Richelieu Hardware Ltd.

Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the fourth quarter, and the year ended November 30th, 2024. With me is Antoine Auclair, CFO and COO as of now. As usual, note that some of today's issues include forward-looking information, which is provided with the usual disclaimer, as reported in our financial findings. The year 2024 ended well for Richelieu, with good results in the fourth quarter, improving sales up 5%, driven almost equally from internal growth and acquisition. For the year, our total sales were $1.8 billion, which we are pleased with, given the renovation slowdown and the price deflation on some commodity products. Our team brought its expertise and drive to meet the challenge with continuous product innovation, second-to-none service and customer support. The diversification of our market segments and the expansion of our operations in Canada and in the U.S. with a strategically well-established network gives us the strength to face the market and economic conditions. We pursued our acquisition strategy in the fourth quarter, closing our fourth acquisition since the beginning of the year. of November 13. We are looking forward to integrate this new Quebec-based business located in Boucherville, which specializes in surfaces and decorative panels, adding new products for our Eastern Canadian market. In addition, we signed three argument in principle in the fourth quarter, which were successfully concluded in December and early January 2025. we acquired three new fully compatible businesses. Mill Supply, on December 1st, located in Dartmoor and Charlottetown. Barium Distributing in Denver, Colorado, adding a location in this long-time targeted strategic market where we did not have a physical presence. And Midwest Specialty Products in Minneapolis, Minnesota. As a result of this acquisition, we now operate two distribution centers in Minneapolis, while adding product lines related to the countertop manufacturing market. Together, the seven acquisitions closed in 2024 and early 2025 will bring an additional $100 million in annual sales, boost our market presence, and diversify and expand our product lines. Antoine will now go over the financial highlights for the quarter and the year. Then I will conclude and we will take our questions. Antoine.

Thanks, Richard. Our fourth quarter sales reached 476 million, up 5%. Sales to manufacturers stood at 421.6 million, up 7.2%, with 4.1% from internal growth and 3.1% from acquisitions. In the hardware retailers and renovation superstores market, sales were down 9.7%. In Canada, sales amounted to 275 million, an increase of 7.8 million or 2.9%. Our sales to manufacturers reached 230 million, up 4.4%. As for the retailer's market, sales stood at 45 million, down 4% with last year. In the U.S., sales totaled 146 million in U.S. dollar, up 7.1%. Sales to manufacturers reached 139 million in U.S. dollar, up 10%, evenly split between internal growth and acquisitions. In the retailer's market, sales were down 29.6%. Total sales in the US reached 201 million in Canadian dollar, an increase of 7.9%, representing 42% of total sales. Total sales for 2024 reached 1.8 billion, an increase of 2.5%, of which 2.2% from acquisition, and 0.3% from internal growth. Sales to manufacturers reached 1.6 billion, up 4.6%, of which 2% from internal growth and 2.6% from acquisitions. Sales to hardware retailers were down by 10.9%. In Canada, sales totaled 1 billion, comparable to last year. Our sales to manufacturers amounted to 873 million, up by 1.8%, mostly from acquisitions. Sales to hardware retailers and renovation super stores were $191 million, down 7.9%. In the U.S., sales amounted to $575 million in U.S. dollar, up 5%, of which 2.1% from internal growth and 2.9% from acquisitions. They reached $784 million in Canadian dollar, up 6%, accounting for 43% of total sales. Sales to manufacturers reached $544 million in U.S. dollar, an increase of 7.1%, and sales to hardware retailers were down by 22.1%. Fourth quarter EBITDA amounted to $54.3 million, compared to $58.8 million in the fourth quarter of 2023, down 7.7%. Our gross margin was slightly lower than last year, and the EBITDA margin stood at 11.4%, compared to 13% in the same period last year. This decline was primarily driven by a lower sales price on certain products, higher cost of goods sold in specific categories, as well as the impact of our expansion projects that are still in ramp-up mode. Fourth quarter net earnings attributable to shareholders totaled 24.4 million compared with 28.5 million last year. Diluted net earnings per share reached 44 cents compared with 51 cents in 2023. For the year, net earnings reached $86 million, a decrease of 23.1%, and $1.53 per share compared to $1.98 per share last year. Fourth quarter cash flow from operating activities before net change and non-cash working capital balances were $43 million, or $0.77 per share. Net change and non-cash working capital balance used cash flow of $15.8 million. Consequently... We generated $27.2 million in cash flow from operating activities compared with $72.7 million for the fourth quarter of 2023. For the year, we generated $165.7 million in adjusted cash flow from operating activities. Throughout the year, we paid dividends of $33.5 million with $8.3 million paid in the fourth quarter. We also repurchased common share for 38.7 million, including 20 million in the fourth quarter. In total, we distributed a total of 72.2 million to our shareholders this year. Investing activities used cash flow of 51 million, which included 20 million primarily for our four business acquisition completed in fiscal 2024. Additionally, 30 million was spent on operational equipment to maintain and improve efficiency as well as on distribution center expansion projects, including major investment in our new 250,000 square foot building in Calgary. And now I'll turn it over to Richard.

Thank you, Antoine. Our results affect the efficiency of our business model, which we want always to be well adapted to our customer needs. Our value-added distinctive service, the strength of our network, the performance of our website, richelieu.com, and our capacity for ongoing innovation. We have a unique product offering, featuring diversity, quality, and depth in our product lines. The depth of our product lines is very variable, and it enables us to respond to the increasing specialized needs of our customers in order to increase sales and to distinguish ourselves in the market. Over the coming period, we will continue to build on our lead Developing synergies with our recent acquisition, our strength must benefit each acquirer business and vice versa. We will do our utmost to preserve and improve our margins and continue to invest in innovations and value-creating acquisition to prepare the future. Our strengths are multiple and we continue to optimize them. In conclusion, I'm pleased to announce to you that following the Board of Directors approval, Antoine Auclair, Chief Financial Officer of the Corporation since 2011, will now also assume the function of Chief Operating Officer in addition to his current responsibility. With this new role, Antoine will allow me to dedicate more of my time to strategy and business development while continuing to leverage his leadership and expertise to ensure that the company continues to achieve solid results. Antoine, would you like to add something to that?

Yeah, thanks for your trust, Richard. I think that with the growth and multiple acquisition, we were at a point where we could really benefit from streamlining the organization and give the chance to Richard to spend his time and focus on strategy and market development. So I'm up for the challenge. Very good.

So thanks, everyone, for listening. And I'll be happy to answer your question.

Thank you, Michelin. Ladies and gentlemen, we will now begin the question and answer session. As stated, questions will only be taken from analysts. If you are an analyst and you would like to ask a question, please press star followed by 1 on your touch-tone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by 2. And if using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have a question. First, we will hear from Amir Patel at CIBC Capital Markets.

Hi, good afternoon, and congratulations, Antoine, on the new role. Thanks, Amir. Richard, maybe we could just start first talking about the sort of price-volume dynamics in the quarter. I know there's noise on the retailer side because of the U.S. Lowe's business, but at least when I look at the manufacturer side, You know, in Q4, you kind of had organic sort of 4% growth. What would be the breakdown there between price and volume? Because it does, from elsewhere, it looks like the price comps are still negative in Q4.

You know, we don't expect any price increases in Q4. So, basically, the business for the price, I think the pricing is going to be stable. As far as the market, though, it seems that – You know, the market is doing okay and I think we're more aggressive than ever in order to see as much sale as we can because in a more competitive market, you know, competitors are starting and the is really the target. But we do very well with the sales force that we have on our website and everything else. And the same thing happened in the U.S. because we have to understand also that the U.S. is ten times the people. It's also ten times more competitions. So in the circumstances, it does very, very well. And we expect, except for the, you know, not to mention the Trump, whatever is going to happen next week, we expect for us to achieve very good results in the course of the next few months.

And I may, sorry, I may have the, for the retailers, most of the price reduction behind us took place at the beginning of the year. So soon we're going to, those will be behind us.

Okay. And based on maybe what's been – obviously, we'll see what happens next week on tariffs. But, Richard, based on sort of existing sort of communications of pricing, are you seeing signs of prices increasing yet?

I think that will happen, though. We hear, you know, it's not official yet, but the suppliers are just starting to discuss about new pricing, mainly the North American pricing, but everything is in the old, because they are like us, they wait for next week, what's going to happen? So they might have to increase their price by 20% next week or 25% instead of 2% or 3%. So basically, everything is on hold, but the market is ready and it's desperate. for price increases because the operating costs of all the companies, all our suppliers, whether they're in Europe, in China, or in North America, they have cost increased since two or three years and they did not have the possibility to increase the pricing. So people really need this to happen soon. So basically we're going to see what's going to happen next week, but after that something should start to move. It's another question of time, yeah. Yeah.

Okay. And, I mean, Richard, I know we've had – there's been tariff talk since the election in November. So, given your strong balance sheet, have you positioned yourselves after the end of the quarter with, you know, perhaps staging or having more inventory in advance of tariffs, which maybe could drive some higher margins?

We don't have inventory in advance because I think we have plenty of inventory. Whatever will happen – you know, that we're going to pass through, the tariff will be passed through to the customers. So basically, and I think our competition, we're all in the same vat. They buy basically from the same country and from the same sources. And many of our real U.S. suppliers that have used the manufacturer in the U.S., they manufacture in Mexico now. So that will have, you know, quite an effect on the market because For example, in the business, which is a kitchen accessory business, it's a big business for us. It's all made in Mexico, and our competitors also sell the same products. So we're all in the same boat. On top of that, I think the big advantage, is our ability to react fast to whatever will happen and our balance sheet, as you said earlier.

And also our product offering, because we have alternate products. If a product comes from Canada or another country with tariffs, we can look at alternative products. So we have over 130,000 products, so we definitely have a good competitive advantage.

It's going to be a challenge. We're going to have fun.

Yeah, it's helpful. And Antoine, are you able to just maybe update us what the geographic mix of your products are right now?

Are those 45% in the U.S. as we speak? Yeah, 43%. 43%? Yeah.

No, I meant for the products when you're sourcing products from outside.

Oh, okay, sorry. 25% from Asia, 15% from... from Europe and 60% from North America.

Okay, perfect. That's helpful. And just the last question I had, you know, Richard, when you look at margins, 11.4% in Q4, looks like they kind of almost picked up 10 basis points each of the last three quarters. Should we expect that slow, steady kind of 10 basis points each quarter, gradual over 25? Where's that long-term margin going?

If you ask the entrepreneur answer, you know, the margin should go at 12 to 12.5. But it's going to take time. Maybe Antoine can give you more details. But, you know, I think we have to get higher than 12%. Unfortunately, we make a lot of acquisition. It's fortunate on one side because we really reinforce this company for the future because we do the right moves. But all those, like the $100 million new business that we've that we just bought. We expect between 3% and 5% from that, but that's the right move to do if you want to have a $3 billion company in five years from now.

Richard, is that the sales aspiration now?

Is that an entrepreneur feeling? Maybe I talk too much.

All right. That's all I had. I'll turn it over. Thanks.

Thanks.

Thank you. Next question will be from Zachary Evershed at National Bank. Please go ahead.

Thank you. Congrats on the quarter, everyone, and congrats, Antoine, on the additional title. Just starting there quickly, any change to the scope of your role now, Antoine, or is this a case of your title catching up with your responsibilities?

No, basically, it's been a while that I'm involved in operation, and I think that, like I said, we were at the point where streamlining the organization and make sure that Richard also focused on the strategy and market development was important. was a priority, so I'm going to do whatever I can to free up Richard and work with the team in operation as well as the CFO.

My version of the answer is that Antoine you know, has been more than tested on those new responsibilities. He's been involved with me, you know, in all the – what we've done, all the management, whatever the meetings that we had and everything else. So he was already in charge of many of the managers that are working for us. So now we're adding some manager that's going to report to him, but he knows exactly what to do. And I'm certain, 100%, that he's going to do it perfectly.

Excellent. Thank you. And then flipping over to – Q1 thus far. What do you guys think in terms of organic growth so far on both sides of the border?

What you've seen in the last quarter is going to be probably the same thing, a cut face in this new quarter. But I think some of the values being behind us, like deflation and that type of thing, overpriced inventory, so everything should, at the minimum, should improve. So basically we were optimistic and we We think our sales force, whatever the way we have to sell more products, we have added sales rep on the road, we have added people that sell over the phone, we can call that telemarketing, not people taking orders, people that phone the customers, because we receive many new customers that we want that sometimes the rep didn't have time to contact. Now we have people that do that on phone. The results are tremendous as we speak. So basically, We're very positive. I have a meeting personally with the Canadian retailers. The Canadian retailers is going to come back. I had a very good meeting with Home Depot last month. We are introducing new products with them, like the stairway components. We already have the kitchen accessory that has been added. But now we're going to have, starting in the east of Canada, what we call the safety fencing for the pools. It's a product that one of our divisions sells. It's a very sophisticated, you know, fencing system that, you know, you cannot leave the fence open and it has to be locked all the time so it's very safe for the children and other people as well. So that's going to be added to Home Depot. And with Rona, as I said earlier in previous meetings, that we're investing something like $5 million now in their stores in order to revamp all the products that we have there because in the last three years it was not possible to update our products at Rona. But now we're almost finished with the new setup. The new setup means new displays, new sample, new products, and adding also product line with GONA. So basically, as we already said in previous meeting with GONA, we have lost $10 million of sales in Canada. That is our fault because we cannot, we are not allowed to do our job because of administrative reason, because the company was for sales, was sold, management was changing, everything like that. So basically, we look to mistake that growing up his business, it's gonna take me a while to recapture the $10 million, but we're gonna be on the right track in 2025. So basically that's all very good news.

Great news, thanks. And so I'm hearing that EBITDA margins should be north of 12% over the longer term, and there's some good tailwinds for organic growth. So if that trend holds, what are your hopes for EBITDA margins this year in 2025?

Between 11.5% and 12%, that's what we're heading for this year. But we need to see some kind of a pickup in the economy because what we're seeing today, it's pretty neutral in terms of growth. We'll look maybe a bit better than what we were because the comps will not be as strong in the few months to come. But to achieve those margin, we're in distribution. So market gain or additional sales goes right to the bottom line. So that's how we're going to be improving the EBITDA. So to achieve that, we're hoping to see some kind of an improvement in the market, maybe more in the second half of the year.

And any divergence in those trends between Canada and U.S. given interest rates or jobs data?

It's pretty much the same, to be honest, and all across the region as well. So, no, we're seeing the same thing, the same trend in Canada and in the U.S.

Good, Kelly. Thanks. On the acquisition pipeline, how is 2025 shaping up for you?

It's good. It started strong. We've completed three acquisitions so far in 2025, and we're only – January 16th. So it's looking good. The pipeline is healthy. Team is working 100% on that. So it's looking good.

Beauty. Thanks. And then I'll just end off with the tariff risk. With the threat of tariffs from China, are you seeing any of your customers move closer to you or maybe farther away from you in preparation?

No, we don't have any such threat. I think a lot of customers will stick with Richelieu because of the prodigious product range that we have. We've got everything. We're flexible. We have plenty of inventory, many distribution centers, good salespeople to service them and to answer the questions and help them for the technical aspect of the products. So, basically, I think Richelieu could be the first choice for many things, but anyway, As I said earlier, it's a challenge, but we have a solid balance sheet, and we have all the talented people that could help us to support our customers and to get most of the whatever is going to be available from any business.

That's it for me. Thank you very much for taking my questions. Thank you, Zach. Thank you, Zach.

Next is a follow-up from Amir Patel. Please go ahead.

Richard, just thinking through some of the maybe organic growth CapEx, when you think about the platform, are there any states where maybe you haven't had as much success with acquisitions where you're looking to build a platform out organically? And how do we think about timing or maybe product categories where the opportunity lies?

While making the two latest acquisitions, the Panexcel and Midwest in Minneapolis, we're adding product lines like Quas, for example. So we started the year in 2024 selling zero Quas, and now we're going to sell in 2025 $25 million worth of Quas. So basically that's a terrific comeback. And we also have one of our divisions that sells what we call the Division 10 of the construction, which has a tremendous growth and has many of our divisions as well. So new products will always open. We will reinforce our presence in China this year for visiting a couple of exhibitions that are important for us. There is going to be a big exhibition, which I will be present to in May. It's there for EnterZoom, just to say the name. In Germany, I would be there also, personally, where we meet all the suppliers from around the world. And these are the best places. And this could be Milano as well, which is going to be next, I don't know, something in the next few months. And basically, this is where we find all the new products. And we're going to have many of our team players being present with a clear mandate to find new products, find new suppliers, and to continue the relationship with our best suppliers as well. we're going to put a lot of emphasis to refresh many new products. And because as we've discussed in another meeting this morning, from Europe, the new product innovation was not really there in the last 18 months because the market is very tough in our market in Europe. Our suppliers, we're not investing much in new products. But now, since Interzoom is coming, they really have to go there with new products. So basically, they have a lot of pressure on them to present new products. We just enjoy selecting new products at Richelieu and selling them to our customers.

Okay, fair enough. And just the last question I have, just looking at the U.S. retailers business, sort of three-quarters here of this negative trend. 30% comps just with the loss of the Lowe's business in the U.S. I know in the past it sounded like you thought over time you could fully replace that with, I think, tractor supply and maybe ACE hardware. So how do we think about, you know, there's probably, I guess, Q1 would still also be that kind of negative 30% comps, but how long to rebuild that? the sales that you've lost in the U.S. retailer category?

We have many projects, but, you know, the problem is to conclude those projects and to get the orders. So we have something in the air with many, many customers, but the retailers, they take forever to make a decision. For those that know about this market, they are not quick deciders. They listen to change the buyer all the time, so we have to restart again and again and again. In Canada, it's a different ballgame. We're up to date now, as I explained earlier. In the U.S., it's not a big business, but it has to become a big business. We're going to have to continue to make some effort in order to grow that business and maybe make an acquisition. It would be interesting as well. We'll have to look out. Maybe we're going to find something. But I'm a believer that U.S. retail sales should become important for us.

All right. Okay. That's helpful. All right. Well, that, I think, covered everything I had, so I'll turn it over. Thanks.

Thank you. Thank you. And at this time, Mr. Law, we have no other questions registered. Please proceed.

There's no more questions. Thanks again. Thank you for your patience. Thank you for listening to us. We'll always be happy to talk to you if you need more information. Call us one or myself. Thanks.

Thank you.

Thank you. Merci. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.