Q4 2023 Richelieu Hardware Ltd Earnings Call

[music].

Good afternoon, ladies and gentlemen, and welcome to US you said your hardware 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.

If at any time during this call you require immediate assistance. Please press star zero for the operator.

Call is being recorded on January 18, 2024.

<unk>.

Todd.

<unk> didn't advance what the cave.

Sure.

She is voting for Medicaid.

So with that I presume that that field zonal paucity caveat that there still is a pulse.

Just your harvest titles that and I just said.

Debbie just wanted to ask just also called Leopard appears to have each one is yellow.

You talked about not just sit at that at all.

Jackie Venkat.

NASA day, let Dan atmosphere, Vishal large tissue that is shifted that your next bill let that holiday debut.

Yes. Thank you.

Good afternoon, ladies and gentlemen, and welcome to the figures conference calls with the full quarter and 12 month period ended November 30 of 'twenty to 'twenty three we can be used at Wendel CFO.

As usual note that some of today's issue include forward looking information.

Which is provided wood your usual disclaimer as reported in our opinion.

<unk> findings.

We ended Twenty-twenty suite with a solid fourth quarter.

Our sales are nearly in line with dose from the same quarter of 2022, when do the nutrition market continued to benefit from favorable market conditions.

Oh, and then three level continued to improve helping generating over $70 million of cash flow.

Tom Operator thing during opening activity during the quarter.

As for the EBITDA and net earnings.

These were essentially impacted by the return to pre pandemic opened I think expenses and costs incurred in projects to expand <unk>.

Several of our distribution centers, mostly in the U S.

For fiscal 'twenty somebody suite.

Our total sales.

Acquisitions are also in line with those of 2022.

Throughout the year, we maintained our commitment to financial discipline.

Although to continue generating healthy margins.

And strong cash flows.

As shown by the $271 million.

Generated from the operation this year.

2023 was also another good year for acquisition complementary to all activities as well as concrete achievements in our network.

In line with our optimized you shouldn't culture.

We invested in six new acquisitions.

When you get to use them.

<unk> Ultra in Quebec, then transfer all distributing in Nova Scotia, Maverick outerwear in Oregon, and Western distributing in Minnesota.

With this full acquisition completed in 2022, we're adding $152 million in sales on an annual basis as well as expanding our customer base and our offering.

Adding talented people to our team.

Regarding our network projects undertaken to better seize market growth opportunities optum.

Optimize our operation and service, we are pleased with our achievements to date.

We have successfully completed the expansions of our centers.

Nashville, Fort Myer Pompano.

Yes, so areas.

Our brand New Chicago Center, serving the retailers market is fully operational.

As are the two new centers in Dominion Applebee's and cost out agents.

In December we completed our category expansion.

By closer do you think the two centers into once you. Once you go 250000 square feet building.

This center will become a destination for our customers.

Critics and designers with a state of the offshore in addition would.

But we'd be able to serve our retail customers in western Canada and our.

Alberto manufacturers from one single location.

I'd also like to add that 2023 was a strong year in terms of innovation.

We added many innovative solutions instead.

Although product categories, all inevitable, one stop shop network and on initial good outcome for customers optimizing the customer experience is always at the top of your priorities.

Kathryn will now review the financial highlights of the quarter and the year, then that would come through and we will take your questions with one thanks.

Thanks, Richard our fourth quarter sales reached $454 million slightly down by <unk>, 8%.

Sales to manufacturers stood at $393 1 million down one 2% of which two 8% from internal decrease and one 6% from acquisition.

In the hardware retailers and renovation superstores market, we achieved sales of $61 million in line with 2022.

In Canada sales amounted to $267 million, a decrease of $6 million or two 2%.

Sales to manufacturers reached 120 million down two 5%.

All retailers market sales stood at $47 million in line with last year.

In the U S sales totaled $136 million in U S dollar same as last year.

Sales to manufacturers reached $126 million in U S dollar down <unk>, 7%.

And the retailers market sales were up eight 8% total sales in the U S reached $186 million in Canadian dollars, an increase of one 2% representing 41% of total sales.

Total sales in 2023 reached $1 8 billion slight decrease of <unk>, 8% of which one 8% from acquisition and two 6% from internal decrease.

Sales to manufacturers reached one 5 billion down <unk>, 8% of which two 9% from internal decrease and two 1% from acquisitions.

Sales to hardware retailers were down by a percent or $2 6 million to $248 million.

In Canada sales totaled 1 billion down two 5% of which four 4% from it'll decrease and one 9% from acquisitions.

Our sales to manufacturers amount to $856 million down by two 4% of which four 7% from internal decrease and two 3% from acquisitions.

Sales to hardware retailers and renovation superstores were 198 million down two 9%.

In the U S sales amounted to $548 million in U S dollar down two 7% of which four 4% from internal decrease and one 7% from acquisitions.

They reached $740 million and Canadian dollars up one 6% accounting for 41% of total sales.

Sales to manufacturers reached $506 million in U S. Dollar a decrease of 2% and sales to hardware retailers were up by one 2%.

EBITDA margin stood at 13%.

For the year EBITDA was $230 4 million down 19, 8% and EBITDA margin stood at 12, 9%, reflecting the return to operating expense closer to pre pandemic level and expenses incurred specifically for projects to expand and modernize several of our distribution centers.

Fourth quarter net earnings attributable to shareholders totaled $28 5 million compared with $44 9 million last year.

Diluted earnings per share reached 51 cents compared with 80 cents in 2022.

For the year and net earnings reached $111 million, a decrease of 33, 8% and $1 98 per share compared to $2 99 per share last year.

Fourth quarter cash flow from operating activities before net change in noncash working capital balances were down 27% to $49 3 million or <unk> 88 per share.

Net change in noncash working capital balances represented a cash inflow of $23 3 million, reflecting mainly the change in inventory and accounts receivable.

Consequently, we generated $72 7 million in cash flow from operating activities compared with $3 6 million for the fourth quarter of 2022.

For the year operating activities generated a cash flow or cash inflow of $271 million.

Net change in noncash working capital balances represented a cash inflow of $80 2 million, mainly resulting from improved inventory level.

During the year, we paid dividends dividends of $33 5 million up 15% over 2022 of which $8 4 million in the fourth quarter and repurchased common shares for $800000.

We have distributed a total of $34 3 million to our shareholders. This year.

We also invested $62 million during the year of which $20 million was for business acquisitions and $42 million, mainly for equipment to maintain and improve operational efficiency, including addition, resulting from expansion projects and for the purchase of a building in the women's jakubik.

As of November 32023, net cash amounted to $24 million compared to net bank overdraft of $112 million last year.

Our working capital was $622 million for coverage ratio of $3 71.

I'll now turn it over to Richard.

Thank you Glenn.

Now too.

Richard: I will now conclude without most of some developments.

On December 1st.

Generally 15, respectively.

We completed two new acquisition.

Olympic Flores specialty wood entitled distributor, hopefully, you're seeing good distribution centers.

Are you.

And rapid stop the specialty alloy distributor with one distribution center and Whitman.

These two transactions.

In line with our objectives wood I'd say as of approximately $18 million and then you will be as well.

We will also benefit from the extension projects undertaken in the last two years.

Asia is well positioned to achieve good results in 2024.

We fit very well with our solid financial history of the last 30 years as a tier six listed company.

Our acquisition strategy supported by a strong balance sheet with no debt.

As shown in value added service.

Always served the company very well.

Richard: We continue to execute them.

You too.

Speaker Change: Thanks, everyone, we'll now be happy to answer your question.

Thank you ladies and gentlemen.

Your question. Please press star followed by the one on your Touchtone phone.

To withdraw your question. Please press star followed by the two.

Please for your first question.

Your first question comes from EMEA.

From CIBC. Please go ahead.

Good day good afternoon.

Richard could you could you give us a sense as to how your sales are tracking through the first six weeks of the new fiscal year.

Yes, I see what I see the trend that we had in the last quarter of 2023 continue to be effective as we speak.

We don't see yet.

The first quarter.

Positive organic growth because of distribution of the market and but.

We expect the basically the first half to be at.

I would see no growth or negative slightly negative growth, but.

Do we expect.

We don't know why exactly but we expect that the second the second half should be much better this is where you.

So we think what's going on in the back half, we're just adding to our sales force on our people and our customers we feel that the second quarter with much better because the first quarter is also being impacted by some inventory left from D. J D.

The pandemic pretty odd way, we still have about $25 million of excess inventory, which we have with the <unk> the.

The whole cost.

So we have to deal with that probably I think you said.

The next quarter and maybe the.

The next two quarters, but basically things are pretty healthy debate and she is very clean cash flow is very clean.

I will say of course is in fact, what we hear from the competition is that we are doing much better, but we cannot make a clear demonstration of that but we feel that we've really got you got you.

More market penetration sitting to all customers and again because of the new product that we are into wood.

It shows the pipeline is very healthy basically that should be a good year for acquisition.

Okay. Thanks, Richard that's helpful. So the.

It sounds like.

Last quarter, you had kind of pointed to be excess or higher warehousing costs being incurred for.

Through the first half of fiscal 'twenty, four and it sounds like you'd still expect to kind of work through that excess inventories.

By the end of Q2 is that fair yes.

Yeah, that's fair I mean, basically what im expecting is.

We'll be flat for the first first quarter because of with Chinese new year, we have to order in advance. So we should have a flat inventory for the first quarter, but then im.

<unk> reduction of around 20 $25 million over the next few quarters.

Okay, great. Thanks, and then just just asking them turning to EBITDA margins moderated further to 13.0% does that mark the.

The low of the.

<unk>.

Go forward business.

Or would you expect that to.

<unk> to trend lower for another quarter or two before selecting higher again.

We would expect to continue to trend lower because with.

With a volume that slightly down I'm expecting the EBITDA margin to be anywhere between the 12% 13%. So.

And a better market environment, the 13% is that she is achievable.

In a more difficult environment I would say around 12, so anywhere between 12 and 12 and 13.

Depending of the of the market condition, it's between 12 and 13.

Okay.

Fair enough and just a last question I had I noticed in prior years the company tended to announce.

A dividend increase with the fourth quarter results.

Richard is there is there a reason this year the board held off.

So we think that we are increasing it does.

The dividends I don't know what we are increasingly last time, we had in Korea I think it was a big increase so we thought that we could look at should take it as it this year.

But that doesn't mean that the don't forget that our dividend policy you spoke Walter it's slipped a yearly dividend. So basically we've got a big changer whenever it's going to be needed.

Okay.

Fair enough, that's all I had I'll turn it over thanks.

Ladies and gentlemen, as a reminder, should you have a question. Please press the star.

Baidu won.

Your next question comes from Zachary.

From National Bank financial Please go ahead.

Thank you for taking my questions Hey, everybody.

Yep.

Speaker Change: So in terms of gross margin some pressure there.

The effort to reduce inventory weighing on that or are there other factors at play.

So the excess inventory as I said earlier, we're still left with $25 million that should go quite as fast. So we think the first two quarters, we should get rid of that Unfortunately. This is creating some of that decrease of the gross margin tempo early is it important to specify it's temporary because it basically.

For the year.

For the product as we have paid the right price that we sell now we sell.

We certainly and we have the same margins that we had before that will come back to that.

Basically we have to live with.

Deflation, but certainly do it.

Going to affect mainly the retail hub.

Stores because.

That gets we sales there.

Mainly from Asia, So basically.

Of course, we'd be.

We will be it will decrease.

Some of us hitting price was agreed but as a percent.

Speaker Change: The gross margin will remain the same.

That's good color. Thank you.

And you also mentioned that there were some project expenses weighing on EBITDA margins, how much was that in Q4 in.

Or basis points.

$1 <unk> in Q4, you Ken.

Could could estimate around $4 million in Q4.

Yeah.

Perfect. Thank you.

And then you mentioned that the acquisition pipeline is looking pretty good are seller expectations coming back down to Earth after being inflated during the boom time.

Yes.

That's a good point so for sure that now we're looking at 'twenty, we're basing the acquisition based on 2023. So it's.

Is it going to change it's going to certainly changed.

How we address that with these acquisitions. So yes, it's good it's coming down to more reasonable prices.

Excellent.

So 2020 to be very eventful for projects.

No. We finished with just getting all the projects that we have to.

To do what had been the finished at the end of 2023, we can do a process of finishing we're finished category in the month of December.

To come we're going to have in Vancouver, we're going to have to weaker trends in Vancouver, but that's not a major project, though but we we don't have any trends because.

We cannot take any trends because actually we have some businesses at that double up in size there with <unk>.

And with which we have to operate into the different warehouses.

Getting to the stock back and forth from them one way hosted euro. So we have to rationalize a few things, but that's that's going to be probably the only projects.

That's perfect. Thanks.

That's it for me.

Presenters today are no further questions at this time I will turn the call back over to Sal for closing remarks.

Okay. So thank you very much for attending this call we will always be happy to talk to you. If you decide to call. It us so have a good day.

Ladies and gentlemen, this concludes your conference call for today, we thank you for joining and you may now disconnect your lines. Thank you.

[music].