Q4 2022 Richelieu Hardware Ltd Earnings Call

Good afternoon, ladies and gentlemen, and welcome to Michel you 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 analysts only and if at any time. During this call you require immediate assistance. Please press star zero for the operator also note that this call is being recorded on January 19th 2023.

Let me see it behaving well he's moved up you kept him to Mr. Ken Kenny who shouldn't you.

He was up multiple links will tell them what to quit.

But without that Phil is that whole Presidium lucasville examples keeps all of his time with analysts to sell them.

She was a it was when we that's also called the leopard producer who played a piece with what it is.

So you're probably going up because at that point. It alters your street will truly doesn't have a job you do need to vent or Jim, but I might know for deal about what that Mr. Vishal Lowe. Please don't except alleged axiom, let that hold it up we'll miss you.

Thank you.

Good afternoon, ladies and gentlemen, and welcome to the initial use conference call for the fourth quarter and 12 month period ended November 32022.

With me is Antoine Auclair CFO .

As usual, though.

Which is provided with your usual disclaimer as reported in our financial filings.

First let's look at our fourth quarter.

Sales benefited from both acquisition and internal growth.

The sales increase was driven by a strong performance in the manufacturers market in the U S where the tree acquisition closed in the first quarter made a major contribution.

Namely compete distributor.

GH outwear and National builders Outwear jointly the operate nine distribution centers in six different states.

As for the retailers Underutilization superstores market sales remained stable over the last year.

We close our fourth acquisition of the year in September .

You don't know the specialty eyewear distributor operating one distribution center in Montreal.

Together the full acquisition closed in 2022.

Isn't additional sales of approximately 125 million on an annual basis.

Thus far in 2022 it was.

Another year of strong growth fueled by both internal growth and acquisitions. We are very pleased with the performance achieved in all of our markets, especially in U S where the growth was 42, 2% now.

Presenting 40% of our total sales.

Our innovation and acquisition strategies, our focus on the customers of this diversification of our market segments.

<unk> web site <unk> Dot com all of these strengths contributed to bear fruit and be our best growth levers.

I'm also pleased to announce that the board of director approved this morning, a rise of 15, 4% in our quarterly dividend to <unk> 15 cents per share.

<unk> will now review the financial highlights and then we'll conclude with the latest development and also.

Thanks, Richard our fourth quarter sales reached $458 million up 14, 9%.

Sales to manufacturers stood at $398 million up 17, 4% of which seven 8% from internal growth and nine 6% from acquisition.

In the hardware retailers and renovation superstores market.

We achieved sales of $60 million in line with 2021.

In Canada sales amounted to $274 million, an increase of $13 4 million or five 2%.

Our sales to manufacturers reached $226 million up 5%.

As for retailers market.

Sales stood at $47 5 million up five 8%.

In the U S sales totaled $136 million in U S dollars up 24, 1% of which two 8%, resulting from internal growth and 21, 3% from acquisitions.

Sales to manufacturers reached $127 5 million in U S dollars up 29, 4%.

And the retailers market sales were down by $2 5 million in U S dollar.

Total sales in the U S reached $184 million and Canadian dollars, an increase of 33, 2% representing 42% of our total sales.

Total sales in 2022 reached one 8 billion.

Up 25, 2% of which 13, 4% from internal growth and 11, 8% from acquisitions.

Sales to manufacturers reached $1 6 billion up 28, 9% of which $15, 9% from internal growth and 13% for an acquisition.

These increases are the result of sustained demand is the renovation market in 2022, as well as higher selling price.

Sales to hardware retailers grew by six 2% or $14 9 million to $251 5 million mostly from acquisitions.

In Canada sales totaled $1 1 billion up 13, 7% of which 10, 2% from internal growth and three 4% from acquisitions.

Our sales to manufacturers amounted to $877 million up by 14, 2% of which 11, 7% from internal growth and two 5% from acquisitions.

Sales to hardware retailers and renovation superstores were $177 million up 11, 7%.

In the U S sales amounted to $562 5 million in U S dollars up 42, 2% of which 15, 4% from internal growth and 26, 8% from acquisitions.

<unk> $728 million in Canadian dollars up 46, 9% accounting for 40% of total sales.

Sales to manufacturers reached $521 million in U S dollars and increase of 49, 7% and sales to hardware retailers were down by 12, 9%.

Fourth quarter EBITDA stood at $76 7 million compared with $71 3 million last year up seven 5%.

EBITDA margins stood at 16, 8% for the year EBITDA was $287 4 million up 22, 6% and EBITDA margins to that.

The 15, 9%.

Fourth quarter net earnings attributable to shareholders totaled $44 9 million compared with $44 6 million last year.

Diluted net earnings per share reached 80, compared with 79 in 2021.

For the year net earnings reached 168 $68 million, an increase of 18, 8% and $2 99 per share compared with $2 51 per share last year.

Yes.

Fourth quarter cash flow from operating activities before net change in noncash working capital balances were up eight 3% to $60 4 million or $1 <unk> per share.

Net change in noncash working capital balances used cash flow of $58 6 million for.

For the year, they were up 22, 7% totaling $224 million or $2 98 per share.

Net change in noncash working capital balances use cash flow of $260 7 million, mainly from spike in inventory, which resulted from the higher product costs and the easing of the supply chain challenges, including the acceleration of delivery times, especially from Asia.

During the year, we paid dividends of $29 million up 50% over 2021 of which $7 3 million and were in the fourth quarter and repurchased common shares for $12 3 million.

We have thus distributed a total of $41 $4 million to our shareholders. This year.

We also invested $67 million during the year of which $44 million was for business acquisitions and $23 million for equipment to maintain and improve operational efficiency efficiency, including investment in ongoing extension projects.

As of November <unk>, 2022 Bank overdraft net cash amounted $212 million and we're working capital was $563 million for a coverage ratio of two six to one and a return on average shareholders' equity stood at 22, 7%.

I'll now turn it over to Richard.

Thanks, everyone.

We're constantly looking to acquire new businesses in line with our creditors and integrate them by trading our value and developing synergies just for assembly in January we concluded four new acquisition that will contribute to diversify our offering and our customer base, namely thank.

Thank you Bill the distributor specialty all the way up with one distribution center in <unk>, Quebec.

Transfer all distributing a distributor of industrial fastener.

With one distribution center in depth.

Nova Scotia unit and use it to companies offering custom products, including <unk> scanning centers for the architectural and industrial market, they're located respectively enrolment and Montreal.

These four new acquisition will add approximately $18 million in sales on an annual basis.

Our expansion projects are progressing well mainly in Atlanta.

Nashville, and bump and also we just opened a new cast that location close to New York City, and we would be up and running in Minneapolis for February .

Chicago when you look at your location servicing you can say those would be fully operational in the coming weeks.

Although expansion projects are currently under review and USA, we continue to be a strong driver of our growth.

To conclude.

Strong.

Strong financial foundations skills and expertise to serve its customers with the distinctive service approach as well we have a solid track record in product innovation and business acquisitions, which remain our two main growth driver.

In 2023, we've continued to build on this momentum and our strength in order to achieve good results with the involvement of our great team.

We will pursue our market development innovation and acquisition strategies, we're giving priority to service productivity synergies and sound financial management.

Thanks, everyone now I'll be happy to answer your questions. Thank you. Mr luck, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a sweetheart prompt acknowledging your request and if you would like to withdraw. Your question. Please press star followed by two and if you are using a speaker phone we do.

Could you please lift the handset before pressing any keys. Please go ahead and press Star one now if you have a question.

And your first question will be from Zachary <unk> National Bank financial. Please go ahead.

Good afternoon, everyone congrats on the quarter.

Hello.

So I was hoping you could give us a little bit more color on the inventory breakdown.

Maybe paint a picture for us of where you want to get that number down to.

What's higher due to pricing and then what's attributed to new distribution centers and acquisitions and your inventory.

Yes, Okay, I will answer it sounds one.

Basically prior just just product costs increase.

Amounts to approximately $45 million to $50 million, just just from a cost increase in the <unk>.

$33 million from acquisition and new extension basics that will basically close to $75 million.

On those on those elements, but.

We're pretty much at the highest point in January we were pretty much at the highest point so.

You looked at the you have the in November .

<unk> levels is going to increase in the December slightly increase in January as well, we're going to be at the start of the month ending January stabilize in February and it will go down substantially during during 2023.

And how much do you think you can pare away to get to a stabilized inventory level.

Between that would seem between $60 million to $80 million.

That's helpful. Thanks.

And then Richard maybe you could give us some commentary on pockets of weakness and strength that youre seeing in your end markets and product categories.

So what do we see so far the market is still quite good even though the first quarter is always our Lewis.

Our lowest quarter as you as you kind of remember, but and also at what we have seen this year and more than ever in our small customers until January 15 that we are still on vacation, but in spite of that.

Our sales.

Yes.

Quite well, it's going to be a hot I don't think we can beat the performance that we had last year, though but.

The market is still good we see the retail market being flat slightly down in the U S. But it's only for timing purchasing let's just think of timing for customers and speaking with our sales management and our salespeople do you see that the customer would be busy for at least the next six months.

Two a very decent level. So so basically all of the product lineup doing pretty well.

So far as well as our most of our customer segment.

So I think all new acquisition was who contributed to a nice growth because now they have access to more products do you have to access through the distribution system.

Sure good marketing trends, so basically that should generate more sales and we have various programs in order to increase our sales as usual and U S. As in Canada in order to get more sales per customers and gained more new customers as well. So basically what are the circumstances might be or will be.

Still doing everything in terms of our menu strategy in parallel in order to keep increasing our sales.

Great color. Thanks, So im hearing you on gaining new customers and growing our sales per customer.

And I noted that you flagged that gross margins were stable in the quarter. What are your thoughts on the extent of price deflation.

In your product categories in the year ahead.

There will be a price deflation.

For a while there is no doubt because of the excess inventory at the higher quarters that we have namely for some products for the for the retailers that should temporarily affect our gross margin, but but.

Let me.

Especially for example for the fastener and fitting business.

Because we have excess inventory in that instead of yet we have direct import for certain of our customers from Asia that I talked to a customer this year, we're going to use our inventory instead of selling product at the reduced margin coming directly from Asia.

So we have to carry the cost of everything just political inventory, but we're going to use the product, which is already into our inventory due to ship to our customers.

Our margin that's the way to affect upwardly our margin, but we don't expect any disaster, but.

We're going to have to shut in.

Decrease for certain product line.

We don't see the <unk> as being dramatic Richard Good result, if we look at the next couple of quarters.

Got you. Thank you.

Previously you've given a range of maybe 14% to 15% EBITDA margins in a post pandemic world.

You think thats still the case with what Youre seeing in terms of inventory discounts and that kind of thing for 2023.

Yes. It is.

Shortens suite.

Yes.

And then just one last one if I can.

On customers that you won during the disrupted supply chains, because our CAH.

He was able to keep inventory better thing.

Competitors.

What do you think your retention rate is on that new business the market share gains you made there.

I think that.

Retention is something higher than 80% because this customer they have discovered us do you see the larger value to a product that we have.

And they will continue to buy from us because you have experienced a good service and this is a large value to flood actually easiness of using our website and to reach where people.

Just picking up the.

Sales of Apple.

Customer service people, so basically that keeps.

Improving.

The old <unk> and.

Basically we are quite optimistic with this.

We also have taken account of that.

The thing to say is that we have to keep in mind that the.

Before.

Last year, our customers also but more product from us.

Because.

The way we are.

Scott I wanted to make sure that the update there right.

Inventory than they would really need to do.

Anything of their projects.

Our customers are indexed yesterday with century and they also know that we are in excess of inventory. So if they need something to just as we speak now because just by the COVID-19 they need now because they know that.

A lot of inventory so the <unk> as soon as you could be something in the near future. So basically that knows that does not help to do create more sales, but as I said earlier.

Whatever the circumstances, we still do well compare even though we will be closer to performance that we had last year, but sales are still holding I would say healthy.

Fantastic. Thank you.

It's all I had I'll turn it over.

Q.

Thank you as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone.

And at this time Ms. Sheila we have no other questions. Please proceed.

Because it feels good to talk to you. Thanks again.

Whatever you need to talk to us where we are thank you very much.

Thank you, Sir ladies and gentlemen, this does indeed 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.

[music].

Yes.

Okay.

Okay.

[music].