Q3 2023 Richelieu Hardware Ltd Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Cheniere hardware third quarter results conference call. At this time all lines are in listen only mode.

Following 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 immediate assistance. Please press star zero for the operator.

This call is being recorded on October 5th 2023.

Well I may Miss James do you have in Europe .

She Mr. Ken Kennedy he clearly that's not novel trending sometime what <expletive> Hudson Ma'am.

I'll touch on this alone plus the cash story.

Paul.

Sure.

And then there's something that she was that if it doesn't that's also called the left handed a piece of it is what it is now so you're probably not cause the type of tenants that are just painless. Thank October event for maintenance.

So it isn't a pet I missed you Richard Lord is that has shifted a direct seller of paclitaxel.

Yes. Thank you good afternoon, ladies and gentlemen, and welcome to the initial use conference call for the third quarter and first nine month period ended August 31 2023.

With me is also on new client CFO .

Our third quarter performance reflects the effectiveness of our initiatives to achieve to achieve good sales you know what kind of deal.

And U S market.

So he is about slightly slightly below the third quarter was 222.

Which benefited from exceptional market conditions in the pandemic context.

For the nine months to date, we reached sales of $1 3 billion in line with last year.

Our customer focused business model.

Diversified markets in North America effective assets.

Oh innovation and value added service strategies, and our business equity issuance, which partly offset the decrease in sales compared to 2022.

Oh EBIDTA margin.

No more than last year due to the return to pre pandemic levels, a little bit I think expenses.

Exceptional external warehousing costs relating to temporary higher inventories level and the costs related to our expansion and modernization projects of some centers in the U S.

Other two extra rebates, which were booked.

Cash flow from operating activities was strong for the third quarter.

Judy anything $104 million well inventory.

It's currently this will lead to more normal levels, which contributed to a positive effect on cash flow.

We ended the period with the financial position that remains very solid.

One we know review the financial highlights of the third quarter and the first nine months, then I will conclude and we will.

We'll take your questions.

Thanks, Richard third quarter sales reached $192 8 million down two 9% of which four 6% from internal decrease and a one 7% from acquisitions.

It's important to note that in the third quarter of 2022. He showed you had achieved strong internal growth of 16%.

In Canada sales amounted to $270 1 million down three 4% of which six 4% from internal decrease partially offset by a two 1% positive contribution from acquisitions.

Our sales to manufacturers reached $119 9 million down three 6% and for the hardware retailers sales stood at $50 2 million down two 7%.

In the U S sales grew to $141 6 million in U S dollar down five 6%.

Sales to manufacturers reached $131 million in U S dollars down six 8%.

In the hardware retailers and renovation superstores market sales reached $10 6 million up 12, 8%.

Canadian dollar total sales in the U S reached $188 9 million a decrease of two 3%.

For the first nine months sales reached $1 3 billion down 8% of which two 8% from internal decrease and 2% from acquisition.

In Canada sales reached $780 6 million down $26 million or two 6% of which four 5% from internal decrease and one 9% from acquisitions.

Sales to manufacturers reached $635 4 million down $15 3 million or two 4%.

Sales to hardware retailers and renovation superstores reached $145 2 million compared to $150 5 million down three 5%.

In the U S sales amounted to $411 2 million in U S dollar down three 5% of which five 5% from internal decrease and 2% from acquisitions.

The reached $553 5 million.

Up one 7% accounting for 41% of total sales.

Sales to manufacturers totaled $379 eight U S.

$379 8 million, a decrease of $12 6 million or three 2% of which five 4% from internal decrease and two 2% from acquisitions.

Sales to hardware retailers and renovation superstores or six were down six 5% compared to last year.

Third quarter, EBITDA reached $61 million down $18 2 million or 23% over last year, resulting from lower sales and higher operating expense.

EBITDA margin stood at 13, 3% compared to 16, 7% last year.

For the first nine months EBITDA reached <unk> hundred $71 6 million down 18, 6%.

As for the EBITDA margin it stood at 12, 9% compared to 15, 7% last year.

Third quarter net earnings attributable to shareholders totaled $29 8 million down 34, 6%, mainly due to amortization, resulting from business acquisitions and expansion projects, mainly in the U S, including higher interest expense on lease obligations.

Net earnings per share were <unk> 53, compared to <unk> 83 last year, a decrease of 36, 1%.

For the first nine months net earnings attributable to shareholders reached $82 9 million down 31, 1%.

Diluted net earnings per share stood at 1.1 dollars 47 compared to $2 19 last year.

Cash flows from operating activities before net change in noncash working capital balances was $48 5 million compared to $60 9 million last year net.

Net change in noncash working capital items represented a cash flow inflow of $5 $55 1 million.

Excess inventories continued to reduce as planned with a positive effect of $24 5 million as a result operating activities represented a cash inflow of $103 5 million in the quarter compared to a cash outflow of $2 7 million in 2022.

For the first nine months cash flows from operating activities represented a cash inflow of $192 million compared to cash outflow of $37 9 million last year.

For the third quarter financing activities used cash flow of $16 9 million compared to $17 2 million last year dividend.

Dividends paid to shareholder of the corporation amounted to $8 4 million compared to $7 3 million in the same period of 2022.

For the first nine months financing activities used cash flow of 52 million compared to $46 9 million in 2022.

Dividends paid to shareholders amounted to $25 1 million compared to $21 8 million last year.

During the first nine months, we invested $42 5 million 20 million four six business acquisition and $22 5 million, mainly for distribution center modernization and expansion projects investments in equipment to maintain and improve operational efficiency as well as for IP infrastructure development.

We continue to benefit from a healthy and solid financial position with a working capital of $606 1 million for a current ratio of three four to one and an average return on equity of 15, 5%.

I'll now turn it over to Richard.

The only one.

The integration of recent acquisitions is important is as the expansions and consolidation projects, Although we know network.

Finalized the consolidation of our centers in Atlanta, and Nashville regions, and our CSO Center is now fully operational.

We are also progressing with the pump and Monsanto extension and plan to complete the consolidation of our centers in the area in the first quarter of 224.

We expect to end the year on November 30 of 2023 with the sustained performance and a solid position, but England such as full strategy desktop how do we served us well, namely ongoing innovation value added service market penetration and business acquisitions, which are a key growth driver.

Thanks, everyone, we'll now be happy to answer your questions.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.

Here through till January .

And your question. Your question is will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by the tune. If you are using a speaker phone. Please lift the handset before pressing any keys. Your first question comes from Ariana Milam with CIBC capital markets. Please go ahead.

Hi, Good afternoon, Richard can you speak to what kind of organic decline you saw in September and when do you expect to return to positive organic growth.

What we see so far this year I think it's been encouraging if you remember well from the 2019 to the end of 2022, I will say that increased by 70%. The current performance is a clear demonstration that we keep up with those market share that's why gains during the pandemic and we're very happy about this.

And we consider okay phones really satisfactory in the circumstances.

For the current market.

Thanks, that's helpful and Richard can you speak to the M&A pipeline and whether you've seen any moderation in vendor expectations.

Yes, the pipeline is quite healthy and are in the U S and in Canada as well. So we're working on some some opportunities as we speak but yeah. The M&A environment is still very positive for us.

Okay. Thank you.

And then just with respect to your excess inventories when do you expect to work through them and what are the risks of further price deflation as you look to normalize inventories.

Uh huh.

I would answer the decision regarding decision theres going to be.

Some definition for certain products, mainly for those that come from from Asia, but as a percentage to our gross margins should be maintained after we have we are past that we are truly in the excess of inventory. So basically we look forward to to make sure that we stabilized the situation with new inventory at the new cost and then we're going to see.

You don't go to the margins and everything else is coming in the future on the short term, we have to live with that situation, but.

At the end of the first half of 'twenty 'twenty four we should be true everything at one regarding inventory.

We're down $65 million since the beginning of the year. So far we've mentioned that we were expecting $60 million to $80 million in 2023 is going to be closer to $280 million.

<unk>.

We should probably see another $20 million somewhere in the first half of next year. So the inventory should come to a more reasonable level in the middle of next year.

Okay, great. Thank you and just the last question I had was and when are you able to provide us with some perspective on what type of EBITDA margins, you're targeting for 2024.

Yes, <unk>, we're currently at 13% and with the with the market conditions that we're seeing now I think that the 30%, 13% is a reasonable level of EBITDA.

Okay. Thanks, that's all I have for now I'll get back in the queue.

Joe.

Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one. Your next question comes from Zachary <unk> with National Bank financial.

Hi, good afternoon, its actually Thomas calling in for Zach.

Yeah.

Consolidation of Nashville, and Atlanta.

And when do you expect that shows up in the results.

Yes, we just ended the consolidation of our Atlanta and Nashville centers.

Our Seattle.

Seattle Center is now fully operational so we should start to see benefit from those initiatives early next year.

Okay. Thank you.

<unk>.

Do you feel do you feel the environment is stable enough that we can call a bottom here.

No I think that's what.

I would say I would say that we have visibility up to middle of next year.

We see the environment staying pretty flat as it is today.

Okay.

And so from Ottawa, because what we see the current situation.

Don't see any positive sign as to I don't think its going to get worse, but we don't think it's going to get better.

As I explained at the beginning of the meeting.

Fact that we maintain the market share that we've gained during the pandemic I think is a very very very positive for us. So that means that those that although sales have increased and <unk>.

It's been consolidated capacity its about an economy, which is not.

As good, but but our goal that we should continue to work hard in order to increase our market penetration.

And to do too big too to make sure that if.

If they use the sales decline that it's minimal as we've seen it so far but that's really the goal of our teams both in U S and Canada. There is a lot of work is going to be doing in order to keep up with those those market share.

Thank you.

Last one for me here I think previously you are.

<unk> 15 million in inventory reduction next year.

You just called out 20 million in the first half of <unk> are still it's still the number for the full year.

Basically in this year is going to be slightly.

On the high side, so with the.

The level of our sales.

See today $20 million four for the.

SaaS is reasonable reasonable and I think we will see what happens after that's great.

Alright, thanks, so much.

There are no further questions. Please.

Please proceed.

There is no more question. Thanks again, so it was a very good to talk to you and meet with you at your convenience. Thank you very much and have a nicely.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

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Okay.

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