Richelieu Hardware Ltd.

Merci, Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the second quarter and first half ended May 31, 2025.

With me is Antoine Auclair, CFO and COO. As usual, note that some of today's issue include forward- looking information, which is provided with the usual disclaimer as reported in our financial filings.

This was another quarter of good progress for Richelieu, both in terms of sales growth and new business acquisition. And we ended the first half year with a sound financial position.

We are pleased with the 6.4% increase in total sales. We posted a solid performance in the U.S.

with sales increase of 11.7% in U.S. dollar, of which 6.6% coming from internal growth.

In Canada, we had a steady performance despite the more challenging economic conditions during the period, particularly in Ontario, where our sales manufacturers were down, offsetting the good performance in Eastern Canada. It should also be noted that since May, we had to make selling price adjustment in response to U.S.

tariff. This adjustment had a minimal effect upward -- a minimal upward effect on the 6.6% internal growth we achieved in our U.S.

markets, but with no impact on our gross margin since it's surpassed through. Regarding our acquisition strategy, which we successfully pursued in the second quarter, after completing 4 acquisitions in the first quarter.

In April, we acquired Rhoads & O'Hara Architectural Products, specializing in exclusive architectural panels and related products in Vineland, New Jersey. This acquisition also gives us the opportunity to expand our collaboration with architects, designers and high-end architectural wood workers in the U.S.

Then on May 1, we acquired Les industries Camcoat, a distributor of industrial wood finishing products in the Greater Montreal area. This move strengthens our sales network for finishing products in North America that we have already established over 25 years ago.

This means 6 acquisitions concluded in the first 6 months for additional sales of $53 million, a stronger network, broad diversification of our market segments and products, more synergies and even more added value to our service. We also continue to invest in our network, adding over 50,000 square feet to our Detroit facility, which gives us the opportunity to add product lines and capture growth opportunity.

I will now ask Antoine to review the financial highlights for the period.

Thanks, Richard. In the second quarter, sales reached $512.2 million, up 6.4%, representing an increase of $30.8 million, equally driven by internal growth and acquisitions.

In Canada, sales totaled $276 million, relatively stable compared to the same quarter of 2024. Despite a decline in sales in Ontario, where the business environment is actually more challenging.

Sales to manufacturers amounted to $235 million, up 1.2%, while sales to the hardware retailers totaled $41 million, down 73%, mainly due to timing differences as year-over-year sales are roughly in line with the same period last year. In the U.S., sales grew to USD 168 million, up 11.7%.

Sales to manufacturers reached USD 157 million, up 9.9%, with 4.6% coming from internal growth. As of May, a portion of this internal growth reflects selling price adjustment following the introduction of new import tariffs, an increase that offset the additional costs with no impact on gross margin.

In the hardware retailers and renovation superstores market, sales reached $10.9 million, up $3.4 million. In Canadian dollars, total sales in the U.S.

reached CAD 236 million, up 15.3%, accounting for 46.2% of total quarterly sales. For the first half, total sales reached nearly $1 billion, up 7.4%, of which 3.9% resulted from internal growth and 3.5% from acquisitions.

In Canada, sales reached $517 million, up 1.8%, primarily due to acquisitions. Sales to manufacturers totaled $431 million, up $10 million or 2.4%.

Sales to hardware retailers and renovation superstores were $86.8 million compared to $87.8 million, down 1.1%. In the U.S., sales amounted to USD 208 million, up 9.8%, with 5.7% from internal growth and 4.1% from acquisitions.

They reached CAD 437 million, up 14.9%, accounting for 46% of total sales. In U.S.

dollar, sales to manufacturers totaled $290 million, an increase of $26.3 million or 10%, driven by 3.8% internal growth and 6.2% from acquisitions. Sales to hardware retailers and renovation superstores were up 7.1% compared to last year.

Second quarter EBITDA reached $55.2 million, up $1.4 million or 2.7% over last year. Gross and EBITDA margins remained under pressure due to the contribution of recent acquisitions, which carry lower margins as well as to integration costs and network expansion initiatives.

Consequently, the EBITDA margin stood at 10.8% compared to 11.2% last year. First half EBITDA totaled $97.6 million, up 3.6%, with the EBITDA margin at 10.2% compared to 10.6% last year.

Second quarter net earnings attributable to shareholders amounted to $22.5 million, down 3.9%, mainly due to higher amortization expense resulting from capital investment, new leases and lease renewals related to expansion projects and business acquisitions completed during the previous fiscal year and the first semester of 2021. Consequently, diluted net earnings per share was $0.41 compared to $0.42 last year.

First half net earnings attributable to shareholders reached $36.4 million, down 5.9%. Diluted net earnings per share stood at $0.66 compared to $0.69 last year.

Second quarter cash flow from operating activities before net change in noncash working capital were $46.8 million compared to $45.1 million last year. The net change in noncash working capital items represented a cash inflow of $0.5 million, reflecting a $10.2 million reduction in inventories, while other items required $9.7 million in cash.

As a result, operating activities provided a cash inflow of $47.3 million in the quarter compared to a cash inflow of $55.7 million last year. For the first half, cash flow from operating activities represented a cash inflow of $51 million compared to a cash inflow of $56.2 million last year.

For the second quarter, financing activities used cash flow of $23.3 million compared to $38.6 million last year. The main variance is explained by the repurchase of common share, which amounted to $18.6 million last year.

First half financing activities used cash flow of $44.7 million compared to $57.6 million in 2024. In the first half, we invested $36 million, including $27.4 million for 6 business acquisitions and $8.6 million primarily for the purchase of warehouse equipment related to expansions and center consolidation efforts and to maintain and improve operational efficiency.

We continue to maintain a robust financial position with working capital of $614.2 million and a current ratio of 2.9:1 while holding almost no debt. I now turn it over to Richard.

Thank you, Antoine. In conclusion, over the coming periods, we will continue to grow by being creative and by reacting proactively to the changes, building on our sound foundations of strength and remaining firmly connected to our markets.

Our business model well adapted to our customer needs, our outstanding product offering, our solid network and our talented team are key to our success. The integration of our recent acquisition is proceeding efficiently while developing synergies, and we remain on the lookout for further growth-generating acquisition in the short and long term.

Our strategic investment in the recent years and our acquisitions are generating tangible growth and are key drivers in our long-term value creation. Thanks, everyone.

Could you provide some more color on the price adjustments you took, maybe what percent of products you raised prices for and the price impact that had on your organic growth in the U.S.?

Products that were affected by those price increases in the U.S. because of the tariff are only for the Chinese products and represent between 15% and 20% of our sales, and the effect is minimal because it's only -- it was effective only in May.

So for the following quarters, though that will be fully applied to the periods.

Okay. I see.

And then could you perhaps discuss the price versus volume trends in Canada as well?

Price versus volume in Canada. Price had a minimal impact in Canada.

So it's a pretty flat market as we speak, and it's mainly due to volume.

I see. I see.

And how is the M&A pipeline looking? Are you seeing any changes in activity or multiples given the recent large deals in the distribution space?

No, no change in the network -- the pipeline is still healthy. So we've been in a position to close 2 this quarter.

We still have others in negotiation. So we didn't see any major change in the M&A environment.

So pipeline is healthy, both in Canada and the U.S.

This is Zach calling in. Just circling back on those price increases in May.

Is it fair to assume that they were about the exact size of the tariffs that were declared on Chinese goods?

Exactly. We only charge the cost of the tariff.

So we just passed through the expense to our customers, and it is 100% done regarding the Chinese products. And that's in the U.S.

only.

Understood. And given what we're seeing in terms of letters coming out from the U.S.

administration, have you been adding any more price increases in June and July from other countries of origin?

We will apply one of our -- the tariff that we'll have to -- that will be charged for us will be recharged to our customers, no doubt about that. So we follow up very closely on that.

And nothing is going to be going to see in between. So as soon as we get the charges, we're going to charge our customers.

And do you think you'll be able to cleanly pass those through going forward? Or do you expect some pushback from customers and maybe some lost volumes?

We don't expect any pushback because, first of all, short term, our customers already have a lot of work. I mean a lot of work.

They have some orders that they have to finish in order to be paid by their own customers. So basically, they don't have any choice.

They have to buy the product that they need to finish those products -- those projects. And regarding the tariff, though, even though with the current tariff that we have for the Chinese product in the U.S., the Chinese products are still much more or less expensive than any product, any similar product coming from any other country.

So basically, we don't expect any change for that. We expect only change because people might be unsecured and the market might slow down.

We don't feel that so far in the current quarter in the U.S. But in Canada, -- we already mentioned that in Ontario, the Ontario market has been difficult for the last 6 months for many reasons, the price -- a lot of condominiums are inventory are not sold yet.

They're expensive, the interest rate and everything else. And the tariff are making the people a little bit more nervous in Ontario than anywhere else because of the automobile industry.

So far, what we've seen in the current quarter, though, we have seen a slowdown also in BC because, again, we were reading that some contractors are laying off employees because they have a lot of unsold condominiums. So basically, hopefully, those situation will be temporary.

But what we -- as we were saying in the previous quarter, we think as we speak in the third quarter, business is still steady compared to the last quarter. But the -- will always have the threat in Canada that might be a slowdown, maybe not a recession, but a slowdown in the industry.

By the way, Richelieu is very well equipped whatever happens to the economy, Richelieu very well equipped, very well positioned. We have our inventory, as you know, is full.

We have the best network. We have a product diversity that nobody else can touch.

We're unique in the world of hardware. And we have the service, our service -- 24-hour service all over the -- all over Canada and in U.S.

for the small cost. So that's something unique that I think if the first people that have problems if the business slowdown would be hopefully our competition.

But Richelieu is very well equipped to continue to be successful. But if the market is less -- the economy is down, our sales might be affected.

We just hope that it will not happen.

That's very good color. And then if we pivot specifically to retailers, there was a big uptick in the U.S.

What drove that in particular? Is that going to be recurring?

No, in the U.S., we're sometimes dealing with big customer that could place seasonal orders. So that's the case for the U.S., the growth that you see there.

So it's...

In terms of -- go ahead.

It's a customer we're used to deal with, so -- but we never received the orders in the same quarter.

Got you. And just the way that, that order was placed, will it straddle Q3 as well?

Or is that mostly a Q2 effect?

It's mostly a Q2 effect, then you will have some effects in Q3 as well, but not as big as Q2.

Understood. And then looking at the Canadian retailer sales, I was a little surprised to see that, that was weaker given the RONA refresh and what we're hoping for from that.

So what's the story in Canada?

I think you need to look at it for the first semester. So RONA refresh occurred more in Q1.

So that's why you've seen a larger increase in Q1. So the way we look at it is first semester, it's the Canadian retail business is stable.

So that's more a cyclical effect in Q2.

And we expect the last -- the second half to be good I think as good -- at least I think it's going to be better than flat. I think we should expect maybe a small increase in the retailer markets in Canada because we keep pushing products into the stores, we add products.

We see -- so far in the third quarter, we see RONA growing because of the work that we've done with our display in their stores. We see our sales with Home Depot growing as well.

So basically, I'm rather optimistic for the Canadian retailer market for the rest of the year.

That's good news. And then if we move to capital allocation with the network expansion initiatives, where do you see your CapEx budget for the year?

Take what we spent in 6 months and double it. So you'll end up closer to $20 million, which is more maintenance CapEx mode.

So equaling approximately 1% of our sales. So historically, before the last 3 to 4 years, we were spending approximately 1% of our sales in maintenance CapEx.

So that's -- you should end up around $20 million.

Got you. And then any specific targets for working capital improvements?

Yes. We reduced this quarter, we've reduced inventory $10 million.

Hopefully, we'll add another $15 million for the rest of the year. And for our accounts receivable, they're in pretty good shape.

So we're satisfied where it is today.

Understood. And just last one for me.

We've been seeing homebuilders lowering their outlooks and you guys were talking about the kind of market in Toronto and BC. Are you seeing similar read-throughs for a lower outlook from both manufacturers and retailers?

Or is there a split in outlooks anywhere?

Well, as I said, I think the retailers outlook is rather positive. It might not be booming, but what we see so far is it certainly be better -- it will certainly be better than last year.

And regarding the rest of the market with the contractor, Eastern Canada is still very good. There's still some decent construction in Quebec and the Maritimes are doing pretty well.

Ontario, I don't think can be worse. I think it will be maybe hopefully, will start to improve.

And Alberta still decently -- it's a good market still. And BC is something that we have to keep an eye on for the months to come because of the -- those -- I think the people -- we need some construction.

I think -- we all know that Mr. [ Carriere ] has promised to make thousands and thousands of new construction that would be apartment for the purpose of renting, but there is a lot of product [indiscernible] products in those type of apartments as well.

So basically, there are some positive signs. But as we see, as we speak with what we know is that we expect a flat market in Canada and the U.S.

so far is still holding -- it's holding very well so far.

Okay. There's no more questions.

So thank you very much for attending this call. It's always a pleasure to talk to you.

Do not hesitate to contact us if you need more information. Thank you very much.