Richelieu Hardware Ltd.

Thank you. Good afternoon, ladies and gentlemen.

And welcome to Richelieu conference call for the fourth quarter and 12 month period ended November 30, 2020. With me is Antoine Auclair, CFO.

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 filings. The fourth quarter was another period of high profitability and strong increase in sales resulting both from internal growth and acquisition.

Let's take a quick look at the Q4 financial highlights. Total sales increased by 20.4%, including 12% from organic growth and 8.4% from acquisitions.

Sales to manufacturers were up 15.7%. Sales rose by 55.4% in the retailers and innovation superstores market.

I also point out the 33.5% increase in EBITDA for the year, totaling $150 million or 13.7% and 21.2% increase in net earnings per share reaching $1.60 compared to $1.16 last year.These results, as an essential service provider, were achieved thanks to our business model and strategies, which continue to prove their efficiency, mainly our one-stop approach for the service, our innovation strategy, our market-risk diversification, our acquisition strategy, which made a good contribution to the results for the quarter and whole year. Five acquisitions were completed in fiscal 2020, adding over $70 million in annual sales, rigorous cash control, and finally the support and dedication of our team.

Under the circumstances, we are very satisfied with the results for fiscal 2020, which shows we have spared no effort to continue to provide maximum support to our customers with care and quality. Antoine will now review the fourth quarter and fiscal year results and the financial position as of November 30, 2020.

Thanks, Richard. Fourth quarter sales reached $319 million, up by 20.4%.

Sales to manufacturers stood at $270.2 million, up by 15.7%, 9.8% from internal growth and 5.9% from acquisitions. In the hardware retailers and renovation superstores markets, we achieved sales of $48.8 million, up by 55.4%, of which 28.5% resulting from internal growth and 26.9% from acquisitions.

In Canada, sales amounted to $215 million, an increase of $35.9 million. Our sales to manufacturers reached $174.5 million, up by 15.8%.

As for the hardware retailers and renovation superstores markets sales stood at $40.5 million, up by 42.6%. In the US, sales totaled $78.9 million, up 21.6%, of which 6.9% resulting from internal growth and 14.7% from acquisitions.

Sales to manufacturers reached $72.6 million, up by 15.8%. In the hardware retailers and renovation superstores market, sales were up $4.1 million or 186% for the quarter, resulting mainly from acquisitions.

Total Sales in the US reached CAD104 million, an increase of 21.1%, representing 32.6% of total sales. Total sales in 2020 reached $1,128,000,000, up by 8.3%, 0.7% from internal growth and 7.6% from acquisition.

Sales to manufacturers reached $938 million, up by 4.5%, 5.4% from acquisition and 0.9% from internal decrease resulting from the slowdown in the second quarter due to the pandemic. Sales to hardware retailers and renovation superstores stood at $189.7 million, up by 32.2%, 10.2% from internal growth and 22% from acquisitions.

In Canada, sales totaled $730 million, up by 6.4%, of which 5% from acquisition and 1.4% from internal growth. Our sales to manufacturers amounted to $581 million, up by 2.1%, of which 4.1% resulting from acquisition and 2% from internal decrease.

Sales to hardware retailers and renovation superstores were $170 million, up by 27%. In the US, sales amounted to $296.3 million, up by 10.8%, 12.6% from acquisition and 1.9% from internal decrease.

We have reached CAD397.9 million up by 11.9%, accounting for 35% of total sales. Sales to manufacturers reached $265.9 million, an increase of 7.3% entirely from acquisition.

Sales in the hardware retailers and renovation superstores market were up by 53.5% in US dollars. Fourth quarter EBITDA stood at $46.7 million compared with $35 million last year, up 33.5%.

The EBITDA margin stood at 14.6% compared with 13.2% for the fourth quarter of 2019, resulting from increased sales together with cost reduction measures implemented. For the year, EBITDA was $154.5 million, up by 24.4%.

Gross margin remained stable with 2019. EBITDA margins stood at 13.7% compared with 11.9%, resulting from increased sales, as well as cost reduction measures and government grants.

Fourth quarter net earnings attributable to shareholders totaled $27.1 million compared with $19.1 million last year. Net earnings per share reached $0.48 basic and diluted compared with $0.34 for the same quarter last year, an increase of 41.2%.

For the year, net earnings attributable to shareholders reached $85.2 million. Net earnings per share were $1.50 diluted, up by 29.3%.

Fourth quarter cash flow from operating activities before net change in noncash working capital balances were up by 29.5% to $26.2 million or $0.64 per share. Net change in noncash working capital balances use cash flow of $2.7 million.

For the year, they were up 23.5%, totaling $121 million or $2.14 per share. Net change in noncash working capital balances represented a cash inflow of $24.6 million.

During the year, we paid dividends of $11.3 million, of which $3.8 million were in the fourth quarter and repurchased common share for $25 million. We have thus distributed a total of $36.3 million to our shareholders this year.

We also invested $45.5 million during the year, of which $33.1 million was for business acquisition and $12.4 million for equipment to maintain and improve operational efficiency and for IT equipment.As at November 30, 2020, cash totaled $73.9 million and our working capital was $277 million for a current ratio of 3.6:1. I now turn it over to Richard.

Thank you, Antoine. In the current situation, we continue to strictly respect all prudential measures issued by the various government to protect our employees, customers and business partner as much as possible.

We will continue to be positive and manage the business efficiently while remaining very watchful of the evolving health and business environment.We will continue to apply the strategies that are paid off so far, mainly our strategies of innovation, business acquisition, distinctive service, ecommerce, with Richelieu.com and market development. Our core strengths provide a strong foundation on which we’ll continue to build notably our business model well adapted to our customers’ need, our value added service, the quality and efficiency of our network of 84 strategic centers, the number and diversity of our customers, our commitment and dedicated team and the soundness of our financial position.

In conclusion, I would like to mention that this morning, the Board of Directors approved a 4% increase in the quarterly dividend to $0.07, as well as the payment of a special dividend of 6.67 cent as a compensation for the dividend that was not declared in the first quarter of 2020. I take this opportunity to thank our team and business partners for their support in this challenging period.

Thanks, everyone. With that I'll be happy to answer your question.

Richard, could you comment on how sales have fared since the end of November?

I think the trend that we have that the last quarter continue to be strong with sales increase well over double digit. So we expect that to continue for, still for a while.

We don't know how long but that we still benefit from the fact that our hardware stores are buying more, because we were the suppliers of essential services. And we also see an increase, with the manufacturers, which is stronger than it was in the last couple of quarters.

So just to give you an idea, overall, North America without acquisition, the kitchen cabinet market increased by 12%, of which 15% in Canada and 7% in the US. The actual wood working increase in global like 2.2%.

So it's just that it's flat in the US but we have an increase in Canada of 7%, which is positive that this market is turning. Also we have the residential furniture, which is up by 8.6% all over North America.

I just want to show is down like 17%, we understand why this market is down because the offices you know [Technical Difficulty] people working at home means that they need the desk furniture for the offices. Another interesting aspect of our sales is the orders what we call is the order specialized market.

As matter of fact this topic we have to maybe to [Technical Difficulty] the various market segments that are included in this topic. But just to give you an idea, on this topic for the other specialized market our sales increased by 20 [Technical Difficulty] and this is due to the closet market, which is all new market, chosen market [indiscernible] market and [etailers] market that means that the investment that we have made in these new markets are really paying off and we see that increases being very strong in those market segments.

I'm just curious in Ontario and Quebec where maybe there's of late more restrictions on construction. What impact are you expecting that to have?

We don't expect much impact with the construction. But what we expect though is that we see that for the hardware retailers, because we have access to the POS, point of sales, sales figures and we see that because of the restriction that, both the Government of Ontario and Quebec have imposed to the market, we see sales going down.

That thing should last, I think, at least for another two or three weeks, if I remember well. So that means that we [Technical Difficulty] a slowdown in the sales to the hardware stores maybe in next month, because so far do they continue to buy as usual that they -- we see that because of those new restrictions, the market is affected.

As far as the construction is concerned. We don't see our customers like the cabinet manufacturers, we don’t see any slow down so far, things are going [Technical Difficulty].

And then Richard on the last conference call, you talked about potential for price hikes on some of the products in 2021. Is that playing out and what's the magnitude of any increases and how much of the portfolio is affected?

We are working on that actually. We don't know yet what would be the magic numbers because we have not received all the price increases from our various suppliers from around the world.

But we expect that, I would say that price would increase probably between 4% and 5% the course of the next few months. And those increases will take place on certain dates, it takes about 90 days for the hardware retailers and for the manufacturers, most of it -- 80% of the market it does apply 24 hours after we made a decision and a few other customers that are manufacturers that we work with, contract with, it takes another 60 days.

So basically, yes, we have, we expect that as far as we see right now.

I have two questions, one is on the US market. I was wondering if you can give some sort of an update on how the US market is behaving, because when I look at your results in the US, your results were a little bit weaker than compared to Canada.

So I was just wondering if you can give an update on how the random market is behaving in the US compared to Canada. And second about capital allocation, so you did an NCIB of $25 million this year and also announced another one in December.

Given I imagine that you have many opportunities of acquisitions, which you did also in 2020. I was wondering if it's not better to spend the money on acquisition than to do buybacks given that your float is not enormous?

That's all. Thank you.

Regarding the US market, maybe Antoine would answer the second part of the question. The US market, yes, we don't have the growth that we have in Canada.

But the more since the beginning of the COVID, the more we see the sales improving in the US, it's hard to precisely mention what is the big difference between the Canada and US market. We, as you will, we thought as well that the growth could be similar, but that’s not the case.

But the more we go the more it's increasing. So basically, hopefully that we continue to improve for the next quarter and we could have a different explanation for our next calls.

But we’re on the right track in the US on the data about what I can say about that. Antoine?

And if I may for the second portion of the of the question. So for sure that the priority for capital allocation is acquisition.

So the pipeline is still healthy. We have nice opportunities in the states and in Canada as well.

So this is the priority. We have a buyback program in place.

So when we have opportunities to buyback blocks where were there and we have a quarterly dividend policy. So it's been the recipe for the last -- for the many years, past many years and it's still the recipe.

But for sure the priority is the acquisition.

Rick Thomas calling for Zachary. My two main questions have been answered.

Maybe if I may ask, you mentioned some cost saving initiatives. Could you give us more color on that and what you may or may not be able to retain after the pandemic?

The cost saving initiative, it's basically in terms of resources and also travel expenses. So certainly, some of these expense will come and we'll come back to normal, but we're still have a measures in place to make sure that we, first of all, we follow the rules.

We implement ban on travel. So those are still in place.

And we're going to be monitoring, what's the different laws from various governments to make sure that we monitor this very carefully. But those costs reduction are still in place.

And so you mentioned that you still have travel ban in place. Does this make it harder for you to conduct due diligence in your M&A pipeline?

No, not really…

But we have local people almost everywhere, so we have our peoples in the US that go and visit the places, and the rest is done by phone and [things]. Antoine, do you have something to add?

That's said, we've been able to close many acquisitions this year. So we've done things differently.

We've used our teams that are our onsite. So we've done things differently.

So it does not stop us for making acquisitions.

Maybe two last for me, the stress and the higher pace of activity due to COVID-19. Do you think older owner operators, have you seen them come forward and maybe start discussions or is it a change in people keep their head down and keep working?

No, not yet. Basically, like I said, the pipeline is still healthy.

What you just described might happen but not necessarily right away, because it's not necessarily the time to sell your business. You will want to rebuild it.

But we think that probably some owners will have enough and will decide to -- that they don't want to live that again and to start discussion with us. But like we've seen in 2009, '10, '11, after this period, we've seen a lot of acquisition, mainly in the US.

So this could happen again. But as we speak, this did not happen yet.

And maybe my last one. We’ve seen some activity with bigger deals in the industry.

Has Richelieu received any inbound interest to be acquired?

No, not really. I think a lot of people are looking at Richelieu with lot of interest.

But I think because of you the beneficiary is very well evaluated in the market so far, and the future remains great. Richelieu will continue to be on its own as we are now, I think that's the best way to go.

And whatever is going to happen in the course of 2021 and after in 2022, you’ve seen and you know it. That's not the first crisis that we have to live with.

Richelieu will always been successful during and after the crisis. I think all the crisis are reinforcing Richelieu.

We really have the feeling that we're gaining market share, because we have continued our best effort to maintain a very high service for all our customers, all our warehouses are connected together. So if a customer needs a product wherever the product is, we make sure that the customer will receive the product as quick as possible.

I don't know about any suppliers that could achieve some good ways like -- actually to the market. We don't try to save any effort to satisfy our customer.

Our warehouses are all connected together. So the customer might be in Boston, the stock is not available in Boston, that's going to come from Detroit, but it could come from Montreal as well, if necessary.

So that does result in increased sales and increase of loyalty from our customers, and we keep gaining customers. And that should continue on in the months to come.

If there's no more question, we'd like to thank you very much for your support, your good questions. And I hopefully we're going to have another chance to talk to you soon, maybe to meet you soon eventually.

So thanks a lot and have a nice day.