Technology Hardware Technology
Richelieu reports sales to manufacturers up following acquisitions

Oct. 1, 2019 – “Richelieu’s performance in the third quarter benefited from the acquisitions made in the past twelve months, all of which contributed to good growth in the manufacturers market in Canada and the United States. The 3.4% increase in sales was driven by 5.0% growth by acquisition, which more than offset the 1.6% internal decrease caused by the slowdown in the Canadian manufacturers market and in the retailers market notably in Canada, as mentioned in previous quarters. It should be noted that this quarter had one fewer business day than the third quarter of 2018. We have continued to invest in maintaining and improving operational efficiency and have repurchased shares for $9.4 million in the normal course of business since the beginning of the fiscal year, including $4.9 million in the third quarter. We ended the period with a sharply appreciated cash balance and a solid financial position. By continuing to activate our main growth drivers, namely our innovation, acquisition, market development, and customer service optimization strategies, we expect to close this fiscal year with good results and a solid financial position,” said Richard Lord, President and Chief Executive Officer of Richelieu.

ANALYSIS OF OPERATING RESULTS FOR THE THIRD QUARTER AND FIRST NINE MONTHS ENDED AUGUST 31, 2019 COMPARED WITH THE THIRD QUARTER AND FIRST NINE MONTHS ENDED AUGUST 31, 2018

Third-quarter consolidated sales amounted to $269.2 million, compared with $260.5 million for the corresponding quarter of 2018, an increase of $8.7 million or 3.4%, of which 5.0% from acquisitions and 1.6% from an internal decrease. It should be noted that this quarter had one less business day than the third quarter of 2018. At comparable exchange rates to the third quarter of 2018, consolidated sales growth would have been 3.1% for the quarter ended August 31, 2019.

Richelieu achieved sales of $233.8 million in the manufacturers market, compared with $221.6 million for the third quarter of 2018, an increase of $12.2 million or 5.5%, of which 5.9% resulted from acquisitions and 0.4% from an internal decrease. Sales to hardware retailers and renovation superstores stood at $35.4 million, down $3.5 million or 9.0% over the third quarter of 2018.

In Canada, Richelieu recorded sales of $179.9 million, an increase of $1.2 million or 0.7% over the third quarter of 2018, of which 4.7% from acquisitions and 4.0% from an internal decrease. Sales to manufacturers amounted to $147.9 million, compared to $143.6 million, an increase of 3.0%, of which 5.9% resulted from acquisitions and 2.9% from an internal decrease caused by a softer market across Canada most importantly in Alberta and the Atlantic provinces. Sales to hardware retailers and renovation superstores totalled to $32.0 million, down $3.1 million or 8.8% over the corresponding quarter of 2018. The general slowdown in the retailer market continues to have a downward impact on our sales. Furthermore, cyclical sales were also down during this quarter.

In the United States, sales totalled US$67.5 million, compared to US $62.5 million for the third quarter of 2018, up US$5 million or 8.2%, of which 2.6% resulted from internal growth and 5.6% from acquisitions. Sales to manufacturers amounted to US$64.9 million, compared to US$59.6 million, an increase of 8.9% over the third quarter of 2018, of which 3.1% resulted from internal growth and 5.8% from acquisitions. Sales in US$ to hardware retailers and renovation superstores were down 10.3% from the corresponding quarter of 2018, however, are showing growth for the first nine months of 2019. Total U.S. sales in Canadian dollars stood at $89.3 million, compared to $81.8 million year over year, an increase of 9.2%. They accounted for 33.2% of consolidated sales for the third quarter of 2019, compared to 31.4% of consolidated sales for the third quarter of 2018.

For the first nine months, consolidated sales reached $776.7 million, an increase of $31.1 million or 4.2% over the first nine months of 2018, of which 0.4% resulted from internal growth and 3.8% from acquisitions. At comparable exchange rates to the first nine months of 2018, consolidated sales growth would have been 2.9%.

Sales to manufacturers grew to $664.3 million, compared to $626.7 million for the first nine months of 2018, an increase of $37.6 million or 6.0%, of which 1.4% from internal growth and 4.6% from acquisitions. Sales to hardware retailers and renovation superstores were down 5.5% or $6.5 million to total $112.4 million.

In Canada, Richelieu recorded sales of $506.7 million, compared to $503.4 million for the first nine months of 2018, up by $3.3 million or 0.6%, of which 2.7% resulted from acquisitions and an internal decrease of 2.1%. Sales to manufacturers rose to $417.6 million, up by $12.9 million or 3.2%, of which 3.4% resulted from acquisitions and 0.2% from internal decrease. Sales to hardware retailers and renovation superstores reached $89.1 million, compared to $98.7 million, down $9.6 million or 9.7% over the first nine months of 2018. The inventory realignment of our retailer customers due to a general slowdown in this market continued to have a downward effect on our sales.

In the United States, the Corporation recorded sales of US$202.8 million, compared to US$188.6 million for the first nine months of 2018, an increase of US$14.2 million or 7.5%, of which 1.6% resulted from internal growth and 5.9% from acquisitions. Sales to manufacturers totalled US$185.3 million, compared to US$172.8 million, an increase of US$12.5 million or 7.2% over the first nine months of 2018, of which 0.8% resulted from internal growth and 6.4% resulted from acquisitions. As reported in previous quarters, the internal growth in the manufacturers market was affected in the first quarter of 2019 by the termination of a supply agreement with a major customer. At comparable sales levels, internal growth in the US manufacturers market would have been 3.4%. Sales to hardware retailers and renovation superstores were up 10.8% from the corresponding period of 2018. Total U.S. sales in Canadian dollars amounted to $270.0 million, compared to $242.2 million for the corresponding nine months of 2018, an increase of 11.5%. They accounted for 34.8% of consolidated sales for the first nine months of 2019, compared to 32.5% of the period’s consolidated sales for the first nine months of 2018.

Third-quarter earnings before income taxes, interest and amortization (EBITDA) amounted to $30.2 million, up $1.3 million or 4.3% over the third quarter of 2018. Gross margin and EBITDA margin improved slightly from the third quarter of 2018. EBITDA margin stood at 11.2%, compared to 11.1% for the corresponding quarter of 2018.

Amortization expense for the third quarter of 2019 amounted to $4.1 million, up $0.8 million compared to the corresponding quarter of 2018. Income tax expense amounted to $7.1 million, up $0.1 million from the third quarter of 2018. Financial costs amounted to $0.2 million.

For the first nine months, earnings before income taxes, interest and amortization (EBITDA) totalled $78.3 million, up $1.5 million or 2.0% over the first nine months of 2018.

The gross margin remained stable with the corresponding nine-month period of 2018. As for the EBITDA margin, it stood at 10.1%, compared to 10.3% for the first nine months of 2018 affected by the slowdown in sales in the hardware retailers market, the market development costs incurred to increase our offering and our presence in the retailers market in the United States, including the costs resulting from the increase in inventories.

Amortization expense for the first nine months of 2019 amounted to $11.4 million, up $1.6 million, compared to the same period of 2018, resulting from the investments in tangible and intangible assets made in the current fiscal year. Income tax expense amounted to $18.1 million, up $0.5 million from the first nine months of 2018. Financial costs on bank overdraft amounted to $0.7 million for the first nine months of 2019.

Third-quarter net earnings grew 1.1%. Considering non-controlling interests, net earnings attributable to shareholders of the Corporation amounted to $18.6 million, up 1.3% over the third quarter of 2018. Net earnings per share rose to $0.33 basic and diluted, compared to $0.32 basic and diluted for the third quarter of 2018, an increase of 3.1%.

Comprehensive income amounted to $16.3 million, considering a negative adjustment of $2.4 million on translation of the financial statements of the United States subsidiary, compared to $19.5 million for the third quarter of 2018, considering a positive adjustment of $0.9 million on translation of the financial statements of the United States subsidiary.

For the first nine months, net earnings decreased 2.4%. Considering non-controlling interests, net earnings attributable to shareholders of the Corporation totalled $48.0 million, down 2.6% over the corresponding nine months of 2018. Net earnings per share amounted to $0.84 basic and diluted, compared to $0.85 basic and $0.84 diluted for the first nine months of 2018.

Comprehensive income totalled $48.2 million, considering a negative adjustment of $0.1 million on translation of the financial statements of the United States subsidiary, compared to $51.0 million for the first nine months of 2018, considering a positive adjustment of $1.5 million on translation of the financial statements of the United States subsidiary.

FINANCIAL POSITION

Operating activities
Third-quarter cash flows from operating activities (before net change in working capital balances) amounted to $23.4 million or $0.41 per share diluted, compared to $22.4 million or $0.39 per share diluted for the third quarter of 2018, an increase of 4.3% resulting primarily from the variation in net earnings and depreciation. Net change in non-cash working capital balances represented a cash inflow of $20.9 million, reflecting the change in accounts receivable and inventory ($19.8 million), whereas the change in other items represented cash inflows of $1.1 million. Consequently, operating activities provided cash flows of $44.3 million, compared to $13.8 million in the third quarter of 2018.

For the first nine months, cash flows from operating activities (before net change in working capital balances) reached $61.0 million or $1.06 per share diluted, compared to $60.6 million or $1.04 per share diluted for the first nine months of 2018, an increase of 0.6%. Net change in non-cash working capital balances used cash flows of $5.4 million primarily representing changes in inventories. Consequently, operating activities provided cash flows of $55.5 million, compared to $16.8 million for the first nine months of 2018.

Financing activities
Third quarter financing activities used cash flows of $8.5 million, compared to $12.2 million in the third quarter of 2018. This change mainly reflects the repurchase of common shares for $4.9 million during the third quarter of 2019 compared to 8.9 million in the corresponding quarter of 2018. Dividends paid to shareholders amounted to $3.6 million, an increase of 4.4% over the corresponding quarter of 2018.

For the first nine months, financing activities used cash flows of $19.9 million, compared to $27.5 million in the first nine months of 2018. During the first nine months of the year, Richelieu repurchased common shares for cancellation for $9.4 million, compared to $14.1 million in the first nine months of 2018. The Corporation paid dividends to shareholders of $10.8 million, up 4.3% over the first nine months of 2018. In addition, Richelieu had repaid $3.9 million in long-term debt in the same period of 2018.

Investing activities
Third quarter investing activities represented a cash outflow of $3.3 million primarily for the purchase of new equipment to improve operational efficiency.

For the first nine months, investing activities represented a total cash outflow of $28.4 million, comprising $20.8 million for the four business acquisitions made during the current period and $7.6 million primarily for the purchase of new equipment to improve operational efficiency.

Sources of financing
As at August 31, 2019, cash and cash equivalents amounted to $14.8 million, compared with cash of $7.4 million as at November 30, 2018. The Corporation posted working capital of $346.8 million for a current ratio of 4.5:1, compared to $329.3 million (4.6:1 ratio) as at November 30, 2018.

Richelieu believes it has the capital resources to fulfill its ongoing commitments and obligations and to assume the funding requirements needed for its growth, financing, and investing activities between now and the end of fiscal 2019. The Corporation has an authorized line of credit of $65 million as well as a line of credit of US$6 million renewable annually and bearing interest at prime and base rates respectively. In addition, Richelieu considers it could obtain access to other outside financing, if necessary.

Assets

Total assets amounted to $609.6 million as at August 31, 2019, compared to $569.1 million as at November 30, 2018. Current assets increased by 6.1% or $25.5 million from November 30, 2018. Non-current assets rose 10.1%. These increases result mainly from business acquisitions made during the current fiscal year.

The Corporation continues to benefit from a healthy and solid financial position. As at August 31, 2019, total debt was $7.0 million, mostly short-term, representing mainly balances payable on acquisitions.

Equity attributable to shareholders of the Corporation totalled $500.0 million as at August 31, 2019, compared to $470.3 million as at November 30, 2018, an increase of $29.8 million stemming primarily from growth of $28.1 million in retained earnings which amounted to $433.5 million, and $1.8 million in share capital and contributed surplus, whereas accumulated other comprehensive income was down $0.1 million. As at August 31, 2019, book value per share was $8.81, up 7.0% over November 30, 2018.

As at August 31, 2019, at market close, the Corporation’s share capital consisted of 56,787,605 common shares (57,114,234 shares as at November 30, 2018). During the first nine months of 2019, the Corporation issued 67,200 common shares at an average exercise price of $10.09 (284,774 in fiscal 2018 at an average exercise price of $8.11) upon the exercise of stock options under its stock option plan. Furthermore, during the first nine months of 2019, the Corporation repurchased 393,829 common shares for cancellation for a cash consideration of $9.4 million. As at August 31, 2019, 1,823,525 stock options were outstanding (1,669,475 as at November 30, 2018).

Dividends
On October 3, 2019, the Board of Directors approved the payment of a quarterly dividend of 6.33¢ per share to shareholders of record as at October 17, 2019, payable on October 31, 2019. The declared dividend is designated as an eligible dividend within the meaning of the Income Tax Act (Canada).

For more information
www.richelieu.com