Richelieu Hardware Ltd.

Good afternoon, ladies and gentlemen, and welcome to Hishamir Hardware's TrueScore 2025 Results Conference Call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session, which will be restricted to analysts only. And if at any time during this call you require needed assistance, please press star zero for the operator. Also note that this call is being recorded on April 10, 2025. Bonjour, Mesdames et Messieurs, et bienvenue au résultat du premier trimestre 2025 de Quintaillerie-Richelieu. Présentement, vos lignes sont en mode d'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 l'étoile et zéro. Veuillez aussi prendre note que cet appel est enregistré le 10 avril 2025. J'aimerais maintenant céder la parole à M. Richard Lord, Please accept the address. La parole est à vous.

Merci. Thank you. Good afternoon, ladies and gentlemen, and welcome to the additional conference call for the first quarter ended February 28, 2025. With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issues include follow-up information, which is provided with the usual disclaimer, as reported in our financial findings. Richelieu made a strong start in 2025. While the first quarter is generally the weakest period of the year, and market conditions remain relatively stagnant, our total sales climbed by 8.6%, driven equally by internal growth and acquisition. This increase reflects the good performance of the manufacturers' market, where sellers were up 10% thanks to our strategy of innovation, acquisition, market penetration, and value-added service. In the retailers and renovation superstore market, overall sales were stable compared with the first quarter of 2024. In order to maintain our strategic advantage as market leader, we are investing substantially in this market to update our programs and product lines in the retailer stores, as well as introducing new products. We see these initiatives are already starting to bear fruit, with sales growth in Canada. We are also very pleased with our five acquisitions completed, including four in the first quarter and one following the end of the quarter. On December 1st, we acquired Mill Supply, operating in Batmout, Nova Scotia, and Charlottetown, Brentwood, Rhode Island. This acquisition, which was targeted since a long time, extends our presence in the Alifax region, where we already operate two sensors. In January, we acquired Darren Distributing, a specialized hardware and decorative software distributor in Denver, Colorado, marking our entry in this strategic market provision. Then we closed the acquisition of Midwest Specialty Products, a distributor of decorative surfaces, including quartz, which reinforces our presence in the Minneapolis area, where we already are established. In February, we have followed Modulex Partikel, located in Hillside, New Jersey. This distributor of Division 10 products for the construction market enables us to extend our presence in the greater New York area. Our most recent acquisition, completed on April 1st, is Roth & O'Hara Architectural Products, a distributor of exclusive architectural panels and related products, working closely with architects and designers, and IM Commercial Woodworkers, with one distribution center in Vineland, New Jersey. These strategic acquisitions highlight our commitment to extend our reach and increase our product offering across North America. In addition to contributing $15 million in sales, these five acquisitions strengthen our position in certain markets, open up new ones, add new products to our range, and create opportunities for new synergies. Together with the four acquisitions completed in 2024, they add, unfortunately, $120 million in real estate. The last few years have been years of major investment with our network. Just to name a few in the U.S., we increased our footprint in Detroit, Atlanta, Fort Myers, Chicago, Pantano, Nashville, and Seattle region. We also started two pinfield locations in Minneapolis and Cal State, New Jersey. In Canada, we completed last year the opening of our brand new 250,000 square feet building in Calgary, while consolidating two centers, giving us the opportunity to be a one-stop shop for all Western retail customers. We also undertook the same projects out of Kitchener, Ontario, for Eastern retail customers. Early this year, we concluded the consolidation of two centers into one 140,000 square feet building in Vancouver, serving the whole market. We are pleased with these investments that were required to continue to gain market shares and to offer a first-class service for customers. Part 1 will now review the financial highlights of the first quarter. Thank you, sir.

First quarter sales reached $442 million. up 8.6%, driven equally by internal growth and acquisitions. Sales from manufacturers stood at $385 million, up 9.9%, including 5.1% from internal growth. In the hardware retailers and renovation superstores market, sales remained stable at $56.6 million. In Canada, sales amounted to $242 million, up 4.1%. Our sales to manufacturers reached $195 million, and hardware retailers and innovation superstore market sales stood at $46.3 million, up 5%. In the U.S., sales grew to $140 million in U.S. dollars, up 7.6%, reflecting a 10% increase in the manufacturers' market, mostly resulting from acquisition, while sales to retailers and innovation superstore markets were down. In Canadian dollars, sales in the U.S. reached $200 million, an increase of 14.5%, representing 45% of total sales. First quarter EBITDA reached $42.4 million, up $2 million, or 5% over 2024. The lower margin from our recent acquisition, the increased marketing costs for new product lines at our retail customers affected the EBITDA margin slightly downward to 9.6% compared to 9.9% last year. First quarter net earnings attributable to shareholders totaled $13.9 million, a decrease of 8.6% from the first quarter of 2024, mainly due to an increase in amortization expense resulting from the capex investment and lease asset additions from the expansion project and business acquisition made during the previous fiscal year and the first quarter of 2025. Consequently, value to net earnings per share was $0.25 compared with $0.27 last year. First quarter cash flow from operating activities before net change in non-cash working capital balances was $37 million or $0.67 per value to shares. The net change in non-cash working capital used cash flow of $34 million. As a result, operating activities provided a cash inflow of $3.7 million compared to a cash inflow of $0.5 million in the first quarter of 2024. We paid dividend of $8.5 million to shareholders and we invested $25 million including $20 million for four business acquisitions and $5 million in packets. At the end of the quarter, financial situation was healthy and solid with working capital of $613.2 million and almost no debt. I now turn it over to Richard.

Thank you, Adrian. In conclusion, we will integrate our recent acquisition and continue to monitor the market for new opportunities in line with our short- and long-term growth objectives. We currently operate in an ever-changing and volatile market. We remain agile, adaptable, and connected to our market in order to continue to offer first-class service for customers. The tariff measures implemented by the U.S. administration might have an impact on the global economy, and we are on the lookout to take the necessary action to mitigate the effect on the economy. Our highly diversified and innovative product offering makes us an essential destination for customers. We continue to build on our core strengths, our business model and our innovation and acquisition strategies, our comprehensive market coverage and the strength of our network and our team, the penetration and effectiveness of our triangle website, richelieu.com, as well as the distinctive added value of our service and our service dynamic. Thanks, everyone. We'll now be happy to answer your questions.

Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. As stated, questions will be taken from analysts. And if you wish to withdraw from the question sheet, simply 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 do have any questions. And the first question will be from Zachary Entershed at National Bank. Please go ahead.

Good afternoon. Thanks for taking my questions. Hello.

Could you give us a little bit of color on what you saw throughout the quarter in terms of pricing versus volume to get where you were for the full quarter?

Basically, the price thing is Because of the exchange rate, I think we have affected or failed by something. I think it's less than 2%. So it's minor. Basically, the growth is number of photos sold.

Gotcha. Thanks. And then I was hoping you could dive down into the investment in retail channels. How much of a drag was that on margins and what do you hope to get in terms of return on that?

But we're implementing, we're adding new product lines in the store for a few major customers in Canada. So in terms of drag on the 8x8, it's around half a million dollars of drag and that's These are one-time fees, so this will disappear and will benefit from the additional sales in the future.

Just to complement Antoine's answer, we have added the spare components in the Home Depot stores. We are in the process of installing new safe fence for the pools, which is something that's going to be part of the designation of the Canadian market and U.S. eventually. The safety of the children around the pool is most important. So we are investing in order to display those products on the pool. And we see we have a major investment with Rona. 100% of the Rona store, the big box, the big ones, has to be them in terms of refreshing our displays, refreshing our product line, and adding products. We see that the product for organization is more and more important. We add a ton of those products. in the stores across Canada, at Home of the World, other stores as well. So, basically, it's major, but we already, when we make the changes in the store, we see sales increases something like 15 to 20 percent. So, basically, that was due to be done, and it was not done before, because we were not allowed at Rona, for example, to make any change, because of the situation with Lowe's that was selling Rona. So, now that Rona is a new a new executive group. So, basically, these guys are very open to business and Richelieu is allowed to make the necessary changes in order to improve the sales. And for the other stores, other than Rona, that has been slow because the market was slow for all the retailers and they were quite hesitant before making any changes. I think this is behind us now. So, we do what we have to do in the stores and we're going to reap the benefits.

Very clear. Thank you.

Given what you're seeing in the market, how's the pace of your MMA campaign going? Do you think you'll see an acceleration with people looking to exit a more volatile market, or are people shutting down discussions?

No, no, definitely not shutting down discussions, but we could see a more favorable market for acquisition in the future, because we've seen that in the past, like in 2009 and 2010, We've seen an increase and good opportunities coming in. But even without that, the channel is very healthy. So we've already closed five this year and we're not done yet. So we have other opportunities we're working on. So it's very healthy either in Canada and the U.S.

But we also have to be prudent with some companies that we don't know. Everything is changing every week. We don't know what's going to happen. So if we see companies that are for sale but are really dependent on Chinese products, so we have to be prudent. So sometimes we drag our feet because of that. We wait until we know exactly what's going to happen in the market. But this is the market for acquisition is very empty.

Makes sense. And then while we're touching on tariffs, can you go into more detail on your mitigation strategies? Because obviously we're seeing some very high tariff levels on China, and you do have some exposure there in the U.S.

What exposure for the U.S. regarding our sales? The Chinese product has been less than 20% of our sales. And basically, all the products we buy from China, we also buy some local and some from Europe and other countries in the world. And we could also add other alternatives like Turkey and Yugoslavia, for example. Easily, we have friendly suppliers out there that could supply more products similar to the ones we buy from China. So the price might be actually different, but with 125% of whatsoever tariff on Chinese products, it could become obvious that we're going to have to slow down selling those products, but even without selling any Chinese products in the U.S., Australia would do well with the other products, because the same thing applies to our competitors as well. But we just hope, though, and I think, personally, that that thing will change really quickly. I don't see that those tariffs at 125% and 150% in certain products that could last forever and show that China and the U.S. will get into an agreement soon, but as we speak, though, it does create a lot of uncertainty And we don't know what's going to happen, but we're very well prepared because we have the most diversified product lines in North America, much more than our competitors. And we have many alternatives. Inch is an inch, but we have Inch that come from US, that come from Italy, that come from Austria, that come from Germany. So the customer has a choice, and the best deal would be the choice of the supplier, of the customer.

And Zach, as we speak, we have a team on site in China meeting with the suppliers.

Yeah, and talking to Didier Rémy here, every morning for me, every night for him. So, regarding what's going on, the discussion, I think there is a lot of uncertainty as well with all Chinese suppliers. They all, you know, they do all the effort that they can to help each other, but with over 100% of tariffs, nobody can imagine that they could compensate in lowering their costs. So, basically, hopefully that will change, but anyway... But the Chinese product will continue to sell very well in Canada, where we don't have any more tariffs than we had before. So basically, no tariffs in Canada. But in the U.S., we have to make sure that we're very prudent about what we're going to do in the next weeks.

I understand. Thanks. And then just mechanically, it's a very long supply chain. For orders that you placed ahead of the tariff increases, will those apply to the shipments when you receive them? Yes.

Yeah, yeah, yeah, yeah.

Gotcha, thanks. Then just one last one for me. You know, it's potentially a good market for M&A like 2009 to 2010. We could see some upside to your annual target for acquisitions. What's your leverage comfort? How high would you take the balance sheet given the uncertainty out there in that graph?

I think for the right acquisition target, we have no issue leveraging the balance sheet. So anywhere between two or three times EBITDA, it needs to be for the right investment, strategic investment for long-term value creation. And when we make an investment, Zach, we make sure that the margin that we're, the EBITDA that we're acquiring is sustainable. So we'll do it for the right opportunity.

Sustainable. Sustainable. Thank you. Gotcha. I'll turn it over.

Thank you. A reminder, ladies and gentlemen, if you're an analyst and would like to ask a question, please press star followed by one on your Dutch phone. Next question will be from Nikolai Gorbachev at CIBC Capital Markets. Please go ahead.

Hi there. Could you discuss how organics have spared in March?

Well, we had the same trend in March that we had in the last quarter. So, basically, I would say that without the virus, I think we should be without a good year because we, I think we have all the people necessary in place in order to sell the products. Our inventory are intact. You know, the high inventory with higher cost has disappeared almost 100% of our inventory. Basically, we are in a very empty situation. and the market not being very, not moving very much, but I think if you can continue to grab market share, the investment that we have made, we see all the investments that we had named a few minutes ago, all those investments are now, you know, the They give us some fruits, we see the benefits, we see sign increases, profit increases, maybe not at the level that we're looking for yet, but it's improving. So basically, I would be very positive, if you exclude the tariff of the picture, I would be very positive for the market in 2025.

Okay, I see things, and I guess you mentioned the overall market there. What do you see, what are your expectations this year on many key players on the R&R side going to the flat market?

Do you have a similar view? That's what we're in the market, and you see what Lowe's and Home Depot are also talking about. So, yeah, flat or low single-digit growth, that's what we see. As of today.

Okay, great. Thanks. Let's go ahead and I'll turn it over. Thank you. Thank you.

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

If there's no more questions, thanks again. It's always a pleasure to talk to you. Have a good day.

Thank you, sir. Ladies and gentlemen, this does indeed 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.