Q4 2021 Richelieu Hardware Ltd Earnings Call
Good afternoon, ladies and gentlemen, and welcome to issue your hardware fourth quarter results Conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session, which will be restricted to analyst only if at any time during this call you'll be quiet immediate assistance. Please press.
Zero for the operator also note that this call is being recorded on January 20th 2022 Boes.
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Yes. Thank you good afternoon, ladies and gentlemen, and welcome to confront.
Conference call for the fourth quarter and 12 month periods ended November 32021.
With me is also on the CFO as usual note that some of the lead issue and forward looking information, which is provided with the usual disclaimer as reported financial filings.
Yeah.
In line with previous periods during the fourth quarter, we continued our growth strategy.
Despite the procurement and logistics challenges, we did everything possible to provide reliable and on time supply and services to our customers true Oh, what a one stop shop network <unk> dot com with a unique diversity of product, including many alternatives.
Wide variety of categories, all supported by our multichannel approach, including a reliable and competent team.
We recorded strong growth in the fourth quarter.
As shown by increases in sales of 24, 8%.
EBITDA was 52, 7% of net income.
64, 6%.
The last four strong quarters make 2021 .
This year, we achieve our best financial performance ever with continuation from all of our market segments in Canada.
In the U S and we ended the year with an impeccable financial positions.
In addition, the North American context.
And we remain perfectly able to <unk> opportunities.
<unk>.
We have successfully expanded that completing five acquisition as announced during the year.
Tool and Bridget in British Columbia, and Ontario.
In Quebec.
And to Echo in Ontario.
Ohio and Texas.
Fasteners in Ontario, and industrial plywood in Pennsylvania.
These five distributors added approximately 80 million beyond dollar in sales on an annual basis.
Subsequent to November 30th.
Three new acquisition.
Namely compete distributors operating four centers in Missouri and Illinois.
GH Outwear also operating.
Four centers.
Tennessee and Georgia.
And national builders hardware operating from one center in Oregon.
Together these eight distributors at over $180 million.
Early sales.
The diversified offering.
Centres with Shanghai <unk> in their markets and <unk> with good knowledge of their customer base.
Thus, we are strengthening our positioning where we already were.
We're entering new territories.
Thank you I think the two centers, we opened during the year.
Sir.
So New York and Reading, Pennsylvania. Our network now includes 106 centers 57 of which are located in the U S.
Also we expanded some of our existing distribution center centers, such as Detroit, Boston, Dallas and Orlando.
Considering the growth achieved in 2021 I am pleased to announce that the board has approved this morning, a significant rise of 85, 7% quarterly dividends to <unk> 10 per share aligning the payout weekly show this performance.
How do we go and we'll go now with at one for the financial review of the period.
Thanks, Richard our fourth quarter sales reached $398 2 million up by 24, 8%.
Sales to manufacturers stood at $338 7 million up by 27, 8% of which 21, 2% from internal growth and six 6% from acquisition.
In the hardware retailers and renovation superstores market, we achieved sales of $59 5 million up.
By 10, 4% of which 13, 1% from acquisition and two 7% from internal decrease.
While the retailers market benefited from the strong demand in the renovation market in the context of the pandemic.
The volume of business has normalized to pre pandemic levels.
In Canada sales amounted to 260 million, an increase of $45 1 million or 21%.
Our sales to manufacturers reached $215 million up by 23, 6% as for retailers market sales stood at $45 1 million.
10%.
In the U S sales totaled $109 9 million in U S dollar.
By 39, 3% of which 35%, resulting from internal growth and eight 8% from acquisitions.
Sales to manufacturers reached $98 4 million in U S dollars up by 42, 4%.
And the retailers market sales were up by a $1 7 million or 17, 2%.
Total sales in the U S reached $138 million and Canadian dollars, an increase of 32, 8% representing 34, 7% of the total sales.
Total sales in fiscal 2021 reached one 4 billion up by 27, 7% of which 22, 8% from internal growth and four 9% from acquisitions.
Yes.
Sales to manufacturers reached $1 2 billion up by 39% of which 26, 9% from internal growth and 4% from acquisitions.
Sales to hardware retailers grew by 13, 7% or $28 5 million to $236 8 million of which four 9% from internal growth and eight 8% from acquisitions.
In Canada sales totaled $945 million up by 29, 4% of which 24, 5% from internal growth and four 9% from acquisitions.
Our sales to manufacturers amounted to $768 million up by 32, 5% of which 29, 3% from internal growth and three 2% from acquisitions.
Sales to hardware retailers and renovation superstores were $151 million up by 17, 6% and the.
U S sales amounted to <unk> $395 6 million in U S dollars up 33, 5% of which 28, 1% from internal growth and five 4% from acquisitions.
They reached $495 6 million in Canadian dollars up by 24, 6% accounting for 34% of total sales.
Sales to manufacturers reached $348 1 million in U S. Dollar an increase of 37, 3% and sales to hardware retailers were up by 11% in U S dollars, mostly from internal growth.
Fourth quarter EBITDA stood at $71 3 million compared with $46 $7 million last year up 52, 7%.
The EBITDA margin stood at 17, 9% compared with 14, 6% in 2020, resulting from increase increased sales and gross margin together with cost control measures in place.
For the year EBITDA was $234 4 million up 51, 8%.
EBITDA margins stood at 16, 3% compared with 13, 7%.
Yes.
Fourth quarter net earnings attributable to shareholders totaled $44 6 million compared with $27 1 million last year.
Net earnings per share reached 79 cents diluted compared with 48 in 2020, an increase of 64, 6%.
For the year net earnings attributable to shareholders reached $141 8 million, an increase of 66, 3% compared to 2020.
Net earnings per share were $2 51 diluted up 67, 3%.
Fourth quarter cash flow from operating activities before net change in noncash working capital balances were up by 51, 8% to 55 million or <unk> 97 per share.
Net change in noncash working capital balances used cash flow of $41 6 million, mainly due to inventory increases.
For the year, they were up 47, 7% totaling 183 million or $3 24 per share net.
Net change in noncash working capital balances used cash flow of $78 6 million, mainly from inventory and accounts receivable increases.
During the year, we paid dividends of $19 4 million of which $3 9 million and were in the fourth quarter and repurchased common share for $13 1 million.
We have thus distributed a total of $32 5 million to our shareholders. This year.
We also invested $66 5 million during the year of which $49 4 million was for business acquisitions, and $17 1 million for equipment to maintain and improve operational efficiencies as well as equipment.
As of November 32021, cash totaled $58 7 million and our working cap was 456 million for a current ratio of three three to one.
I'll now turn it over to Richard.
Thank you Mike.
Our two main growth drivers innovation and acquisition strategies should enable us to make further significant advances in 2022, while continuing our market penetration efforts.
Product innovation is a sustained source of growth and we still have room to grow by equity as shown in North America, we have strong financial foundations to keep innovating and seize opportunity meeting criteria for growth and value creation in the short and long term.
We offer a value added service.
Multi channel concept that set us apart in our North American market.
This is one of our key strengths along with our culture.
<unk>.
Diversified market segment, our market wage with a robust and extensive network.
Topnotch Jones website.
And our web site, which is valued by our customers.
Maintaining cost control, we're making optimal use of our resources remain also a priority.
We will continue to improve our processes to keep our business model fully adapted to our customers need.
<unk> remains a customer and innovation driven.
Thanks, Thanks, everyone, we'll now be happy to answer your question.
Thank you Mr long, ladies and gentlemen, as stated we will now take questions from analysts if you would like to ask a question. Please press star followed by one on your Touchtone phone.
We'll then hear a three Tom prompt acknowledging your request.
I would like to withdraw your question simply press Star followed by two and if you are using a speaker phone. We do ask that you. Please lift the handset before pressing any Keith. Please go ahead and press Star one now if you have any questions.
And your first question will be from <unk> Patel at CIBC capital markets. Please go ahead.
Hi, good afternoon.
Richard the record high EBITDA margins in Q4 close to 18% I was just wondering how do you see the pace of margin normalization, playing out over 2022, and where would you expect them to stabilize that.
Hey, Jeff.
Easy to answer that but I think we're good.
EBITDA margin will remain strong.
Actually we have increased our pricing according to the prices increase that we had but I would say that our inventory is.
I would say capitalized with the full cost full new cost of the inventory coming in so basically.
That could be a small as you've got kind of the gross margin, but our focus would.
It would be during the year to make sure that we manage that very carefully in order to stay as close as we've been during.
During the.
The current year, so Ed what should we be successful in executing that.
Okay. Great. Thanks, Thank you Richard and kind of related to that I'm. Just wondering if you could give us an update on how margins today in the U S business compared to your Canadian operations.
As we continuously mentioned actually the gross margin in the U S.
Is going to EBITDA margin is improving as well at the same time I think we have something like 80% of what they are in Canada and that will continue to increase because we see the products, but that mix continuing to continue to increase as well as the volume for customers. So Andrew the sales for our employees and to stay up at the squad.
In the U S continued to improve and we the expansions that we that we've made in various distribution centers, we think that those the cost of those expansion would be largely covered by <unk>.
<unk> sales because whether business then that will should create very nice growth in the U S as well and we're very excited actually with the go to the West which is correct me if I'm wrong as well some things like close to 30% for the manufacturers market, which is amazing and just become sensors, even though we have a good business. Then we are we have we have met each way.
Well to the challenges.
The inventory shortage that type of thing because of our product mix.
We see that consumer.
You to improve.
In the future as well.
Great. Thanks, that's helpful and just last question for me I was just curious here in the first quarter are you seeing labor issues.
With.
Employee absences, either at your own Dcs or.
At your manufacturer.
Customers that could be affecting our sales pace.
I'm very pleased with that question because again again put some more emphasis on the Richelieu concept didn't trigger business model, which include.
The connectivity of our warehouses altogether wherever the customer is the product can be shipped four way of everything is available and what have.
In order to ship those products same thing applies to the phone calls as well.
Our phone system.
If you have to close.
Customer service of Vodafone in that area.
For example in Mississauga, Montreal can take over.
In five segments.
Montreal will take over the business continue on.
And the phone from Mississauga.
Montreal can even be thinking like Chicago, and New York. So I think we have we have a good system, which is which has been built in order to achieve those.
Those purpose.
Fair enough. Thanks, Thanks for John Thats, All I had I'll turn it over.
Thank you next question will be from Zachary <unk> of National Bank. Please go ahead.
Afternoon, everyone. Congrats on the great quarter. Thank.
Thank you.
So you started the year off with a bang here and looking at the larger average size of the recent targets do you think that signals.
Change in the deals Youre looking at or is it a rare exception really how's the pipeline looking.
No we keep on taking what is available in the market.
Pretty weak we still have many many many targets and the pipeline is quite healthy, but maybe I was hoping you can complement that and I agree with that statement.
Either in Canada or in the U S is that the pipeline is still.
It's still healthy.
Those acquisition.
We're target since our since a long time, so we've been we've been maintaining those relationships.
It's those three we're very pleased with the last three acquisitions, we've done another one.
Well I have to tell you that we've been that.
I would say closing these guys since I have about 15 years. So it's a long time, establishing relationships and when these guys decided to sell at the end of the year. The <unk> contactor that he showed you because we add the relationship we have their trust and we made a deal where we had a short period of time to make the deal with it as it has to be done before December .
So Christmas vacation for a month one.
That is not available so.
And those equity you shouldn't have been late on time before the new year because of the.
Income tax situation that those sellers AD. So basically we were very very very happy with those equity yourself because you continue to establish a footprint of each of you to.
Strongly position on that issue.
Geographic market in the U S and also the.
The teams that are managing those businesses actually ever long experience in the market. They are knowledgeable on pro sales managers and sales reps and top management people. So basically we are reinforcing steel sugar.
Sure a good team in the U S with that with those acquisitions.
Well I'm, sorry to hear that I will turn to that very glad you guys got it done.
Could you give us an idea of how manufacturer and retailer demand evolved in December and January versus Q4.
Yes.
If we start with the manufacturer to manufacturer side is still there is still strong.
Our cost that we talked with our other customers there, they're still very busy so with the.
The strength is maintained.
On the retailer side do you need to.
You need to keep in mind, the fact that we're comparing our sales with very strong quarters.
Last year so.
We're slightly down on the on the retailer side, and we expect to be to come back to a more reasonable comparable in the second half of the year to give you just a bit more color. Zack can you the kitchen manufacturer business in Canada increased by 20% during the last quarter widening in the U S.
I mean Canadian dollar here, though but it's a 25% increase in the U S, where we see the goal being stronger and stronger in the U S. The commercial innovation, 18% increase in Canada, and 22% increase in the U S and we had the dove in the window market, which is increasing by 16%, which is mainly due to acquisition that we've made.
That particular market.
Visit I'm sure to ensure increased by 18% office furniture.
37% sales increase in Canada.
So basically we see that.
In those markets remember we are invested in the last months that does bring some very good benefits.
Excellent.
You view that current strength in manufacturer demand as a temporary tailwind associated with the pandemic.
We don't think so because.
What we see actually is that first of all of the zinc market seems to remain healthy.
Does anyone wish him.
Now it gets the you're still doing very strong.
The only maybe cloud would be the inflation, but don't forget that people do you have a lot of cash since the beginning of the Covid and then also diverse.
I'll make sure that we can get that I'm sure. He is from all sales reps, we have something like 250 sales reps that are constantly in contact with our manufacturing customers in North America.
And just confirming that our customers are still very busy busy probably for the rest of the year. This is the information that we have so far so we expect this market to remain strong in the months to come.
That's great. Thank you and then with that kind of inflationary environment interest rates interest rate hikes are top of mind, how how do you and your customers perform in that environment.
We don't we don't see that as a problem so far.
I think Gabe.
As far as the People's EDF cash at the bank. So they will spend that cash interest rate.
Certainly Mike.
I think the house or the retail.
<unk> sales.
But we.
We don't see that those would be columns.
That's one of the aquifer could add to that I agree I agree with you.
Thank you very much and then just one last one for me and more of an abstract question. What are your thoughts on renting versus owning your distribution centers.
This is a good question and the circumstances.
This is one of the area.
Costs will will increase Fortunately.
Ill.
To lease most of our leases.
<unk> signed for a couple of years on mall, but all the research that we renew we see increases at one.
<unk>, 25% there is no doubt, but it's only a small percentage of our costs.
Some of our sales I think continue to continue when thing I think is the best option for us considering the fabulous amounts of cash flow that will be needed to be the owner of those buildings.
And the flexibility the renting gives us a lot of flexibility so like we do with <unk>.
Just mentioned a few a few moves that we've done so we've moved our we've moved our distribution center in <unk>.
In Detroit, we've done the same reset reset.
A recent fee in Orlando, we're going to do the same with other centers. So it really gives us the flexibility to adjust our network to their current.
The current sales volume so yes, Duane is right I think this is the most important aspect the flexibility.
That's great color guys. Thank you very much I'll turn it over.
Thank you once again as a reminder to all analysts if you would like to ask a question. Please press star followed by one of your Touchtone phone.
And your next question will be from Megan Annette at TD Securities. Please go ahead.
Thank you good afternoon. So just building on some of the conversation here so far.
We've been talking about strength and manufacturers for quite a while now but can you talk about how the sentiment among industrial customers changed relative to say six months ago.
Are you seeing more confidence there for the year ahead.
We see the consumer does thats been there for the whole year in 2021 that is continuing to be there now.
We have not seen any change.
And then just on the margin. So looking back at 2021 can you talk about the benefit of price increases to the EBITDA margin and then in light of some of the inflationary headwinds for 2022 can you talk about how youre thinking about price increases right now.
Yes first.
First of all we have a very flexible pricing system. So we can change pricing overnight for maybe close to 70% of our of our business. So we.
We've been able to adjust pricing with those.
With those cost increase.
That's that's for sure and in terms of impact on the margins. So we think we've been increasing the price and we've done toward through to increase in 2021.
And.
Of course benefited the EBITDA margin and the other the other element that's benefiting the EBITDA margin as the sales volumes. So thats why youre seeing those levels of.
<unk> EBITDA margin, because we're generating we need 25% sales growth at the consolidated level. So it goes directly to the bottom line and we try to increase our pricing before.
The additional cost reach inventory so because as soon as we know with suppliers or the freight is increasing.
Plus the price increases so we we have.
Sometimes you have to increase our gross margin top of our lease sometimes for a while before.
The increase Joe just reaching inventory.
That's all for me thank you.
Thank you next is a follow up from <unk>. Please go ahead.
Thanks.
Was just wondering if you could clarify.
Just with respect to the EBITDA margins, if I look back over the last three years and realized 21 was unusually strong because the average around 14%.
Rich Richard made the comment that the U S business margins.
Continued to narrow the gap with with Canada, So where do you see the long term EBITDA margins for the business and then if you could also comment just on Q1, specifically if I look back over the last two years has been about a 200.
Bps quarter over quarter.
The decrease Q1 versus Q4, what sort of margin contraction would you expect Q1 versus Q4 this year.
Yes, Rob I would say the same.
Q1, Q1 versus Q4, I would expect the same kind of.
Of variances versus historical data and if we look at the overall EBITDA margin in the past. So if you take the 2017, we were around 12% when you're 18, 12% 2000, 1911, nine 2020 totaled $13 seven so.
Last time, we spoke I said that post pandemic EBITDA margin would be around.
Hi, <unk>, 14% I'm still I'm still there now.
When the when will we get to a post pandemic sales levels. It's still that we like we said it's still strong on the on the industrial and it's back to a more back to normal and data on the retailer side.
Okay, great. Thanks that makes sense on that that's all I had I'll turn it over.
Thank you and at this time Mr. <unk>. It appears we have no further questions. Please proceed.
Theres no more questions. So thank you very much for attending this call and you're welcome to call US anytime you wish thank you very much.
Thank you, Sir ladies and gentlemen, this does conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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