EDMONTON, Alberta, June 23, 2020 /CNW/ -PRESS RELEASE- Aurora Cannabis Inc., one of Canada’s largest cannabis producers, provided on June 23 a progress update on its Business Transformation Plan that was previously announced Feb. 6, 2020.
"Across our organization we continue to take decisive action and execute on our previously announced Business Transformation Plan," stated Michael Singer, executive chairman and interim CEO of Aurora. "With today's announcement we have achieved our stated SG&A run-rate target and expect to operate at approximately $42 million for the first quarter of fiscal 2021. The further cost savings and margin improvement to be realized from our facility rationalization plan is another example of our commitment to deliver greater efficiency throughout the business."
"This has not simply been a cost cutting exercise. We have undertaken a strategic realignment of our operations to protect Aurora's position as a leader in key global cannabinoid markets, most notably Canada. Both the Canadian facility rationalization and inventory revaluation are expected to improve gross margins and accelerate our ability to generate positive cash flow. We believe that we now have the right balance for the long-term success of Aurora – market leadership, financial discipline, operational excellence, and strong execution. We remain focused on making Aurora a profitable and robust global cannabinoid company,” Singer added.
Since announcing its business transformation plan, Aurora has taken a number of concrete steps that position the company to meet or exceed the previously announced Selling, General and Administrative (SG&A) cost target of $40 to $45 million, including R&D, as the company exits Q4 2020.
Aurora has executed a material reduction in both corporate and production level employees and third-party consulting and professional spending across the organization. These changes include an approximate 25% reduction in Aurora's SG&A staff, most with immediate effect, and an approximate 30% reduction in production staff over the next two quarters. Review of corporate employees was undertaken at all levels of the company, including a restructuring of the executive leadership team and the recently announced retirement of president Steve Dobler.
The Q1 2021 SG&A run-rate of approximately $42 million represents a cost structure that the Company anticipates will be capable of supporting significantly higher levels of revenue in the future without a corresponding level of growth in SG&A.
Aurora has initiated a plan to close operations at five facilities over the next two quarters to focus production and manufacturing at its larger scale and more efficient sites. The affected facilities are the smaller scale facilities, Aurora Prairie, Aurora Mountain, Aurora Ridge, Aurora Vie and Aurora Eau. Aurora expects that part of the Aurora Vie facility in Quebec will remain operational to allow for the manufacturing of certain higher margin products. By the end of fiscal Q2 2021, the Aurora intends to consolidate Canadian production and manufacturing at Aurora Sky, Aurora River (EU-GMP certified), Whistler Pemberton, and Polaris. As previously stated, the Aurora Sun production facility has been scaled back to six grow bays and will allow for efficient scale production on an as-needed basis as market demand grows. As part of the transition, the company also intends to immediately ramp up cannabis production at its Nordic facility in Europe from which it believes can adequately service the European market with EU-GMP certified product. This production and manufacturing consolidation plan represents a new, incremental cost reduction opportunity not previously considered in the original SG&A target.
In connection with the stated facility cuts, Aurora expects to record production asset impairment charges of up to $60 million during Q4 2020. The company also expects to record a charge of up to $140 million in the carrying value of certain inventory, predominantly trim, in order to align inventory on hand with near term expectations for demand. Approximately 40% of the expected inventory provision relates to the non-cash IFRS fair value adjustment within inventory.
In addition to the company's continued focus on production efficiencies and yield improvements, Aurora expects that the production facility closures will be accretive to gross margin as the move to large scale operations is expected to result in a material reduction in per unit cost of goods by Q3 2021. The reduction in inventory carrying value is also expected to be modestly accretive to future gross margins as older, higher cost inventory is replaced with newer, lower cost inventory and consequently reflected in gross margins.
Aurora expects to report its Q4 2020 full financial results in early September.
Melissa Schiller
