Richelieu Hardware Ltd.

Merci. Thank you.

Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the first quarter ended February 28th, 2025. With me is Antoine Auclair, CFO and COO.

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. 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 sales were up 10%, thanks to our strategy of innovation, acquisition, market penetration and value added service.

In the retailers and renovation superstores 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 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 Dartmouth, Nova Scotia and Charlottetown, Prince Edward Island. This acquisition, which was targeted since a long time, expands our presence in the Halifax region where we already operate two centers.

In January, we acquired Darant Distributing, a specialized hardware and decorative surface distributors in Denver, Colorado, marking our entry in this strategic market for Richelieu. 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 acquired Modulex Partition located in Hillside, New Jersey. This distributor of division 10 products for the construction market enables us to expand our presence in the Greater New York area.

Our most recent acquisition completed on April 1st is Rhoads & O'Hara Architectural Products, a distributor of exclusive architectural panels and related products working closely with architects and designers and high-end commercial woodworkers with one distribution center in Vineland, New Jersey. These strategic acquisitions highlight our commitment to expand our reach and increase our product offering across North America.

In addition to contributing $50 million in sales, these five acquisitions strengthen our position in certain markets, open up new ones, add new products to our range and add also talented teams and create opportunities for new synergies. Together with the four acquisitions completed in 2024, they add approximately $120 million in yearly sales.

The last two years have been years of major investment in our network. Just to name a few in the US.

We increased our footprint in Detroit, Atlanta, Fort Myers, Chicago, Pompano, Nashville and Seattle region. We also started two greenfield locations in Minneapolis and Carlstadt, 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 140,000 square feet building in Vancouver serving the full market. We are pleased with these investments that were required to continue to gain market shares and to offer a first class service to our customers.

Antoine will now review the financial highlights of the first quarter.

Thanks, Richard. First quarter sales reached $442 million up 8.6%, driven equally by internal growth and acquisitions.

Sales of 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 renovation superstores market sales stood at $46.3 million up 5%.

In the US, sales grew to $140 million in US dollars up 7.6%, reflecting a 10% increase in the manufacturers market, mostly resulting from acquisition, while sales to retailers and renovation superstores market were down. In Canadian dollar, sales in the US reached CAD200 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 projects and business acquisition made during the previous fiscal year and the first quarter of 2025. Consequently, diluted 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 diluted 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 acquisition and $5 million in CapEx.

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, Antoine. 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 to customers.

The tariff measures implemented by the US 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 Richelieu. Our highly diversified and innovative product offering make us an essential destination for customers.

We will continue to build on our core strength, 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 trilingual website richelieu.com as well as the distinctive added value of our service and our solid balance sheet. Thanks everyone.

We'll now be happy to answer your questions.

Good afternoon. Thanks for taking my questions.

Hello

Hello, Zach

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

Basically the pricing because of the exchange rate, I think we have affected our sale by something like I think it's less than 2%. So it's minor.

Basically the growth is number of products sold.

Got you. 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?

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 EBITDA, it's around $0.5 million of drag and it will these are onetime fees.

So this will disappear and will benefit from the additional sales in the future.

Yes. Just to compliment on Antoine's answer, we have added the stair components in the Home Depot stores.

We, in the process, have been selling the new fence, new safety fence for the pools, which is something which become that's going to be part of the regulation of the Canadian market and US eventually. The safety of the children around the pool is mostly important.

So we're investing in order to displays those products on the pool as we speak. We have a major investment with RONA.

100% of the RONA stores, the big box, the big ones, have to be revamped 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 hardware and 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%.

So basically that was due to be done. 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 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 that 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 benefit.

Very clear. Thank you.

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

No, no, definitely not shutting down discussion. 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 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 or the US, Zach.

But we also have to be prudent with some companies that maybe we don't know with the tariffs everything is changing every week, so we don't know what's going to happen. So if we have 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 basically, as Antoine said, the market for acquisition is very healthy.

Makes sense. And then while we're touching on tariffs, could 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 into the US?

Our exposure for the US regarding our sales, the Chinese product represents less than 20% of our sales. 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 to us similar to the one we buy from China.

The price might be slightly different, but with 125% or whatsoever tariff on Chinese products that could become obvious that we're going to have to slow down selling those products. But even without selling any Chinese product in the US, I'm sure you will do well with the other products, because same thing applies to our competitor as well.

But we just hope though and I think personally that that thing will change very quickly. I don't see that those tariffs distributed at 125% and 150% in certain products that could last forever.

I'm sure that China and US 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 alternative engines, but we have engines 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 in on-site and in China meeting with the suppliers.

Yes. I'm talking to Guy Grenier 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 our Chinese suppliers. They all they do all the effort that they can to help Richelieu, but with over 100% of tariff, nobody can imagine that it could compensate in lowering their cost.

So, basically, hopefully that will change. But anyways, 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 change in Canada. But in the US we have to make sure that we're very prudent about what we're going to do in the next weeks.

Understood. 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.

Yes, yes.

Got you. Thanks.

Then just one last one for me. 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 macro?

I think for the right acquisition, we have no issue leveraging the balance sheet. So anywhere between two or three times EBITDA, but 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 or valuable. Thank you.

Thank you very much. Got you.

I'll turn it over.

Hi, there. Could you discuss how organic sales appeared in March?

Well, we have the same trend in March as we had in the last quarter. So we basically, I would say that without the tariff, I think Richelieu would have a good year because we, I think, we have all the people necessary in place in order to sell the product.

Our inventory are intact. The high inventory with higher costs has disappeared almost 100% of our inventory.

Basically we're in a very healthy situation and the market not being very, very not moving very much, but I think to show you continue to grab market share. The investment that we have made, we see all the investment that I have named a few minutes ago, all those investment now they give us some fruits.

We see the benefit. We see sales 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 without for the -- if you exclude the tariff of the picture, I would be very positive for the market in 2025.

Okay. I see.

Thanks. And I guess you mentioned the overall market there.

What do you see what are your expectations this year? Are there any key players on the R&R side going to a 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, yes, flat or low-single-digit growth, that's what we see as of today.

Okay, great. Thanks.

That's all I had. I'll turn it over.

Thank you.

Thank you.

If there's no more question, thanks again. It's always a pleasure to talk to you.

Have a good day.