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Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware fourth quarter results conference call. [Operator Instructions] Also note that this call is being recorded on January 20, 2022. [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, 2021. With me is Antoine Auclair, CFO. As usual, note that some of today's issue include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings.In line with previous periods, during the fourth quarter, we continued our growth strategy. Despite the procurement and logistic challenges, we did everything possible to provide reliable and on-time supply and services to our customers through our one-stop-shop network and richelieu.com, with a unique diversity of product, including many alternatives in a wide variety of categories, all supported by a 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 of 52.7% and net income of 64.6%. The last 4 strong quarters make 2021 our best year. We achieved our best financial performance ever with contribution from all our market segments in Canada and in the U.S., and we ended the year with an impeccable financial positions. In addition, the North American context was and remain favorable to acquisition opportunities in our industry. We have successfully expanded by completing 5 acquisitions as announced during the year: Task Tools in British Columbia and Ontario; Uscan in Québec; Inter-Co in Ontario, Arizona, Ohio and Texas; Cook Fasteners in Ontario; and Industrial Plywood in Pennsylvania. These 5 distributors added approximately $80 million in sales on an annual basis. Subsequent to November 30, 3 new acquisitions were added, namely Compi Distributors, operating 4 centers in Missouri and Illinois; HGH Hardware, also operating 4 centers in Alabama, Tennessee and Georgia; and National Builders Hardware, operating from 1 center in Oregon. Together, these 8 distributors have over $180 million in yearly sales. The diversified offering and centers with strong roots in their markets and resources with good knowledge of their customer base. Thus, we are strengthening our positioning where we already were and entering new territories, including the 2 centers we opened during the year in Rochester, 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 centers, such as Detroit, Boston, Dallas and Orlando. Considering the growth achieved in 2021, I'm pleased to announce that the Board of Directors approved this morning a significant rise of 85.7% in our quarterly dividend to $0.13 per share aligning the payout with Richelieu's performance. I will go now with Antoine 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 6.6% 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 2.7% 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 prepandemic 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, up by 10%. In the U.S., sales totaled USD 109.9 million, up by 39.3% of which 30.5% resulting from internal growth and 8.8% from acquisitions. Sales to manufacturers reached USD 98.4 million, up by 42.4%. In the retailers market, sales were up by $1.7 million or 17.3%. Total sales in the U.S. reached CAD 138 million, an increase of 32.8%, representing 34.7% of the total sales. Total sales in fiscal 2021 reached $1.4 billion, up by 27.7%, of which 22.8% from internal growth and 4.9% from acquisitions. Sales to manufacturers reached $1.2 billion, up by 30.9%, 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 4.9% from internal growth and 8.8% from acquisitions. In Canada, sales totaled $945 million, up by 29.4%, of which 24.5% from internal growth and 4.9% from acquisitions. Our sales to manufacturers amounted to $768 million, up by 32.5%, of which 29.3% from internal growth and 3.2% from acquisitions. Sales to hardware retailers and renovation superstores were $151 million, up by 17.6%. In the U.S., sales amounted to USD 395.6 million up 33.5%, of which 28.1% from internal growth and 5.4% from acquisitions. They reached CAD 495.6 million, up by 24.6%, accounting for 34% of total sales. Sales to manufacturers reached USD 348.1 million, an increase of 37.3%. And sales to hardware retailers were up by 11% in U.S. dollar, 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 increased sales and gross margin, together with cost control measures in place. For the year, EBITDA was $234.4 million, up 51.8%. EBITDA margin stood at 16.3% compared with 13.7%. Fourth quarter net earnings attributable to shareholders totaled $44.6 million compared with $27.1 million last year. Net earnings per share reached $0.79 diluted compared with $0.48 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 $0.97 per share. Net change in noncash working cap 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 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 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 IT equipment. As at November 30, 2021, cash totaled $58.7 million. And our working cap was $456 million for a current ratio of 3.3:1. I now turn it over to Richard.
Thank you, Antoine. Our 2 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 acquisition in North America. We have strong financial foundations to keep innovating and seize opportunity meeting our criteria for growth and value creation in the short and long term. We offer a value-added service and a multichannel concept that set us apart in our North American market. This is one of our key strengths, along with our culture of innovation, our diversified market segment, a market coverage with a robust and extensive network entering topnotch showrooms in our website, which is valued by our customers, maintaining cost control, and 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' needs. Richelieu remains a customer- and innovation-driven business. Thanks, everyone. We'll now be happy to answer your questions.
[Operator Instructions] And your first question will be from Hamir Patel at CIBC Capital Markets.
Richard, the record high EBITDA margins in Q4, close to 18%, I'm just wondering how do you see the pace of margin normalization playing out over 2022. And where would you expect them to stabilize that?
It's easy to answer that. But I think our EBITDA margin will remain strong. Actually, we have increased our pricing according to the price increase that we had. But I would say that our inventory is maybe not, I would say, capitalized with the full cost -- the full new cost of the inventory coming in. So basically, that could be a small reduction of the gross margin, but our focus 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 the current year. So we should be successful in achieving that.
Okay. Great. And kind of related to that, I was 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 growing. The EBITDA margin is improving as well at the same time. I think we have reached something like 80% of what they are in Canada, and that will continue to increase because we see the product mix continuing -- to continue to increase as well as the volume for customers. So -- and the sales per employee and the sales per square foot in the U.S. continue to improve. And with the expansions that we -- that we've made in various distribution centers, we think that those -- the cost of those expansion will be largely recovered by increased sales because we have a business plan that will -- should create very nice growth in the U.S. as well. And we're very excited actually with the growth in the U.S., which is -- correct me if I'm wrong, Antoine, something like close to 30% for the manufacturers market, which is amazing in the circumstances. Even though we have a good business plan, we have managed well through -- with the challenges of the inventory shortage of that type of thing because of our product mix. We see that to continue to improve in the future as well.
Great. That's helpful. And just a 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 sales pace?
I'm very pleased with that question because again, I can put some more emphasis on the Richelieu concept, the Richelieu business model, which include the connectivity of our warehouses altogether, wherever the customer is, the product can be shipped for wherever it is available, and wherever the employees are available in order to ship those products. Same thing applies to the phone calls as well. Our phone system allow us -- if you have to close a customer service, Vodafone in an area, for example, in Mississauga, but Montreal take over in 5 seconds. Montreal will take over and the business continue on. And the phone promises of modular can even be taken by Chicago or New York. So I think we have a good system, which has been built in order to achieve those purpose.
Next question will be from Zachary Evershed at National Bank.
Congrats on the great quarter. 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 a step change in the deals you're looking at? Or is it a rare exception? Really, how is the pipeline looking?
No, we keep on thing which is available in the market. And actually, we still have many targets. And the pipeline is quite healthy. Maybe Antoine, you can complement that. And...
No, I agree with that statement. So either in Canada or in the U.S., Zach, the pipeline is still healthy. And those acquisitions were target since a long time. So we've been maintaining those relationships. And it's those 3 -- we're very pleased with the last 3 acquisition.
And the 3 that we've done, not one. We have to tell you that we've been, I would say, [ courting ] these guys since of about 15 years. So it's a long time established relationship. And when these guys have decided to sell at the end of the year, they have contacted Richelieu because we have the relationship, we have their trust. And we made a deal. We had a short period of time to make the deal. It has to be done before December 30. So Christmas vacation for Antoine was not available. So -- and those acquisitions have been made on time before the new year because of the whatever income tax situation that those sellers had. So basically, we're very, very happy with those acquisitions because we continue to establish the footprint of Richelieu to strongly position Richelieu in other geographic markets in the U.S., and also the teams that are managing those businesses actually have a long experience in the market. They have knowledgeable employees, sales managers and sales reps, and top management people. So basically, we are reinforcing still our Richelieu team in the U.S. with those acquisitions.
Well, I'm sorry to hear that, Antoine, but 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. The -- if we start with the manufacturer, manufacturer side is still strong. Our customer -- we talk with our customers, they're still very busy. So the strength is maintained. On the retailer side, you need to keep in mind that, Zach, that we're comparing ourselves with very strong quarters last year. So we're slightly down on the retailer side, and we expect to be -- to come back to a more reasonable comparable in the second half of the year.
In order to give you a little bit more color, Zach, the kitchen manufacturer business in Canada increased by 20% during the last quarter. While in the U.S. -- I am in Canadian dollar here though, but it's a 25% increase in the U.S. So we see the growth 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 door-and-window market, which is increasing by 16%, which is mainly due to acquisition that we've made in that particular market. Residential furniture increased by 18%; office furniture, 37% sales increase in Canada. So basically, we see that in those market segments where 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, the housing market seems to remain healthy. The renovation market is still very, very strong. The only maybe cloud would be the inflation, but don't forget that people, they have a lot of cash since the beginning of the COVID. And then also the best information that we can get at Richelieu is from our sales reps. We have something like 250 sales reps that are constantly in contact with our manufacturing customers in North America, and they're confirming that our customers are still very busy, and they will be 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. And then with that kind of inflationary environment, interest rates hikes are top of mind. How do you and your customers perform in that environment?
We don't see that as a problem so far. I think as far as the people, they have cash at the bank, so they will spend that cash. The interest rate certainly might affect the house, the resale or the new housing sales. But we don't see that as a big problem so far. Antoine, I don't if you have -- could you add to that?
I agree with you.
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 in the circumstances because this is one of the area where our costs will increase, fortunately. All our lease -- most of our leases are still signed for a couple of years and more. But for all the leases that we renew, we see increases at 20%, 25%. There's no doubt. But it's only a small percentage of the cost of our sales. I think to continue one thing, I think is the best option for us considering the fabulous amount of cash flow that will be needed to be the owner of those buildings.
Yes, and the flexibility, the -- renting gives us a lot of flexibility. So like we just mentioned the few moves that we've done. So we've moved our distribution center in Detroit. We've done the same recently in Orlando. We're going to do the same with other centers. So it really gives us the flexibility to adjust our network to the current sales volume. So...
Yes. Antoine is right. I think this is the most important aspect, the flexibility.
[Operator Instructions] And your next question will be from Meaghen Annett at TD Securities.
So just building on some of the conversation here so far. We've been talking about strength in manufacturers for quite a while now, but can you talk about how the sentiment among that industrial customers changed relative to, say, 6 months ago? Like are you seeing more confidence there for the year ahead?
No, we see the confidence that has been there for the all year in 2021 is continuing to be there now. And we haven't seen any change.
And then just on the margins. 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 you're thinking about price increases right now?
Yes. The -- first of all, we have a very flexible pricing system. So we can change pricing overnight for maybe close to 70% of our business. So we've been able to adjust pricing with those cost increase. That's for sure. And in terms of impact on the margin, so we've been increasing the price, and we've done 2 increase in 2021. And it, of course, benefited the EBITDA margin. And the other element that's benefiting the EBITDA margin is the sales volume. So that's why you're seeing those levels of EBITDA margin because we're generating 20%, 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 costs reach our inventory. So because as soon as we know that the suppliers or the freight is increasing, we process the price increases. So we have...
Timing.
Sometime to increase our gross margin temporarily sometime for a while before the increase just reaching inventory.
Next is a follow-up from Hamir Patel.
I was just wondering if you could clarify just with respect to the EBITDA margins. If I look back over the last 3 years and realize '21 was unusually strong. They averaged around 14%. Richard made the comment that the U.S. business margins have continued to narrow the gap 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 2 years, there's been about 200 bps quarter-over-quarter decrease Q1 versus Q4. What sort of margin contraction would you expect Q1 versus Q4 this year?
Yes. But the same Q1 versus Q4, I would expect the same kind of variances versus historical data, Hamir. And if we look at the overall EBITDA margin in the past, so if you take 2017, we were around 12%; 2018, 12%; 2019, 11.9%; 2020, 13.7%. So last time we spoke, I said that post-pandemic EBITDA margin would be around the high 13%, 14%. I'm still there. Now it's -- when will we get to a post-pandemic sales levels? It's still -- like we said, it's still strong on the industrial, and it's back to -- more back to normal on the retailer side.
Thank you. And at this time, Mr. Lord, it appears we have no further questions. Please proceed.
There's no more questions. So thank you very much for attending this call, and you're welcome to call us any time 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.