DBRS Comments on RONA Following F2009 Results

DBRS notes that RONA, inc. (RONA or the Company) released its F2009 results yesterday and earnings were in line with expectations, recognizing that last year will likely be the worst during this economic downturn. During this time, RONA’s management remained committed to conservative operational and financial objectives that supported its liquidity and the balance sheet. While revenue and profits were down for the year, the Company managed to: (i) keep EBITDA above $325 million, (ii) hold EBITDA margin above 7%, (iii) keep debt-to-EBITDAR below 2.65x, (iv) boost free cash flow with a smaller capex program and (v) increase cash-on-hand and reduce debt with the help of a net $172.5 million equity issue.

DBRS expects that performance in 2010 could improve based on a slowly improving economy and a number of Company strategic initiatives. During this year, the Company expects to improve: (i) same-store sales with increased product offerings, (ii) its market position with new stores and a larger affiliate network and (iii) its profitability and cash flow with ongoing cost-control programs. This, and the outlook for 2010, continues to support a Stable trend.

As mentioned previously, if there was another decline in the economy, DBRS believes RONA has shown a commitment to minimize the impact on its credit metrics. However, if there was decline in operating performance, with a serious deterioration in cash flow or liquidity based elevated capex, debt financed share buybacks or large acquisitions, the rating or trend could come under pressure.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Merchandisers, which can be found on the DBRS website under Methodologies.

This is a Corporate Rating.