Rocky Mountain Dealerships Inc. (TSX:RME, OTCQX:RCKXF) announces 2014 fourth quarter and annual results and agreement to acquire Chabot Implements

CALGARY, March 10, 2015 /CNW/ - Rocky Mountain Dealerships Inc. (hereinafter "Rocky") today reported its financial results for the quarter and year ended December 31, 2014.

SUMMARY OF FINANCIAL RESULTS FOR THE QUARTER ENDED DECEMBER 31, 2014

• Product support revenues increased by 21.1% to $30.9 million.
• Total revenues increased by 1.2% to $294.1 million.
• Gross profit increased by 18.7% to $39.5 million (13.4% of sales).
• Diluted earnings per share increased to $0.32.
• EBITDA⁽¹⁾ increased to $10.8 million.
• Inventory decreased by $9.6 million to $526.0 million.

SUMMARY OF FINANCIAL RESULTS FOR THE YEAR ENDED DECEMBER 31, 2014

• Product support revenues increased by 12.0% to $136.7 million.
• Total revenues decreased by 4.2% to $965.4 million.
• Gross profit increased by 3.7% to $145.6 million (15.1% of sales).
• Diluted earnings per share increased to $0.98.
• EBITDA⁽¹⁾ increased to $35.4 million.
• Inventory increased by $46.7 million to $526.0 million.

^{(1) See further discussion in "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS" sections below.}

During the fourth quarter, Rocky continued to experience improvements in gross profit and net earnings over the prior year.  While market demand for agriculture whole goods remained soft, product support sales increased as farmers invested in the maintenance of their existing fleets.  In the Construction segment, revenues and overall profitability improved relative to 2013, despite weakening demand in the latter half of 2014 caused primarily by the fall in oil prices.

Commenting on the quarter, Garrett Ganden, President and CEO of Rocky, remarked, "In anticipation of reduced demand for agriculture equipment, Rocky placed additional emphasis on its product support delivery, developing initiatives around marketing, resources, training and management as well as expanding our product offering.  While our management team deserves their share of credit for this accomplishment, it is also a testament to the stability of our business model.  Demand for product support increases as fleets are maintained rather than replaced.  This relationship between equipment and product support demand creates a hedge, to a certain extent, against the risks associated with reduced revenue from equipment sales and contributed to higher year over year earnings.

"Looking ahead to 2015, we expect that lower commodity prices combined with higher equipment pricing will continue to present a challenging environment for whole goods revenue growth.  As was the case last year, Rocky will continue to focus on growing our higher margin product support business to deliver improved earnings.

"Our inventory productivity and profile is, and will continue to be, an important priority within the company.  We remain committed to reducing our current levels of inventory while continuing to serve our customers' needs.  We are encouraged by the increased demand for used equipment from U.S. customers related to the current strength of the U.S. dollar.

"As Rocky's new CEO, I feel fortunate to have the support of a very strong team, and together we are excited about the opportunities in front of us to deliver improved value for our customers and our shareholders."

Agreement to Acquire Chabot Implements

Rocky also announced today that it has, through a subsidiary, entered into an agreement to purchase 100% of the issued and outstanding shares of the entities forming Chabot Implements ("Chabot") for purchase consideration of $6.8 million.  The purchase consideration is subject to a minimum working capital requirement and will be adjusted based on actual working capital delivered.  Chabot is a Manitoba-based dealer of Case IH agriculture equipment with locations in Portage La Prairie, Steinbach and Elie.  Chabot also sells Kubota equipment through its Neepawa, Manitoba location.

For its most recent fiscal year ending December 31, 2014, Chabot had consolidated top-line revenues of approximately $68 million.  This acquisition is subject to customary closing conditions and is expected to close effective April 1, 2015. Rocky intends to fund the acquisition through existing cash and credit facilities.

Commenting on this acquisition, Garrett Ganden, Rocky's President and CEO, stated, "The acquisition of Chabot represents a significant achievement for Rocky and will be immediately accretive to earnings.  Chabot has a long-standing, proud heritage as a premier equipment dealer in Manitoba, having been established nearly 80 years ago.  They enjoy a significant sales and service territory, customer base, and this acquisition allows us to more fully consolidate our Case IH distribution in Manitoba.  Adding these locations to our existing Case IH distribution network will allow us to leverage our strengths as a dependable equipment partner to our customers, as we work to further enhance the market penetration of our Case IH offerings in the Manitoba region.  This acquisition also illustrates our continued intention to execute on our strategy of consolidating independent CNH dealers in the Canadian Prairies, where we continue to see opportunity." 

Annual Meeting of Shareholders

Rocky also announced today that its Annual Meeting of Shareholders ("AGM") will take place at 2:00 pm on Wednesday, May 6, 2015, in the showroom of Rocky Mountain Equipment, 260180 Writing Creek Crescent, Rocky View County, Alberta. Materials related to the upcoming AGM will be sent in mid-April, 2015, to shareholders of record at the close of business on April 1, 2015.

Quarterly Cash Dividend

On January 26, 2015, the Board of Directors of Rocky approved a quarterly dividend of $0.115 per common share on its outstanding common shares.  The common share dividend is payable on March 31, 2015, to shareholders of record at the close of business on February 27, 2015.

This dividend is designated by Rocky to be an "eligible dividend" for the purposes of the Income Tax Act (Canada) and any similar provincial or territorial legislation.  An enhanced dividend tax credit applies to "eligible dividends" paid to Canadian residents.  Please consult with your own tax advisor for advice with respect to the income tax consequences to you from Rocky designating its dividends as "eligible dividends."

Conference Call

On March 11, 2015, Rocky will discuss its results via live conference call and audio webcast, beginning at 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time).  Senior management of Rocky will provide remarks on the quarter, followed by a question and answer session with analysts and institutional investors.

Those interested in participating in the conference call may do so by calling 1-888-231-8191 (toll free) or 1-647-427-7450.  A live webcast of the conference call will also be accessible through Rocky's website at www.rockymtn.com.

An archived recording of the conference call will be available until Wednesday, March 25, 2015 by dialing 1-855-859-2056 (toll free) or 1-416-849-0833, passcode: 73518576.  This archived recording will also be available via Rocky's website.

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 discussing agriculture industry demand cycles, statements about Rocky's emphasis on improving and promoting its product support business and statement about any future benefits to be gained from said emphasis, statements about Rocky's inventory levels and future inventory levels, and statements regarding the proposed acquisition of Chabot, including the expected closing date and expected purchase consideration of such acquisition, and statements related to any accretion to earnings or future shareholder benefit arising from the Chabot acquisition, 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 Rocky's control.  While this forward-looking information is based on information and assumptions that Rocky'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 Rocky in its management's discussion and analysis ("MD&A") for the year ended December 31, 2014, and as discussed in Rocky's Annual Information Form dated March 10, 2015 under the heading "Risk Factors."  Except as required by law, Rocky 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

Rocky is one of Canada's largest agriculture and construction equipment dealership networks with branches located throughout Alberta, Saskatchewan, and Manitoba.  Through its network of Rocky Mountain Equipment locations, Rocky sells, rents, and leases new and used agriculture and construction equipment and offers product support and finance to its customers.

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

CONSOLIDATED BALANCE SHEET SUMMARY 

SELECTED QUARTERLY AND ANNUAL FINANCIAL INFORMATION

^{(1) – See further discussion in "Non-IFRS Measures" and "Reconciliation of Non-IFRS Measures to IFRS" sections below}

 NON-IFRS MEASURES

We use terms which do not have standardized meanings under IFRS.  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.  Our definition for each term is as follows:

• "EBITDA" is a commonly used metric in the dealership industry. EBITDA is calculated by adding interest on long-term debt, income taxes and depreciation to net earnings. Adding back non-operating expenses allows management to consistently compare periods by removing changes in tax rates, long-term assets and financing costs related to the Company's capital structure.
  
  
• "Operating SG&A" is calculated by adding back depreciation of property and equipment and any non-recurring charges recognized in SG&A during the period to SG&A. Management deems non-recurring charges to be unusual or infrequent charges that the Company incurs outside of its common day-to-day operations. Adding back these items allows management to assess discretionary expenses from ongoing operations. Management has changed the calculation of Operating SG&A from previous disclosures by no longer considering the ineffective portion of derivative financial instruments or acquisition transaction costs to be non-recurring charges. For the periods presented, these costs are insignificant in amount and recurring in nature. For the periods presented, no non-recurring charges have been identified. We target a sub-10% Operating SG&A as a percentage of total sales on an annual basis.
  
  
• "Floor Plan Neutral Operating Cash Flow" is calculated by eliminating the impact of the change in floor plan payable (excluding floor plan assumed pursuant to business combinations) from cash flows from operating activities. Adjusting cash flows from operating activities for changes in the balance of floor plan payable allows management to isolate and analyze operating cash generated during a period, prior to any sources or uses of cash associated with equipment financing decisions.

RECONCILIATION OF NON-IFRS MEASURES TO IFRS

EBITDA

Operating SG&A

Floor Plan Neutral Operating Cash Flow

SOURCE Rocky Mountain Dealerships Inc.