Mr. Robert Sawyer reports

RONA ANNOUNCES ITS 2014 SECOND QUARTER RESULTS

Rona Inc. has released results for its continuing operations for the 13- and 26-week periods ended June 29, 2014.

Second quarter highlights

• Net income attributable to participating shares of $42.0-million (35 cents per share) compared with a net loss of $144.7-million (negative $1.19 per share) in 2013. Adjusted net income up 25 per cent or $8.3-million over $33.6-million in 2013;
• Adjusted earnings before interest, taxes, depreciation and amortization of $89.1-million, up 16 per cent versus $76.6-million in 2013. Free cash flow of $135.7-million compared with negative $21.1-million in 2013;
• Adjusted EBITDA margin up 140 basis points to 7.5 per cent from 6.1 per cent. Adjusted EBITDA margin of the retail segment up to 9.0 per cent, a 170-basis-point increase;
• Improving trend in retail segment. Same-store sales of negative 0.7 per cent versus negative 3.4 per cent in the first quarter. Positive same-store sales of corporate stores for the first quarter since 2010, coming from the strong growth in Western Canada and the repositioning of TOTEM and Reno-Depot stores;
• Continued strengthening of the financial position with a net-debt-to-EBITDA ratio of 0.9 time, versus 2.5 times last year, following a $307-million reduction in total net debt during the past year.

"The second quarter results show encouraging signs in sales. Same-store sales of the corporate stores in the retail segment have grown for the first time since 2010 compared with last year, despite the very challenging environment in the first half of the quarter. The net cost savings achieved by Rona's recovery plan added $10.5-million to EBITDA in the quarter and $27.9-million year to date. These savings directly contributed to a 25-per-cent increase in adjusted net income in the second quarter and 80-per-cent increase year to date," said Robert Sawyer, president and chief executive officer of Rona.

"The progress achieved to date, under our business plan, shows that we have rolled out the right initiatives to improve efficiency and turn around underperforming business units. Given the slowdown in some areas of the country, particularly in Quebec, and the highly competitive environment, we must remain focused on improving our efficiency and increasing our market share through a better banner positioning. The repositioning of the TOTEM and Reno-Depot stores, and the recent agreement announced with Ace Hardware, are excellent examples of the steps we have taken to improve our value proposition. Rona will thus have a leaner infrastructure and clearer positioning to improve sales and profitability."

              FINANCIAL HIGHLIGHTS FROM CONTINUING OPERATIONS
                      (In millions, except per share)

                                        Quarter ended     Six months ended
                                    June 29,  June 30,   June 29,  June 30,
                                       2014      2013       2014      2013

Revenues                           $1,193.5  $1,249.0   $1,957.8  $2,081.9
EBITDA                                 88.2       0.2       96.1     (21.5)
Adjusted EBITDA                        89.1      76.6       99.1      78.3
Net income (loss) attributable to
participating shares                   42.0     (38.7)      25.4     (74.8)
Per share -- basic and diluted         0.35     (0.32)      0.21     (0.61)
Adjusted net income attributable
to participating shares                42.0      33.6       27.6      15.3
Per share -- basic and diluted         0.35      0.28       0.23      0.13

Second quarter 2014 results

Consolidated revenues from continuing operations amounted to $1,193.5-million, down 4.4 per cent from $1,249.0-million for the second quarter of 2013. This decrease primarily reflects the closure of underperforming stores, a late spring in Quebec and Ontario, which had an adverse impact on sales of building materials and seasonal goods in the first half of the quarter, coupled with a decline in housing starts in Quebec, Rona's biggest market. Same-store sales in the retail segment were down 0.7 per cent. However, the strength of the economy in Western Canada and successful repositioning of the TOTEM stores in this region, combined with the positive impacts of the redeployment of the Reno-Depot stores in Quebec, have generated positive same-store sales for corporate stores in the retail segment.

Adjusted EBITDA for continuing operations totalled $89.1-million, or 7.5 per cent of revenues, up 16.3 per cent compared with $76.6-million, or 6.1 per cent of revenues, in the second quarter of 2013. The increase reflects the realization of $10.5-million in net cost savings as a direct outcome of the Rona recovery plan, by reducing selling, general and administrative expenses, and the net impact on operating profits of the closure of underperforming stores.

Net income from continuing operations attributable to participating shares in the second quarter of 2014 was $42.0-million, or 35 cents per basic and diluted share, up $80.7-million compared with loss of $38.7-million, or 32 cents per basic and diluted share, in the second quarter of 2013. On an adjusted basis, net income from continuing operations attributable to participating shares in the second quarter of 2014 was $42.0-million, or 35 cents per basic and diluted share, up $8.4-million compared with $33.6-million, or 28 cents per basic and diluted share, in 2013.

First half of 2014 results

Highlights

• Adjusted net income attributable to participating shares of $27.6-million, up 80 per cent versus $15.3-million in 2013;
• Adjusted basic and diluted net income per share increased from 13 cents in 2013 to 23 cents in 2014;
• Adjusted EBITDA of $99.1-million, up 27 per cent versus 78.3-million in 2013;
• Adjusted EBITDA margin up 130 basis points to 5.1 per cent from 3.8 per cent. Adjusted EBITDA margin of the retail segment up to 5.5 per cent, a 140-basis-point increase.

In the first six months of 2014, consolidated revenues from continuing operations amounted to $1,957.8-million, compared with $2,081.9-million in the first half of 2013. On a same-store basis, sales were down in the retail segment by 1.7 per cent.

Adjusted EBITDA for continuing operations rose to $99.1-million, or 5.1 per cent of revenues, up 26.6 per cent versus $78.3-million, or 3.8 per cent of revenues, in the prior period. The increase reflects the cost savings of $27.9-million achieved under the Rona recovery plan.

Net income from continuing operations attributable to participating shares for the first half of 2014 amounted to $25.4-million, or 21 cents per basic and diluted share, up $100.2-million compared with a loss of $74.8-million, or 61 cents per basic and diluted share, in the first half of 2013. On an adjusted basis, net income from continuing operations attributable to participating shares for the first half of 2014 amounted to $27.6-million, or 23 cents per basic and diluted share, up 79.8 per cent compared with $15.3-million, or 13 cents per basic and diluted share.

Solid financial situation

At June 29, 2014, Rona was in a healthy financial position with cash of $26.5-million and usage of $87.1-million on its authorized credit facility of $700.0-million. On that date, net debt stood at $185.6-million, down from $492.6-million at the close of the second quarter of fiscal 2013. During the second quarter, Rona generated free cash flow of $135.7-million, compared with negative $21.1-million for the same period last year. The improvement is mainly due to the corporation's operational performance and better management of working capital.

Reflecting this decreased debt, the ratio of net debt to adjusted EBITDA for the past 12 months was 0.9 time at the close of the second quarter of fiscal 2014, compared with 2.5 times for the same period of fiscal 2013. The ratio of net debt to total capital was 10 per cent at June 29, 2014, compared with 23 per cent at June 30, 2013.

In the second quarter, Rona bought back 1,673,200 common shares for a total consideration of $18.3-million under its normal course issuer bid that started on Nov. 18, 2013. Since the bid took effect, the corporation has purchased 3,492,800 common shares for a total of $41.6-million. The arrangement authorizes Rona to purchase a maximum of 8,578,384 common shares until Nov. 17, 2014.

Recent event

On July 29, 2014, Rona signed a long-term agreement for master licensing of the Ace Hardware brand with Ace Hardware International. Under this agreement, Rona has specific rights and privileges with respect to Ace Hardware brands, retail operating systems and Web portals in Canada. The parties also signed a long-term distribution agreement giving Rona access to products available through Ace Hardware's various distribution channels.

This agreement will allow Rona to improve its offering to small dealers across the country while leveraging its existing distribution infrastructure. Furthermore, the reputation of Ace Hardware in North America will strengthen Rona's banner portfolio.

Dividend on preferred shares

At its meeting on Aug. 12, 2014, Rona's board of directors declared a quarterly dividend of 32.81 cents per share on cumulative five-year rate-reset Class A preferred shares, Series 6. The dividend will be paid on Sept. 30, 2014, to shareholders of record on Sept. 15, 2014.

Dividend on common shares

At its meeting on Aug. 12, 2014, Rona's board of directors declared a semi-annual dividend of seven cents per share on the corporation's common shares. The dividend will be paid on Sept. 25, 2014, to shareholders of record on Sept. 10, 2014.

Additional information

The management's discussion and analysis, interim consolidated financial statements, and notes for second quarter 2014 can be found on SEDAR and in the investor relations section of the corporation's website. The corporation's annual information form, along with other information about Rona, can also be found on SEDAR and the Rona website.

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