© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
[Foreign Language] Good afternoon. My name is Ruth, and I will be your conference operator today. At this time, I would like to welcome everyone to the Richelieu Hardware Fourth Quarter Results and 12 Months 2017 Conference Call. [Operator Instructions]It is now my pleasure to turn today's call over to Richard Lord, President and CEO.[Foreign Language]
[Foreign Language]Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the fourth quarter and 12-month period ended November 30, 2017. With me is Antoine Auclair, CFO. As usual, note that some of today's issue includes forwarding information, which is provided with the usual disclaimer as reported in our financial filings.As a whole, Richelieu performed well during the fourth quarter of 2017, posting an increase of 20.6% in sales in Canada and 9.2% in the U.S. Our innovation and market development strategies were very successful in both manufacturers and retailers market. We are very satisfied with the growth posted in Canada.Our 2 acquisitions closed in 2017 continue to contribute to sales growth and strengthening our positioning in the Ohio and Ontario market and bring new synergies. I should mention that our sales in the U.S. were affected by severe conditions in our Southeast market, which is an important market for us.Regarding the year ended November 30, it was one of the further growth and expansion during which we continue to market investment to create long-term value. Total sales are approaching $1 billion, standing at $942.5 million. For the first time, Richelieu has also exceeded the $100 million EBITDA. We ended the year with an impeccable financial position, our market cap reached $2 billion in 2017, up 25.6% over last year.Now let's look at financial highlights. Fourth quarter sales reached $250.2 million, up by 14.8%, of which 6.8% was from internal growth and 8% from acquisitions. At comparable U.S. exchange rates to the same quarter of last year, sales growth would have been 16.7%. Sales to manufacturers stood at $214.2 million, up by 14.5%, 5.2% from internal growth and 9.3% from acquisitions. In the hardware retailers and renovation superstores market, we achieved sales of $36 million, up by 16.1%. In Canada, sales amounted to $174.5 million, up by 20.6%, 11.2% from internal growth and 9.4% from acquisitions. Our sales to manufacturers reached $141.4 million, up by 20.2%, 8.7% from internal growth and 11.5% from acquisitions. As for the hardware retailers and renovation superstores market, sales stood at $33.1 million, up by 22.1%, mainly due to market share gain and the addition of new customers.In the U.S., sales totaled USD 60.3 million, up by 9.2%, 3.5% from internal growth and 5.7% from acquisitions. We reached CAD 76 million, an increase of 3.3%, representing 30.3% of total sales. Sales to manufacturers reached USD 58 million, up by 10.9%, 4.9% from internal growth and 6% from acquisitions. In the hardware retailers and renovation superstores market, sales were down by 20.7% in U.S. dollar, which is attributable to higher sales last year due to product introduction in some stores.For the year, sales totaled $942.5 million, up by 11.6%, 5.8% from internal growth and 5.8% from acquisition. At comparable U.S. exchange rates to the same period of last year, sales growth would have been 12.3%. Sales to manufacturers reached $800 million, up by 11%, 4.2% from internal growth and 6.8% from acquisitions. Sales to hardware retailers and renovation superstores stood at $142.6 million, an increase of 15.2%.In Canada, sales totaled $635.5 million, up by 13.7%, of which 7.3% from internal growth and 6.4% from acquisitions. Our sales to manufacturers amounted to $508 million, up by 12.7%. Sales to hardware retailers and renovation superstores grew by 17.5% to $109 million. This increase resulted primarily from market share gain, the addition of new customers and, to a lesser extent, to an increase in some selling prices.In the U.S., sales amounted to USD 235.9 million, up by 9.7%, 4.9% from internal growth and 4.8% from acquisitions. We reached CAD 307 million, up by 7.6%, accounting for 33% of total sales. Sales to manufacturers reached USD 224.3 million, an increase of 10.2%, of which 5.1% came from internal growth and 5.1% from acquisitions. Sales in the hardware retailers and renovation superstores market were up by 1.8% in U.S. dollars.Fourth quarter EBITDA stood at $30.1 million, an increase of 4.8%. The gross margin and the EBITDA margin were impacted by lower gross margin of certain recent acquisitions due to their different product mix, also by seasonal sales initiatives in the retailer market with lower gross margin and lower revenues due to hurricanes that impacted our business in the southeast part of the U.S.The EBITDA margin stood at 12% compared with 13.2% in 2016. For the year, EBITDA was $103 million, up by 9.1%. The gross margin was down from 2017 -- '16, influenced by the lower gross margin of some recent acquisitions due to the different product mix as well as to investment in market development and sales initiative in the retailer market with lower gross margin. Consequently, the EBITDA margin stood at 10.9% compared with 11.2%.Fourth quarter net earnings attributable to shareholders totaled $20 million, up by 4%. Net earnings per share rose to $0.34 basic and diluted compared with $0.33 for the same quarter of last year, an increase of 2%.For the year, net earnings attributable to shareholders reached $67.7 million, showing a growth of 7.8%. Net earnings per share were $1.15 diluted, up by 7.5%.Fourth quarter cash flows from operating activities before net change in noncash working capital balances were up by 2.9% to $22.2 million or $0.38 per share. For the year, they were up 9.1%, totaling $80 million or $1.36 per share.During the year, we paid dividends of $13.2 million, of which $3.3 million were paid in the fourth quarter and we repurchased common shares for $14.8 million. We have thus distributed a total of $27.9 million to our shareholders since the beginning of 2017.We also invested $43.3 million during the year, of which $30.2 million was for business acquisitions and $13.1 million for equipment to improve operational efficiency, for IT equipment and for the design and manufacturing of new displays for the retailers market.As of November 30, 2017, cash totaled $29.2 million and our working capital was $300 million for a current ratio of 4:1.Regarding our outlook. We continue to execute our growth strategy based on innovation, internal growth and acquisition. By doing so, we expect to further reach our goals of profitability, strengthening of our -- the strengthening of our foundations and leadership. We anticipate to post good results once again in 2018 while remaining customer and innovation oriented. I would like to mention the excellent work and level of expertise of our outstanding team.Before I conclude, I'm also proud to point out that in 2018, Richelieu will reach its 50th anniversary.That concludes my overviews. Thank you for your interest. I'd now be happy to answer your questions.
[Foreign Language] [Operator Instructions] Your first question comes from Anthony Zicha with Scotiabank.
Richard, could you give us a bit more insight on the margins and on the pressure? Like can you give us an idea when it's going to lapse and what kind of margin profile develops in 2018? And is it really that much tied to the product mix?
Yes. I would say that the margin were a little bit tough to reach in the fourth quarter, mainly for the reason that we just explained. We had lower sales in the southeast region of the U.S. So since we are lowering our sales, we did not lower our expenses. So basically that did affect our margin. Those seasonal initiatives that we've taken with hardware retailers bring sales, bring good bottom line but does affect our gross margin level as well. The product mix, our new acquisition, the big acquisition that we've made in Ontario this year, speaking of Weston, they sell board actually. The EBITDA margin is excellent. But at the sales -- at the gross margin level, though, it's lower than the hardware sales. So that does affect the gross margin, but it contributes very positively to the EBITDA margin. So -- and we keep our expenses and also we would keep -- keeping some expenses in order to increase our sales and our market penetration in the future. We have invested in order to get new customers, to develop new product lines. So that's -- overall, all those factors affected our EBITDA margin, and some of them affected our gross margin in the last quarter. We expect in 2018 to be with the gross margin that we used to have. My personal opinion is that I think the fourth quarter was probably lower than it should be.
Okay. If we look at Canadian organic growth, it was stellar. It was very strong. You mentioned about market share. You continue to increase that. If that's the case, can you please quantify that impact? And how much of it was due to new retailer business? And can you maybe give us a bit of color and insight on the Canadian retail environment?
Actually, we're very successful in the Canadian retailer environment because we have gained -- since the last 3 years, we have continuously gained new customers. First, we've gained against the competition. The basic hardware products across Canada in many, many hardware stores, we've been successful in 2017 to get some business -- some additional substantial business from Lowe's, which we started to deliver, Antoine, it was in the second -- the third and fourth quarter. So basically, it's been very good. We have also developed new sales with new customers like Costco, for example. So we have a 5 or 6 product actually that we sell to Costco as a retailer. So it's a good experience for us. It's new. But so far, it's doing quite well. So basically, selling to hardware retailers has been very, very positive. And I think we have an outstanding growth in 2017. Will we achieve over 20% growth in 2018 for the hardware retailers? I don't think so. But actually, we have recaptured and we have captured new sales that should continue on, though, in the years to come because this is a repeat business.
Super. And just quickly on the -- for the United States. Can you give us some insights in terms of the organic growth rate in the United States? And is there any way of quantifying the hurricane impact? And my last question is tied to U.S. tax reform. Like what rate should we be looking at forward? And did you have any impact -- or will you have any impact on your bottom line?
The impact, we estimate that our growth -- our normal growth would have been between 6% and 7% internal growth in the U.S. without the impact of the hurricanes.
And with the question to the U.S. tax reform [indiscernible] .
Yes. Anthony, it's Antoine speaking. So the U.S. tax rate, basically, you should be using around 26%. So with the -- if we look at the level of profitability in the U.S., including all the transfer pricing and everything, I think what you're seeing at the moment makes sense. For sure, it's going to be favorable in the future years, the more profits we generate in the U.S. So that's going to be positive for us in the future.
Okay. But there's no additional impact on your bottom line expected, right?
No.
[Operator Instructions] Your next question comes from Leon Aghazarian with National Bank Financial.
Could you comment on the performance of the end markets? I mean, as Tony said, I mean, it was quite stellar in Canada. But can you give us a breakdown of the end markets, maybe starting with the kitchen cabinets and then moving on to the decorative hardware, et cetera?
Yes. Without acquisition, actually, we -- the growth for the last quarter, in the last quarter in Canada was 6% for the kitchen cabinet manufacturers. It was 8% with the commercial innovation, what we call the millwork in our industry. And both the residential and office furniture market, I keep telling you that during the year -- in the past year, we have continuously invested, develop the residential and the office furniture market, so the growth was 15% for both of these markets in the last quarter. And the rest of it, all the other customers that we sell to actually have increased their positioning from us by 13.6%. So this is -- that brings you to your 8.7% internal growth in Canada.
Okay. That's helpful. And then just on the geographic split within Canada, I mean, are you seeing any pockets of -- I mean, particularly, is any region stronger than the other basically is my question. Is it Western Canada versus, for example, Quebec or Ontario? Can you give us just some color on the geographic split within Canada?
Certainly. Eastern Canada, which is composed of Quebec and The Maritimes. First of all, we have to tell you that the Maritime is a flat market since many months and even many years. But in spite of that, in the eastern region of Canada, our sales increased by 10% -- over 10%, 10.3%, exactly. So in Ontario, our sales increased by 12.5% in the last quarter. While in Western Canada, we're also proud to have increased our sales by 3.7% in the market conditions that we meet -- that actually I think it's excellent.
Okay. If I could just switch gears a little bit. I mean, in terms of the capital allocation, I mean, we obviously saw the Weston transaction occur in 2017. We did also see that you were quite active on the buyback in the quarter and then the dividend increase as well. So just trying to get a sense of has the strategy changed at all? Like what is your priority in terms of capital allocation for 2018? Is there any target specifically set for that?
Basically, the strategy remains pretty much the same. The acquisition pipeline is very healthy, and we have a share buyback program in place as well. So I would say that the strategy is the same. The network is in good shape. So there shouldn't be any major change there.
The priority will always remain acquisitions.
Yes. So I guess, on that front, are you seeing any more opportunities? I mean, we did see you get into the more of the hardwood category a little bit more in Ontario. Is that something that you would like to explore further? Or is it still the focus to remain more on the U.S. in terms of developing new markets there?
Both strategy are good. Selling more, what we call, decorative board products, that does include some number as well, as a matter of fact. I think it's good for us in order to consolidate our market positioning in Canada and to make sure that we capture all the possible market because there are a lot of changes actually with the board, the design of the board that comes from Europe. So there are very interesting margin -- gross margin, EBITDA margin to be achieved if we invest in selling those boards, which are very decorative. And that require, at the same time, some accessories like the edge bending and some very fancy accessories that create good sales and good margin also. But there's no doubt that the U.S. sales is not only a priority, that's an obsession for us to continue to grow mainly through acquisitions in the U.S. and to do what we can to cover more territories and to increase our market penetration in the territories where we already are.
Okay. That's helpful. And just one final one for me would be, I mean, you did mention that in terms of pricing versus picking up new business, I'm just wondering if all the price increases that you would want to have implemented in last year, are we starting to see the full benefits of that. I guess, what I'm trying to understand is, have we started -- is all the price increases and all the benefits, are we seeing that right now? Or is there still potential for more margin expansion going forward based on the pricing that's already been put in place?
What you see in the third quarter include all the revision of the same price that we've done, it was -- it's all included in the third and fourth quarter. But I guess, in the course of the next couple of months, we have to increase our pricing and certain pricing again because of the increase in the commodity products, steel and everything else, the chrome, the plating from Asia is increasing and so on and so forth. So we expect to make another price increase probably in the course of the second quarter, taking effect maybe in the third quarter of 2018. That's for the retailers market. For the manufacturer market, I would say that some price increases would take effect in the second quarter.
You have a question from Anthony Zicha with Scotiabank.
Antoine, what amount of CapEx you'll be looking at for this fiscal year? Somewhere around the $12 million, $13 million range or a bit higher?
It should be lower than that. This year was important. We've invested in automatization here in Saint-Laurent. So you should be around the $9 million to $10 million mark next year, in 2018.
There are no further questions at this time. We turn the call back over to the presenters.
Okay. It's been a pleasure to talk to you. So feel free to call us if you need more information. Have a good afternoon.
And this concludes today's conference call. You may now disconnect. [Foreign Language]