinishMaster drop?

assuming the industry continues to consolidate and you are able to reduce your cost-to-serve model. I know you’re not providing guidance on that, but if you had any color that would help that question?

that’d be helpful.

Well look, what I can tell you is that the margins that we’ve experienced in Q4, we would expect similar margin might be slightly better in Q1, but we expect the margin improvements thereafter with the cost actions that we’re taking and the volume growth that we expect as you know, there is some seasonality albeit less than the Canadian or the UK business, but there is some level of the seasonality in the FinishMaster business. Q1 and Q4 at FinishMaster tend to be those slower quarters.

And therefore, we expect margin expansion in Q2, Q3 fueled by – partly by the volume but also with the costs of action that we’re taking.

Okay. And I just have a couple of questions on The Parts Alliance business if I can.

Sure.

What was the contribution of greenfields to the organic sales comp for Q4?

Bear with me be for a second, Jonathan, I have had – readily available. Let me just check for be sure, for the quarter – for the year, Jonathan just to make sure that I’m not…

For Q4.

For Q4, the greenfield gave about 2.8% on a standalone basis that we’re getting growth.

So, does that mean that the underlying organic sales growth was flat?

Sorry, let me rephrase this. It’s about 3.5% on the organic growth of the greenfield for the quarter and 2.8% as a whole.

So, basically what I’m saying is there was slight negative organic growth in the non-greenfield stores in Q4 at The Parts Alliance.

And I’m not quite clear what happened with the loss of the sales contract, related to batteries. Could you just explain what that was?

I’ll let Neil modify the answer.

Yes. We had a contract with a customer and that’s predominantly the sale of batteries and most that contract during the last quarter.

How many – can you give us a sense of what that represents in terms of sales?

Less than 2%.

Okay. And how many greenfield stores do you plan to open for Parts Alliance this year?

We’ll continue with our branch opening program. It’s been very successful for this year.

We will continue that way, we’re targeting five to seven at this stage, as soon as the opportunities develop, we’ll keep reviewing that.

If you recall, Jonathan, last year, we started with a lower number of greenfields that we expect at the beginning of 2018 and with the success that the UK had with those greenfields, we actually increased in fuel that growth and we were able to open 13 greenfields during the year. So this year, we’re taking a little bit of a more conservative approach.

We’re starting with five to seven, but we’ll adjust if we feel that the business opportunities are there.

Okay. Thanks for your comments.

Good morning.

Good morning.

Can we talk quickly about the industry volume declines that you’re seeing at FinishMaster for paint?

Sure.

So, just specifically, is that a reflection of a change in the paint products or is that an industry wide we’re seeing lower volumes all over?

yes. Well, I’ll tell you Daryl, there’s a couple of things, right.

The volume of paint is directly in the paint business has been fairly stable. It’s not a – the volume per se hasn’t grown that much in the last 10 years.

That’s the first thing I would say. And why is that despite the fact that your car park has increased quite a bit from 2008 to today, a part of it is technology improvements, a part of it is body shops are more efficient and technology on the actual paint from the manufacturer has evolved whereas the thickness of the coating and the number of coating that you need to put is not as much as it was 10 years ago.

So, those factors all are – had an impact on the volume. Car sales in the U.S.

in 2018 were good, but they were not – it wasn’t a record year compared to the other years before that. So, there’s clearly sometechnological advancements.

I personally believe and this is more in Eric observation, that the efficiency that you see in the collision repair industry is having an impact also, right. I think that the body shops are just more streamline and performing.

So, it’s a combination of the factors. And we don’t really expect that to change materially in the short-term.

And as I put in my remarks, we also saw some contraction of volume in the Canadian business. Now, price increases have overcome a lot of those volume reduction in the past and we were hopeful that we’ll be able to do so in the future also.

Thank you, Eric. I would just add very similar comments, much, much more efficient, we’re seeing much greater efficiencies with a number of repairs.

They’re measuring things like cost per labor hour and we see higher water based paint products today, much lower consumption rates, so – but more and more repairs are certainly becoming more efficient.

Okay, perfect. And then in terms of the incentives that you guys are providing, where do you see incentives as a percent of revenue going forward?

You’re talking about customer investment?

Yes.

So, customer investment historically, has a range of about 2.5% of sales, I would tell you that we expect probably 2% to 2.5% of sales and that’s certainly something that we’re paying attention to make sure that we get the proper return on those incentives.

Okay, excellent. And then the – shifting project directionally, in terms of the margin improvement that you hope to see at FinishMaster, are we thinking we’ll start the year at a lower margin and finish the year at a higher margin once some of the cost cutting initiatives come in?

Yes. That is really the plan that we’re drafting and we’ve been working on and we’ll be executing in the foreseeable future.

That is correct.

So, maybe not as depending on seasonality as historical results, more dependent on when the cost savings come through?

Yes. Look, the reality is, we will get the benefits start to see the benefit in the second half of 2019.

Okay, perfect. And then in terms of the Canadian business and the acquisition in the quarter on the East Coast, do we have a sense of what kind of revenue that business generates?

So that will from a Canadian dollar standpoint, that’ll actually be about $20 million accretive to the organization are and for the business.

Okay, great. Thanks very much guys.

Thank you.

Hi, good morning.

Good morning.

Good morning.

I just want to go back to the Canada segment. Eric, I think you made comments earlier about the vendor rebates in the quarter and the timing issue or not issue, but the change in timing.

Could you just clarify if typically these vendor rebates do we since through the year and this year, we saw them back-end loaded. Is that what happened here?

Not really Elizabeth. What happened is we’re opening up a new DC in Calgary as we mentioned.

And if you recall in the Q3 call also mentioned that there was a bit of a variation possible on our spending of CapEx depending on the activities that we’re undergoing and milestones that we needed to hit. Obviously, if you’re opening a DC, you need to put products in that DC, but you can put this product only when the DC is ready to accommodate that, that was products.

So, there was opportunity for us throughout the year as to – at what point the DC would be sufficiently ready to accommodate for additional inventory. So, from an accounting perspective, I’m not having clarity in terms of volume that we would be able to purchase in-house and we took a conservative approach during the first three quarters as it relates to those rebates that are more annualized – annual type rebates, right.

Normally, we sort of make an accruals on those annual rebates, because we have a fairly high degree of certainty if we got to hit or not. In this case, there was an element of uncertainty linked to what we’d be and there’s no point of buying stuff if you can house it, right?

That would be the wrong approach for us. So, that’s why there was a little bit more rebates hitting the bottom line at the Canadian operations in Q4.

It was a matter of catching up then.

Well, you can see it catching up, but I would also argue when you’re opening a DC, you were going to have a purpose to have more inventory, because you’re in a transition phase, is that right? You’re going to have the new DC, then used to have inventory.

you’d have to empty your existing DCs. You kind of do that as early as possible to minimize costs.

The last thing you want is to start moving products from one DC to the other when it’s sold the day after, right? I would rather sell it from my existing DC to reduce inventory level there, not more inventory in my new DC and enable overtime sort of move the remainder of the inventory from those two legacy DCs that are being consolidated.

That’s really what’s been happening.

Okay. That’s great.

And just going back to FinishMaster as it pertains to margin, I mean, give me your comments about the expectation for margin improvement, really the second half of 2019, I know, I understand all that. but I look at your outlook for 2019 and on a consolidated basis, its points to lower than 2018 actual results.

So, I’m trying to understand if the guidance is for a lower margin next year, but the outlook is for higher margin within FinishMaster. I’m just trying to reconcile those two comments, just something that I’m missing there?

No. I’m looking to providing the guidance on a consolidated basis as what we see coming from the three businesses.

Each businesses have a different contribution throughout the year. There is no question that in FinishMaster, we have a pressure on margins and the cost actions that we’re taking as I mentioned will benefit more of the second half of 2019.

So, I think that that gives you some appreciation of what we expect in the year.

Okay. So I’m just trying to get, what I’m trying to do that here is if there’s an expectation for further margin decline in Canada, particularly giving your comments with respect to oil and gas regions.

No. What we’ve indicated is that there’s uncertainty on the Canadian side that could have an impact on the organic growth and to a lesser extent on the margin.

and as Brent signaled, it’s not like something material has happened and if we see it as we speak what we’re cautious about it for the simpler reason that we’ve experienced that back in 2014, 2015. And I think it’s important for the investors to understand that component that is effective in the Canadian business.

Okay. And just finally from me, in terms of the announcement of the executive search for permanent CEO and President, just one of you can comment on the timing of that, given that it started in January, as opposed to when the strategic review was first announced or anything, it helps you can share with respect to that process?

Yes. Well, we have announced that we’ve signed up an agreement with Egon Zehnder to start the search.

The mandate is given, and as you know, it takes a couple of months to find the right CEO. This will be done in parallel to – on the – in continuation with the strategic review.

But we felt that at this point in time, we surface to get advance that and taking the time it takes to get the right candidate. We should start now and that’s what we’re doing.

The mandate is given. And in the next coming weeks and months, we will find the right person in due course.

So, I think it was the right decision for the board to start that at this point in time. Because, if we wait that everything is over at some point in time, this will take another so many months.

So, I think we are moving forward and the board is sensible. The fact that the shareholders are expecting at some point in time to have a full-time CEO instead of an Interim CEO like me.

So, we – I think that’s what is happening.

Okay, that’s great. Thanks.

That’s all my questions.

Good morning.

Good morning.

Good morning.

So with the shift to national accounts at FinishMaster dealing with manufacturers directly, is there at all a concern of being disintermediated?

Well look, it’s not necessarily qualified these in material – but we’ve talked about the fact that there was national account due a contract directly with the manufacturer and then the distributors are invited thereafter to work on the service level with the manufacturer and the customer. So that’s not new, what’s different is that the size of national accounts and a consolidation by the national players as accelerated and you saw the significant merger of Caliber-ABRA, that’s just a testimony of what’s going on in the industry.

We happened to be a key player in the national accounts and we intend to remain a key player in the national account distribution. What we need to do is adjust our service offering and our cost-to-serve model to better manage that process so to speak.

And then we’ll go streamline the operations and that’s what – that’s the plan for 2019.

Eric would add that, we have relationships directly with those accounts as well in our network and consistency is certainly worth something throughout of value to those national accounts.

On the manufacturer and the customer side.

Yes.

Thanks. That’s helpful.

And is there any assessment of the impact of the greenfield dilution for the – I believe you said it was five to seven that you’re targeting for 2019?

Yes. So, if you factor in the 2018 greenfield, because the way we look at those is that we’re keeping track of those words 12 to 18 months of the existing greenfield that we did in 2018.

Because obviously, we opened three, I believe in Q4 that if you can understand that, that will be some impact on margins will link to those three stores throughout most part of 2019. Neil, I think you may have a rough fist and it’s what you’re expecting the dilution.

That’s 13 sites had an impact with 40 basis on…

40 bps in 2018.

Full-year 2018. And obviously, on average, there will be a superbound [ph] half the year.

So, as we continue with that investment to that at a similar rate than you could expect that similar that going forward.

Although I would probably think it will be less than 18 in terms of overall dilution. But I think you could estimate something between 20 and 30 basis point impact on margins linked to those greenfield, the one that we did in 2018 plus to one that we intend to do in 2019.

Perfect. Thank you very much.

Thank you.

Thank you.

Hello. Hi.

Daryl.

Hi there. Just following up on Elizabeth’s question, with regards to FinishMaster margins.

When we say that they’re going to go higher, we’re referring to Q4 not the full year, 9.1%, correct?

Yes. We’re referring to this Q4 and as I alluded, Q1 margins are expected to be somewhat in line with the Q4 margins.

Right. Okay, perfect.

Thanks very much.

Thank you.

Okay. Thank you everyone and hope you have a great day.

And if you have other questions, I know that Eric and I are available. So, have a good day.

And thank you and talk to you soon in next quarter. Bye.