Q3 2021 Richelieu Hardware Ltd Earnings Call
Okay.
[music].
Good afternoon, ladies and gentlemen, and welcome to Richelieu hardware third quarter results conference call. At this time all lines are in a listen only mode.
Oh in the presentation, we will conduct a question and answer session, which will be restricted to analysts only if at any time. During this call you require needed assistance. Please press star zero for the operator also note that this call is being recorded on October seven 2021.
Both of them at enzyme issue or is it that just wasn't to miss the kincade it it should be it.
Falling short time with the quick suddenly.
So with all of his aren't that film Newschannel implicit in periodic is still eat at home. She said August was analysts Selma.
She was everybody joined us style Skucool Dilip Pal I pleased to list while in Brazil.
Your problems are not just as a pet at all or is just strictly a set October do made event together.
Jim and I might not let that hold them assured his shallow but is that a shift electrics, you'll lay back a little we'll miss you.
Betsy. Thank you good afternoon, ladies and gentlemen, and welcome to <unk> Conference call for the third quarter and nine month periods ended August 31.2021.
With me as Antoine Auclair CFO as usual.
Some of today's issue include forward looking information, which is provided with the usual disclaimer as reported in our financial filings.
In line with previous period. This year, we had a strong third quarter and our first night months sure.
Solid growth in Q3 <unk>.
<unk> go to 373 million, a 20% increase in EBITDA margin reached 17, 1%.
<unk> sales were over $1 billion.
And EBITDA reached 163 million.
We have made every effort to provide our customers with the most effective support especially in this challenging environment.
Our business model is very supportive in challenging situations.
We are supported by highly efficient logistic well adapted to our customer needs multi.
Multi channel approach.
One step indefinite North American network.
A one stop shop and definitely North American network.
This provides our customers with quick and easy access to our products.
With our focus on maintaining the right inventories in our continuous innovation strategy, we have been able to offer our customers a unique diversity of products, Italy, many alternatives in a wide variety value categories.
Furthermore, thanks to our website customers can configure many products application. According to specific needs, which is also very well in the circumstances.
Well manufacturers market perform very well.
Drove growth in the quarter with Antonio <unk>.
Up 23, 9%.
In Canada and considerable growth of 35, 2% in the U S.
Meanwhile, safety retailers I think really shown superstores.
Now normalized so that people on the MC business level.
This strong performance was affected.
Our net earnings and we ended the first nine months with the FERC to strengthen its financial position.
We remained focused on our acquisition strategy, which is a key component to our short and long term growth strategy.
<unk> debt to equity in the third quarter industrial.
Industrial fasteners.
<unk> Division.
As previously announced.
Followed by two more I've stood a quarter Cook fasteners, SKU and bodes tubular operating one distribution center.
Ontario.
Industrial markets customer and then industrial plywood panel distributor.
Hopefully I think two centers in reading and it was down in Pennsylvania. So.
So far this year, we completed five acquisitions that that would be adding $75 million.
Potential annual sales.
In addition, we have opened two additional distribution centers in the U S. Since the beginning of this.
Sure.
Our upstate New York.
Which is our fifth center in this state and during the third quarter, we added one in reading, Pennsylvania.
Taking our network to 97 strategies strategic located locations.
<unk>.
I'll now turn towards one for the financial review for the period.
Thanks matured third quarter sales reached $376.0 million up by 20% of which 14, 1% from internal growth and five 9% from acquisitions.
At comparable exchange rates to last year sales increase would have been 23, 2%.
In Canada sales amounted to $248.0 million.
21, 2% of which $12, 9% from internal growth and eight 4% from acquisitions.
Our sales to manufacturers reached $208.0 million.
Up by 32, 5% of which 23, 9% from internal growth and eight 6% from acquisitions.
As for the hardware retailers sales stood at $49.0 million down 14, 8% returning to pre pandemic business level.
In the U S sales grew to $103.0 million in U S. Dollar up 26, 7% 25, 3% from internal growth and one 4% from acquisitions.
Sales to manufacturers reached $91 million in U S dollar.
Up 36, 7% 35, 3% from internal growth and one 4% from acquisitions.
The hardware retailers and renovation superstores market sales were down 21, 6%.
Total sales in the U S reached $128.0 million in Canadian dollars, an increase of 17, 5% and representing 34% of total sales.
For the first nine months sales reached $1.042 billion up 28, 9% of which 25, 1% from internal growth and three 8% from acquisitions.
In Canada sales reached $692.0 million.
$178.0 million or 33, 5% of which 29% from internal growth and four 5% from acquisitions.
Sales to manufacturers reached $568.0 million up by $156.0 million or 38, 1%.
Sales to hardware retailers and renovation superstores reached $133.0 million compared to $111.0 million up 16, 3%.
In the U S sales amounted to $287.0 million in U S dollar up 34% of which 27, 6% from internal growth and two 8% from acquisition.
They reached $362.0 million and Canadian dollar.
27% accounting for 34% of total sales.
Sales to manufacturers totaled $250.0 million, an increase of $63 million or 34, 2% of which 39% from internal growth.
And three 2% from acquisitions.
SaaS to hardware retailers and renovation superstores were up nine 4% compared to last year.
Third quarter, EBITDA reached $72.0 million up $23.0 million or 32% over last year, resulting from significant increase in sales and continued control on expenses gross margin also improved and the EBIT margin stood at 17, 1% compared to $15.
8% last year.
For the first nine months EBITDA reached 160 to $4.0 million up 51, 2% as for the EBITDA margin. It stood at 15, 6% compared to 13, 3% last year.
Third quarter net earnings attributable to shareholders totaled $45.0 million up 35, 2%.
Net earnings per share were <unk>, 69, basic and diluted compared to 51 basic and <unk> 50 diluted last year, an increase of $35 three and 38% respectively.
For the first nine months net earnings attributable attributable to shareholders reached $99.0 million up 67, 1%.
Diluted net earnings per share stood at $73.0, compared to $1 <unk> up 67%.
Third quarter cash flow from operating activities before net change in noncash working cap amounted to $54.0 million or <unk> 86 per share an increase of 27, 7%, resulting primarily from the net earnings growth.
Net change in noncash working capital used cash flow of $23.0 million in part due to increased inventories, resulting from higher demand and to a lesser extent custom products.
For the first nine months, they were up 47, 3% totaling $125 million or $24.0 per share.
For the third quarter of 2021 financing activities used cash flow of $20.0 million compared to $11.0 million last year.
Dividends to dividends paid to shareholders of the corporation amounted to $12.0 million compared with $11.0 million in the same period of 2020.
We also repurchased common share for an amount of $17.0 million for.
For the first nine months of financing activities used cash flow of $45.0 million compared to $109.0 in 2020.
Dividends paid to shareholders amounted to $20.0 million compared to $7 five last year.
The first quarter of 2021 special dividends of six <unk> $73.0 per share was paid in addition to our quarterly dividend of <unk> <unk> per share.
We also repurchased common share for a total amount of $14.0 million in the first nine months of 2021, while no share repurchase in 2020.
During the third quarter, we invested $45.0 million $59.0 million. We ended the first nine months of which $46.0 million for the business acquisition and $13.0 million, primarily for the purchase of equipment to maintain and improve operational efficiency as well as further investment in 19 infrastructure.
We continue to benefit from a healthy and solid financial position.
The cash balance of $73.0 million almost no debt working capital of $425.0 million for a current ratio of 331 and an average return on equity of 21, 2%.
I'll now turn it over to Richard Thank.
Thanks, a lot Glenn in conclusion, we are continuing to provide the best possible support.
North American customers.
No.
Multi channel services and all of the strengths that have contributed to do to show your leadership.
As mentioned last quarter, we have ongoing expansion projects at some of our U S centers, such as Detroit, Dallas Orlando Austin.
Not to speak for future growth in the U S and in order to better meet demand and provide the best service possible.
Well, we're continuing to efficiency and integrate our recent acquisition, while developing potential synergies, we will seize new acquisition opportunities.
Consistent with our objectives.
Painting strict strict cost.
Cost control and making the optimal use of our resources also remains a priority. We are confident that when we close this year with strong results maintaining.
So it just flow strategies. Thanks, everyone, we'll now be happy to answer your questions.
Thank you ladies.
Ladies and gentlemen, as stated we will take questions from analysts only.
If you have a question you will need to press star one on your touched on phone.
Once you do you will hear it Louie Toma prompt acknowledging your request and if you would like to withdraw your question simply press star followed by <unk> and if you're using a speaker phone. We ask that you. Please lift the handset before pressing any Keith. Please go ahead and press Star one now if you have a question.
And your first question will be from Amit Patel CIBC capital markets. Please go ahead.
Hi, good afternoon.
Richard could you could you give us a sense as to how you're at your sales fared in the month of September for manufacturers and retailers.
As mentioned earlier the decision will be theatres are down because it normalizes.
They are getting more closer to pre pandemic sales volume.
So which is nobody has the circumstances, which is which is being confirmed at the point of sales report that we have from Omega.
Is it not being treated.
The manufacturers.
Very strong.
It continues to be very very strong I think people to what we hear from our sales force activity.
Customers are still very busy.
Should continue to be busy for a few.
Because actually some projects have been postponed because of inflation. While many project is still going on and those projects are postponed should take place after that.
On the pricing because we what we read also that that both in Canada and do we is the consumers have somebody at the bank and I think its a smart way to spend their money and investing in their kitchen, and Kevin hit because the F&B.
The project with our customers. The rest of your question was can undertake.
Thanks, Richard that's helpful and I wanted to ask about supply chain I guess two ways. So it sounds like youre not seeing the supply chain issues that we're seeing globally affecting.
Demand at least from the manufacturer side.
But could you comment on how it's affected your own ability to source product and has that changed the mix of.
Geographic mix of where you are youre, bringing product from them, maybe if you could just remind us what that what that mix is today.
The good news actually Youll see well.
Looking at the financial statement that our inventory is increasing so that's good news that means that we can get more products coming in and actually I think the business there'll be sure your business model.
As mentioned at the beginning of the speech.
Very strong consisting of Omnichannel.
Many ways for the customers to reach customers through the web.
A quick connection with I'll say sales rep, which usually on the road with another underway now.
There might be shifting at home because of the COVID-19, but answering too.
Inside one I'm sorry of our call.
We ended the year the sponge.
Punch a button on the web site.
I'll give you a phone call and we'll see that.
So if people supporting our customers about the phone and all these people their products, especially.
So you've got customers as one difficulties acquiring one products. So let's say that one product is not available.
People, which suggests our customers an alternative product that we do exactly the same job because one of the strengths.
We plan, a b and C sometime deep in terms of all the products that we sell so that gives us many opportunities to our customers and also out of our warehouses are connected together and we have a what we call. It here.
Nope and Bob what do you see actually for our customers wherever you are situated is that America you need the product the product is going to come from wherever the political is available to you at our own expense and this resolved in strong increase in sales and.
And but over time as you as you can see so we were quite proud with that strategy and we're also quite proud of the specialized team that we have and the quick as funds that we can that we can give to our customers. What are the question is are the problem is.
And then Richard so on that note on the <unk>.
I think you'd previously you sort of said 20% of the products come from from Asia is that still a good number or is that a lower number now just given some of the logistics issues.
In terms of dollar that's still a good number yes.
20, Asia, Europe, and 16, North America EMEA.
Okay perfect. Thanks Antoine.
Last question for me.
Start to plan for 2022.
Are there any larger.
Capital projects.
That are worth noting.
Not not as we speak we have of course, we have our ongoing expansion projects that we have.
We discussed at the last quarter, but we're not talking about material investments. So as we speak now it's going to be.
Mainly maintenance Capex next year for now there is something if theres something else will they will tell you.
Okay, great. Thanks, Thats, all I had I'll turn it over.
Thanks.
Next question will be from Megan at TD Securities. Please go ahead.
Thank you good afternoon.
At the EBIT margin very strong again this quarter.
Can you just give some color maybe around the cost containment initiatives that might be contributing to that performance.
Are there any costs you anticipate maybe come back as we hopefully.
<unk> managed through the pandemic things like travel.
Is there any color you can give us around your margin expectation for Q4.
Yes, the main the main contributor for this.
It is.
Definitely the sales volume so thats the main factor.
In terms of.
And we're still very rigid in terms of cost control. That's for sure. Yes, there is a certain portion of the.
That should come back.
Over time like you just said that.
The travel the travel and the lay and living expenses, we're still a very rigid on those it will come back it will not come back at the same level of 2019, but it <unk>.
Some of these costs will come back. So you will you might see a bit of pressure on the on the.
Operation expenses, but nothing major there.
When we're going to be coming back to a pre pandemic level EBIT could be anywhere between 13, 5%, 14% something something around that 13 five to 14.
Okay, great. Thank you and then just looking at the inventory position. So it was a pretty sizable increase there can you maybe just talk about the rationale for the magnitude of the increase and just how you plan to manage that assuming you continue to see sales at retail tapering off.
Yes.
With the pressure we have on the service level for that.
We were expecting the inventory to increase there is also there is also the impact of the acquisitions as well so those acquisition doesn't come without inventory. So the increase the inventory level is also that the cost increase had an impact so far.
Three major elements of volume acquisition and cost increase and just to mention also that we're slowing down the purchase for the inventory for the retailers, but that's only about 18% of all sales and many of the product that we chose to retailers. We also sell to the manufacturing side of the business. So so that will not be very big.
Material the deduction of the inventory because of the retailers.
Thank you that's it for me.
Thank you.
As a reminder, ladies and gentlemen, if you are an analyst I would like to ask a question. Please press star followed by one on your Touchtone phone.
And your next question will be from Zachary Eversheds of National Bank financial.
Good afternoon, Thanks for taking my question.
Yes.
How long of a tail do you see on the professional market before it also pulls back to pre pandemic levels. You mentioned, a few quarters given the cost inflation, we've seen postponing some projects do you have a <unk>.
Number in mind.
Would you ever come back to the pre pandemic level, we don't know, but we see my initial use market share increasing I.
I'm quite proud to mentioned actually that our sales growth.
In Canada is 25%, 35% in U S dollar in the U S. So that means that we're capturing.
But our market share and we're also actually we gave 90 new customers.
We even the refuse we don't let's say, we delete some customer.
That we'd like to join us.
Currently we would like to join US. So we have to tell them you don't give us.
Multi them to establish that with level of inventory and we will back to you in three months performance.
The.
D a.
The pandemic actually has been a springboard for tissue in order to gain new customers and increased sales too.
Two the actual current customers. So this is.
We're very positive and.
We also had the acquisition as a matter of fact, but if we'd gone back.
The essence of your question on the equity, we expect new the quarter the current quarter to be a strong as the one that you have just seen.
The first quarter of next year, if you remember well the growth was no debt outstanding in the first quarter of last year, so that should be strong after that we should see.
C J.
<unk> sales in dollar being at the level that we see now plus inflation of at least three months, so that would be probably the.
The second the third and the fourth quarter of next year.
This is what we expect while the sales to retailers should be in the same pattern that we see now should a pre pandemic level, but you still.
Very good numbers. So basically this is as far as we can see what.
We explained to you.
That makes sense. Thank you.
And then your inventories ticked up which is good but would you say that you are having any difficulty sourcing certain products and as that constraining your organic growth in any areas.
Okay.
We have the difficulties like anybody else, but I think we're successful first of all.
We have made the first this year that we've made at the beginning of the pandemic is not to slow down on it but youre seeing the demo inventory so.
Vanessa.
Compared to our competitors and in spite of difficulties to get.
The products on time and at <unk>, we have not dissipated to pay extra cost.
Getting the merchandise.
From Asia for example.
So we've paid container is up to $25000 and we've paid a freight I would say most of our competitors would refuse to pay those amounts because they would say hey, we'll kind of have a containers at $12000, but.
That will delay the delivery for three months I can assure you we made the decision on this but yes, we are going to Peter's point, if I went to $20000 and we're going to get the inventory earlier, so those extra walk us I'm not part of the cost of our products. So we have not increase offsetting price because those.
Outstanding cash or our out of when it will cost for bringing the container zeal nadeau. The freight so we absorb so far this year for $5 million, which is included in our expenses and.
As the cost of inventory and I've not been considered for increasing our pricing because it does increase the cost of our product because we have these our decision that we've made content.
Our controller.
To make sure that we have.
As early as we can in order to satisfy our customers.
Got you. Thanks, and then could you just compare and contrast, you have this open bar policy, where no matter, where it is in the country customers will get it and Rcs will absorb that cost and you have our CH absorbing the costs for higher price containers in airfreight as well, but then you have these fantastic margins reported in the quarter from <unk>.
Containment and higher gross margins. So how long do you think you can drive that.
As long as it is it is we have to do it as long as we need to do it but.
I don't know what will happen in the months to come but I don't want to make any filters. If you here, but what we see actually we see when we read the report for Lowe's home Depot Walmart in the U S. I think the data their sales is all back to the pre pandemic level. So basically that's that.
Should spur some containers and shipped to get that someday is for other customers in North America, and hopefully that will that should that that should happen.
After the Chinese new year regarding Asia.
Great color, Thanks, and just one last one for me the acquisition pipeline how is it shaping up for the rest of the year and for 2022.
And with the Pennsylvania acquisition, expanding your panel offering do you see any major acquisition opportunities in similar markets.
Yes, it's still.
Still very healthy so we've concluded five acquisition this year.
The pipeline is.
It is very very interesting either in Canada, and the U S and.
The acquisition and then reading is.
<unk> is a good one for us and yes. It is going to open for other opportunities as well. So we're working on very interesting opportunities.
Thank you very much I'll turn it over.
Thank you.
And at this time Ms. Sheila we have no further questions. Please proceed.
There is no more question. Thanks again for attending we'd be happy to talk to you here. If you need to so have a nice day.
Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we ask that you. Please disconnect your lines.
Okay.
[music].
Okay.
Okay.
Yeah.