Cervus Announces 2019 Results and Quarterly Dividend
CALGARY, March 12, 2020 /CNW/ - Cervus Equipment Corporation ("Cervus" or the "Company") (TSX: CERV) announced its financial results and operational highlights for the fourth quarter and the year ended December 31, 2019, a partnership with 'Farm At Hand' and a new agriculture location in Nipawin, Saskatchewan.
"2019 was a challenging year as our Western Canadian Agriculture operations navigated compounding and considerable headwinds," said Angela Lekatsas, President and CEO of Cervus. "Amid these headwinds, agriculture equipment dealers faced excess supply of used equipment inventories resulting in our fourth quarter and full year inventory impairments of $10 million and $24 million respectively. Through focused actions taken to reduce our used agriculture inventory in the second half of 2019, we maintained our strong balance sheet, while achieving used inventory targets and limiting prolonged exposure to inventory carrying costs and valuation risk.
With 2019 in our rear-view mirror, Cervus has turned its attention to executing on our five-year strategy of achieving equilibrium between sales and product support with specific focus on our innovation and technology capabilities. In this regard, we are pleased to announce an exclusive partnership with Farm At Hand, part of the Telus family. This innovative farm management application enables the digitization of farm records to better manage farm activities, sales timing, field profits and equipment utilization, as well as integrating with the data and analytics delivered by John Deere Operations Center.
We are also pleased to announce the opening of a new agriculture product support location in Nipawin, Saskatchewan. This new facility will complement the services currently being offered from our store in Melfort, enhancing the customer experience and improving service levels for farming operations in the agricultural areas of Nipawin, Carrot River, Choiceland and Aborfield."
2019 Highlights
- Loss of $9 million or $0.56 per basic share in 2019 compared to income of $25 million or $1.58 per basic share in 2018, including $13 million or $0.82 per share of increased inventory impairments compared to 2018.
- Despite the tough agriculture market, operations generated strong adjusted free cash flow1 of $21 million in 2019.
- Agriculture segment used equipment inventory decreased $67 million or 37% at December 31, 2019 as compared to June 30, 2019. Excess used equipment inventory in the agriculture industry resulted in inventory impairments of $10 million in the fourth quarter and $24 million for the year in 2019.
- Dividends of $0.44 per share were declared to shareholders of record during 2019, and Cervus has declared a dividend of $0.11 per share for the first quarter of 2020.
- The Company repurchased 0.3 million shares under its Normal Course Issuers Bid at a cost of $3.9 million during the year.
Partnership with 'Farm At Hand'
Cervus is pleased to announce it has entered an exclusive partnership with Farm At Hand, part of the TELUS family. This new solution will help producers leverage data and insight for their operations through the digitization of farm records to better manage farm activities, sales timing, field profits, and equipment utilization. Farm At Hand is a cloud-based farm management solution, with permission-based access capabilities to share and collect information across the farm enterprise. The simple, consistent, and unified collection of information facilitates decisions which improve revenue and reduce costs per acre for producers. Farm at Hand also integrates with the data and analytics delivered by John Deere Operations Center, and we are excited to bring these solutions to our customers as the exclusive provider of the Farm at Hand platform in our geography.
Opening of New Agriculture Location in Nipawin, Saskatchewan
The team at Cervus is excited to announce the opening of our new John Deere dealership in Nipawin, Saskatchewan. Nipawin is within our existing trade area, and has previously been serviced by our Melfort, SK dealership. We are establishing this greenfield location to provide quicker, more convenient access to agriculture equipment, parts and service for our customers in this thriving agricultural region, located in the Northeast portion of our trade area. We are targeting opening on or about April 15, 2020, in time for spring seeding. The dealership will be home to friendly and knowledgeable parts technicians, three service bays equipped with manufacturer-trained service technicians, along with a mobile technician for in-field and on-farm repairs.
Quarterly Dividend
Cervus' Board of Directors has approved a cash dividend to Cervus shareholders of $0.11 per share for the first quarter of 2020. Payment will be made on or about April 15, 2020 to shareholders of record as of the close of business on March 31, 2020. Investors are cautioned that quarterly dividends are always subject to approval from the Board of Directors of Cervus, and may be increased, decreased or suspended by the Board at any time.
2019 Annual Results
Revenue
- Revenue decreased 16% in the year, driven by a 22% decrease in equipment revenue, partly offset by a 6% increase in product support revenue.
- Agriculture equipment revenue declined 24% for the year, as the Canadian agriculture industry faced a number of headwinds, including reduced 2018 farm income, increased input costs, reduced commodity prices and trade disputes, all compounded by poor growing and harvesting conditions in parts of our geography. In this environment, producers chose to postpone new equipment purchases as many own late model equipment acquired in recent years.
- Transportation equipment revenue declined 15% for the year, the result of factory delays experienced in the first half the year, combined with softening customer demand and increased competition in the second half of the year.
- Despite the headwinds shared across our Canadian equipment dealerships, product support revenue remained resilient, improving 6% for the year. The largest increase in product support revenue was in our Agriculture segment, as demand for parts and service continued through the challenging harvest window. A difficult 2018 harvest also bolstered early season product support revenue in 2019.
Gross Profit
- Gross profit declined 19% or $40 million for the year due to a decrease in both new and used equipment gross profit in the Agriculture segment associated with lower revenues and margins. This $40 million decline includes an increase in equipment inventory impairments of $13 million for the year and the $16 million reduction in gross profit from Agriculture new equipment sales in the second half of 2019.
- Growth in product support revenue contributed an additional $7 million of gross profit for the year compared to 2018.
Selling, General and Administrative ("SG&A") Expenses and Net Finance Costs
- SG&A expenses excluding equipment commissions were flat for the year, primarily due to the elimination of annual performance incentives and a reduction in marketing expenditures, partly offset by restructuring charges and the inclusion of the Red Deer Agriculture dealership acquired in the fourth quarter of 2018.
- The increase in net finance costs of $7 million for the year was primarily due to the adoption of IFRS 16.
Income
- Income before income tax decreased $45 million for the year, primarily due to the $40 million reduction in gross profit, as discussed above. The adoption of IFRS 16 also decreased income before income tax by $4.2 million compared to 2018.
Inventory
- Total inventory was $320 million at December 31, 2019, a decrease of $70 million from June 30, 2019, due to a $90 million decrease in the Agriculture segment, partly offset by a $21 million increase in the Transportation segment.
- Following peak used Agriculture equipment inventory of $181 million at June 30, 2019, inventory decreased $67 million or 37% by December 31, 2019.
- Agriculture used equipment inventory turnover for the trailing twelve-month period ended December 31, 2019 was 1.78 times, compared to 1.62 times at June 30, 20191.
Fourth Quarter 2019 Results
Revenue
Revenue decreased 14% in the quarter, driven by a 20% decline in equipment revenue, partly offset by a 6% increase in product support revenue. This trend was consistent with our annual results and impacted by the same factors discussed above.
Gross Profit
- Gross profit declined 29% or $15 million, primarily comprised of an increase in equipment inventory impairments of $8 million and a $5 million reduction in gross profit from Agriculture new equipment sales due to lower revenue, margins and incentives in the fourth quarter.
- Growth in product support revenue contributed an additional $1.5 million or 5% increase to gross profit in the quarter compared to 2018.
Selling, General and Administrative ("SG&A") Expenses and Net Finance Costs
- SG&A expenses excluding equipment commissions, decreased 1%, primarily due to a decrease in annual performance incentives and marketing expenditures, partly offset by the inclusion of the Red Deer Agriculture dealership acquired late in the fourth quarter of 2018.
- The increase in net finance costs of $1.8 million was primarily due to the adoption of IFRS 16.
Income
- Income before income tax decreased $16 million, primarily due to the $15 million reduction in gross profit, as discussed above.
- The adoption of IFRS 16 also decreased income before income tax by $0.9 million.
Select Financial Information
Three month |
Years ended December 31 |
||||||
($ thousands, except per share amounts) |
2019 |
|
2018 |
2019 |
|
2018 |
|
Equipment revenue |
179,051 |
(20%) |
224,072 |
813,393 |
(22%) |
1,041,835 |
|
Product support revenue |
80,498 |
6% |
76,175 |
325,641 |
6% |
308,201 |
|
Total revenue |
259,549 |
(14%) |
300,247 |
1,139,034 |
(16%) |
1,350,036 |
|
Cost of sales before inventory impairment |
(212,152) |
(14%) |
(245,352) |
(945,677) |
(16%) |
(1,129,445) |
|
Inventory impairment |
(10,496) |
262% |
(2,896) |
(24,006) |
109% |
(11,513) |
|
Gross profit |
36,901 |
(29%) |
51,999 |
169,351 |
(19%) |
209,078 |
|
Total other income |
583 |
39% |
418 |
3,844 |
12% |
3,443 |
|
Equipment commissions |
(2,962) |
4% |
(2,849) |
(11,974) |
(12%) |
(13,541) |
|
SG&A expenses, excluding equipment commissions |
(40,299) |
(1%) |
(40,685) |
(159,304) |
(0%) |
(159,504) |
|
(Loss) income from operating activities |
(5,777) |
(165%) |
8,883 |
1,917 |
(95%) |
39,476 |
|
Net finance costs |
(3,036) |
145% |
(1,241) |
(12,369) |
125% |
(5,498) |
|
Share of profit of equity accounted investees, net of tax |
6 |
100% |
- |
6 |
(95%) |
124 |
|
(Loss) income before income tax expense |
(8,807) |
(215%) |
7,642 |
(10,446) |
(131%) |
34,102 |
|
Income tax recovery (expense) |
1,759 |
167% |
(2,611) |
1,828 |
120% |
(9,325) |
|
(Loss) income |
(7,048) |
(240%) |
5,031 |
(8,618) |
(135%) |
24,777 |
|
EBITDA(1) |
838 |
(94%) |
13,367 |
27,942 |
(51%) |
56,728 |
|
Ratios |
|||||||
Gross profit margin as a % of revenue |
14.2% |
17.3% |
14.9% |
15.5% |
|||
Total SG&A as a % of gross profit |
117.2% |
83.7% |
101.1% |
82.8% |
|||
(Loss) income per share |
|||||||
Basic |
(0.46) |
0.32 |
(0.56) |
1.58 |
|||
Diluted |
(0.46) |
0.31 |
(0.56) |
1.51 |
|||
Basic - Adjusted(1) |
(0.50) |
0.35 |
(0.65) |
1.58 |
|||
Adjusted (loss) income before income tax expense(1) |
(9,638) |
(219%) |
8,133 |
(12,293) |
(136%) |
34,056 |
|
Conference Call Information
Cervus will host its fourth quarter 2019 earnings results conference call and webcast on March 13, 2020 at 10:00 a.m. Eastern Time. President and CEO Angela Lekatsas and CFO Adam Lowther will discuss Cervus' financial and operating results for the year ended December 31, 2019, followed by questions from securities analysts and institutional shareholders
Interested parties may access the conference call by dialing (647) 427-7450 or 1-888-231-8191. Please connect approximately 10 minutes prior to the beginning of the call. The conference call will be archived for replay until Friday, March 20, 2020 at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 6768596 followed by the number sign.
The webcast of the conference call which includes a slide presentation may be accessed at:
https://event.on24.com/wcc/r/2140381/5E6A1C15401E8BD95EE4C011B2575819. Please connect approximately 10 minutes prior to the beginning of the call to ensure adequate time for any software download that may be required to join the webcast and view the slides being presented. The webcast will be archived at the above website for 90 days.
Financial Results
All financial information presented in this press release has been prepared in accordance with International Financial Reporting Standards ("IFRS") and are reported in Canadian dollars. This press release contains only selected financial and operational highlights and should be read in conjunction with Cervus' audited consolidated financial statements and related notes and Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2019, which are available on SEDAR at www.sedar.com and on the Company's website at www.cervusequipment.com. The Company's audited consolidated financial statements and MD&A contain detailed information about Cervus' financial position, results, liquidity and capital resources, strategy, plans and outlook.
Forward Looking Information
Information in this press release and in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws ("forward-looking statements"). These statements include, but are not limited to, statements about the Company's objectives, strategies and initiatives, financial performance expectations and other statements made herein, whether with respect to the Company's businesses or the economies of the countries where the Company operates. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may", "could", "would", "should", "might" or "will be taken", "occur", "be achieved", or other similar expressions of future or conditional verbs.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to general economic conditions, the industries and customers served by the Company, its principal equipment partners, currency exchange rates, funding requirements, fluctuating interest rates, legislative and regulatory developments, changes in accounting standards, and competition as well as those factors discussed under the heading "Business Risks and Uncertainties" in the Fourth Quarter 2019 Management Discussion & Analysis of Cervus Equipment Corporation dated March 11, 2020, available electronically at www.sedar.com under Cervus' profile.
All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business, economic and market conditions and trends. Although the Company believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Certain material assumptions are applied by the Company in making forward-looking statements. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. The Company does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.
Footnotes
(1) |
These non-GAAP financial measures do not have any standardized meaning under IFRS, may not be comparable to similar measures presented by other issuers and are defined and reconciled to their most directly comparable GAAP measure within Cervus' Management's Discussion and Analysis for the quarter and year ended December 31, 2019 under the section "Non-GAAP Financial Measures", which is available electronically at www.sedar.com under Cervus' profile. |
About Cervus Equipment
Cervus provides equipment solutions to customers in agriculture, transportation, and industrial markets across Canada, Australia, and New Zealand. Throughout its territories and across its diverse markets, Cervus dealerships are united in delivering sales and support of the market-leading equipment our customers depend on to earn a living. The Company operates 63 Cervus dealerships and is the authorized representative of leading equipment brands including: John Deere agricultural equipment; Peterbilt transportation equipment; and Clark, Sellick, Doosan, JLG and Baumann material handling equipment. Its common shares are listed on the Toronto Stock Exchange and trade under the symbol "CERV".
The Toronto Stock Exchange does not accept responsibility for the adequacy or accuracy of this release.
SOURCE Cervus Equipment Corporation
Angela Lekatsas, President and CEO, [email protected]; Adam Lowther, Chief Financial Officer, [email protected]
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