Richelieu Hardware Ltd.

Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware second quarter 2022 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 needed assistance, please press star zero for the operator. Also note that the call is being recorded on July 7, 2022. Bonjour, Mesdames et Messieurs. Et bienvenue au résultat du deuxième trimestre de quincaillerie Richelieu. Présentement, vos lignes sont en mode écoute seulement. Suite à la présentation, nous allons procéder à une période de questions et réponses qui sera restreinte aux analystes seulement. Si vous avez besoin d'assistance au cours de l'appel, appuyez sur étoile et zéro. Veuillez prendre note que cet appel est enregistré le 7 juillet 2022. J'aimerais maintenant céder la parole à M. Richard Lord, président et chef de la direction. La parole est à vous, monsieur.

Thank you. Good afternoon, ladies and gentlemen, and welcome to this for the second quarter and first six months ended May 31st, 2022. With me is Antoine Auclair, CFO. As usual, though that some of today's issues include forward-looking information, which is provided with the usual disclaimer, as reported in our financial findings. We achieved strong growth in the second quarter, as reflected in our results. with a 31.4% increase in total sales, including a record 55% increase in the U.S. sales, a 25.8% increase in net earnings per share, and a sound financial position with a 24.4% return on average equity. We are benefiting from our recent acquisitions and the investment that we have made in recent years in new market segments and strategic areas, both in Canada and in the U.S. Our dynamic and sustained market development and penetration efforts continue to pay off, and each market segment made a solid contribution to the quarter's growth. In Canada, we achieved a 17.2% increase in sales, and as I mentioned earlier, we realized a record 55% increase in the U.S. market. Overall, increases in the manufacturers' and the retailers' markets were 34.6% and 15.2% respectively. The expansion of our customer base and network, the diversification of our market segment, coupled with our ongoing innovation strategy and our value added multi-access service are the key drivers of our growth. I will now hand it over to Antoine for a review of the results and financial situation of the quarter.

Thanks, Richard. Second quarter sales reached $487.9 million, up 31.4%, of which 16.1% from internal growth and 15.3% from acquisitions. At comparable exchange rates last year, sales increase would have been 30.1%. In Canada, sales amounted to $292.3 million, up 17.8%, of which 11.3% from internal growth and 6.5% from acquisitions. Our sales to manufacturers reached $237.3 million, up 17.3%, of which 19.9% from internal growth and 4.4% from acquisition. As for the hardware retailers, sales stood at $55 million, up 20.4%, of which 4.3% from internal growth and 16.1% from acquisition. In the U.S., Sales grew to $154 million in U.S. dollars, up 54.8%, 22.7% from internal growth, and 32.1% from acquisitions. Sales to manufacturers reached $142 million in U.S. dollars, up 63%, 26.4% from internal growth, and 36.6% from acquisitions. In the hardware retailers and renovation superstores markets, sales were down 1.6%. In Canadian dollars, total sales in the U.S. reached 195.6 million, an increase of 58.6%, and representing 40.1% of total sales. For the first half, sales reached 872.4 million, up 30.4%, of which 16.2% from internal growth and 14.2% from acquisitions. In Canada, sales reached 521.6 million, up 80.3 million, or 18.2% of which 11.9% from internal growth and 6.2% from acquisition. Sales to manufacturers reached 422.8 million, up 67.3 million, or 18.9%. Sales to hardware retailers and renovation superstores reached 98.8 million, compared to 85.8 million, up 15.2%. In the U.S., sales amounted to $276.1 million in U.S. dollar, up 52.3%, of which 23.1% from internal growth and 29.2% from acquisitions. They reached $350.8 million in Canadian dollar, up 54.1%, accounting for 40.2% of total sales. Sales to manufacturers totaled $252.6 million, an increase of 96.5 million, or 61.8%, of which 28.3% from internal growth and 33.5% from acquisition. Sales to hardware retailers and renovation super stores were down 6.7% compared to last year. Second quarter EBITDA reached 77.9 million, up 16.9 million, or 27.7% over last year, resulting from increased sales and continued control of expenses. Gross margin declined slightly, and the EBITDA margin stood at 16% compared to 16.4% last year. First half EBITDA reached $131.6 million, up 32.8%. As for the EBITDA margin, it stood at 15.1% compared to 14.8% last year. Second quarter net earnings attributable to shareholders totaled $47 million, up 25.5%. Net earnings per share were $0.84 basic and $0.83 diluted compared to $0.67 basic and $0.66 diluted last year, an increase of 25.4% and 25.8% respectively. First half net earnings attributable to shareholders reached $77.1 million, up 32%. Diluted net earnings per share stood at $1.37 compared to $1.03, up 33%. Second quarter cash flow from operating activities before net change in working capital amounted to $60.7 million, or $1.07 per share, an increase of 28.5%, resulting primarily from the net earnings growth. Net change in non-cash working capital used cash flow of $63.7 million, mainly reflecting increases in inventories of $44.1 million, resulting from higher demand and cost of supply increases. Change in account receivables and other items used cash flow of $19.6 million. Consequently, operating activities used cash flow of $3 million. For the first half, cash flow from operating activities before net change in working capital were up 32.4%, totaling $103 million or $1.83 per share. Net earnings and net change in non-cash working capital balances use cash flow of $143.8 million, primarily representing changes in inventories that use cash flow of $117.3 million, and accounts receivable and other items use cash flow of $26.5 million. Consequently, operating activities use cash flows of $40.5 million compared to a cash flow of $55.9 million last year. For the second quarter, financing activities used cash flow of $21.5 million compared to $7.4 million last year. Dividends paid to shareholders of the corporation amounted to $7.3 million compared to $3.9 million in the same period of 2021. We also repurchased common share for an amount of $7.9 million. For staff, financing activities used cash flows of $29.8 million compared to $23.9 in 2021. Dividends paid to shareholders amounted to $14.6 million compared to $11.6 million last year. During the first half, we invested $52.4 million for the three business acquisitions made in the first quarter and $10 million for the purchase of equipment to maintain and improve operational efficiency as well as further IT investments. We continue to benefit from a healthy and solid financial position with a working capital of $481.5 million for a current ratio of 2.8 to 1 and an average return on equity of 24.4%.