Montreal — “Richelieu achieved another good performance in the second quarter, posting solid growth, an excellent financial position and further expansion-by-acquisition. Our growth continues to be driven by our innovation strategy, our acquisitions, the synergies created with them and our operational efficiency initiatives. All these reinforce our market leadership in North America and enhance our potential for the future. In the manufacturers market where we increased our sales by 4.5%, our various customer segments performed well in both Canada and the United States. In the hardware retailers and renovation superstores market, we increased our sales by 12.6%, thanks notably to the launch of new product lines. On May 1st, 2012, we closed our tenth acquisition since 2010 by acquiring CourterCo, a distributor operating three business centres in Indiana, Kentucky and North Carolina. In addition to gaining access to the Indiana market, we strengthen our presence in the other two, and we will seek to seize the potential of the synergies, for instance by combining our existing operations in these regions. We remain focused on growth and are confident we will achieve good results in the second half of 2012,” indicated Richard Lord, President and Chief Executive Officer of Richelieu.

Next dividend payment

At its meeting on July 5, 2012, the Board of Directors approved the payment of a quarterly dividend of $0.12 per share. This dividend is payable on August 2, 2012 to shareholders of record as at July 19, 2012.

ANALYSIS OF OPERATING RESULTS FOR THE SECOND QUARTER AND FIRST SIX MONTHS ENDED MAY 31, 2012 COMPARED WITH THE SECOND QUARTER AND FIRST SIX MONTHS ENDED MAY 31, 2011

Second-quarter consolidated sales totalled $147.1 million, an increase of $7.9 million or 5.7% over the corresponding quarter of 2011, of which 4.7% from internal growth and 1.0% from the contribution of Provincial Woodproducts Ltd (Newfoundland) (“Provincial”), acquired at the beginning of the second quarter of 2011, and CourterCo Inc. (Indiana, Louisville and Greensboro, U.S.) (“CourterCo”), acquired on May 1st, 2012.

Sales to manufacturers grew to $124.4 million from $119.0 million for the corresponding period of 2011, an increase of $5.4 million or 4.5%, of which 3.3% from internal growth and 1.2% from the aforementioned acquisitions. Most of the Company’s markets contributed to this growth, especially kitchen and bathroom cabinet manufacturers. Richelieu achieved sales of $22.7 million in the hardware retailers and renovation superstores market, compared with $20.2 million for the same quarter of 2011, an increase of $2.5 million or 12.6% to which all its geographic markets contributed, thanks notably to the launch of new product lines.

In Canada, sales totalled $118.5 million, compared with $113.8 million for the second quarter of 2011, an increase of $4.7 million or 4.2%, of which 3.9% from internal growth and 0.3% from Provincial. The Eastern and Western Canadian markets contributed to growth with increases of 6.1% and 4.0% respectively for the second quarter. In Canada, sales to manufacturers grew by 2.4%, of which 2.1% from internal growth, to reach $96.7 million. As for the hardware retailers and renovation superstores market, it posted a 12.7% growth due primarily to the aforementioned factor. Consequently, sales to retailers totalled $21.9 million, up from $19.4 million for the corresponding quarter of 2011.

In the United States, sales amounted to US$28.6 million, compared with US$26.3 million for the corresponding quarter of 2011, an increase of US$2.3 million or 8.9%, of which 4.6% from internal growth and 4.3% from CourterCo’s contribution for May 2012. The internal sales growth in the U.S. markets was all the more appreciable as it was achieved in an economic context that remains relatively difficult. It is to be noted that the U.S. dollar strengthened in the second quarter of 2012 over the comparable period of 2011. In Canadian dollars, U.S. sales totalled $28.6 million, up from $25.4 million for the corresponding quarter of 2011. They accounted for 19.4% of consolidated sales for the second quarter of 2012. Sales to manufacturers stood at $27.7 million, an increase of 12.5%, of which 8.0% from internal growth and 4.5% from CourterCo’s contribution. Sales to hardware retailers and renovation superstores were up 10.8%.

First-half consolidated sales totalled $271.2 million, an increase of $18.8 million or 7.5% over the first six months of 2011, of which 5.2% from internal growth and 2.3% from the contribution of Outwater, Madico and Provincial, to which was added CourterCo’s contribution.

Sales to manufacturers amounted to $227.7 million, compared with $213.1 million for the corresponding period of 2011, an increase of $14.6 million or 6.9%, of which 4.4% from internal growth and 2.5% from the aforementioned acquisitions. It is to be noted that all the Company’s markets contributed to this growth, and the strongest contribution came from kitchen and bathroom cabinet manufacturers. Sales to hardware retailers and renovation superstores grew to $43.4 million, compared with $39.3 million for the first half of 2011, an increase of nearly $4.2 million or 10.6% recorded in all markets, thanks notably to the launch of new product lines.

In Canada, sales totalled $216.3 million, compared with $206.3 million for the first half of 2011, an increase of $10.0 million or 4.8%, of which 3.4% from internal growth and 1.4% from Madico and Provincial. All three geographic markets contributed to this growth, with increases of 6.7% in Eastern Canada, 3.3% in Western Canada and 2.7% in Ontario over the first six months of 2011. In Canada, sales to manufacturers amounted to $174.7 million, an increase of 3.9% over the first half of 2011, of which 2.4% from internal growth and 1.5% from Madico and Provincial. The hardware retailers and renovation superstores market posted a 9.1% growth over the corresponding period of 2011 due primarily to the aforementioned factor. Consequently, sales to retailers totalled $41.6 million, compared with $38.1 million for the first six months of 2011.

In the United States, sales amounted to US$54.6 million, compared with US$47.0 million for the first six months of 2011, an increase of US$7.7 million or 16.3%, of which 10.5% from internal growth and 5.8% from Outwater’s contribution plus CourterCo’s contribution for May 2012. It is to be noted that the U.S. dollar strengthened during the period over the first half of 2011. In Canadian dollars, U.S. sales amounted to $54.9 million, compared with $46.0 million for the first six months of 2011. They accounted for 20.2% of consolidated sales for the first half of 2012. Sales to manufacturers amounted to $53.0 million, an increase of 18.2%, of which 12.2% from internal growth and 6.0% from the contribution of Outwater and CourterCo. Sales to hardware retailers and renovation superstores were up 62.1%.

Second-quarter earnings before income taxes, interest and amortization (EBITDA) stood at $18.6 million, up 9.0% over the corresponding quarter of 2011. The gross profit margin remained relatively stable compared with the second quarter of 2011. Reflecting the sales growth and a decrease in operating expenses as a percentage of sales, the EBITDA margin improved to 12.7% from 12.3% in the second quarter of the previous year. It is to be noted that operating expenses include the acquisition fees of $0.1 million incurred to close the CourterCo transaction.

Although EBITDA increased, income taxes amounted to $4.8 million, remaining relatively stable compared with the second quarter of 2011, on account of fluctuations in results by region where the Company and its subsidiaries are subject to tax rates and tax regulations differing from one another.

First-half earnings before income taxes, interest and amortization (EBITDA) amounted to $31.9 million, up 9.6% over the first six months of 2011. The gross profit margin remained relatively stable compared with the first half of 2011. Reflecting the sales growth and a decrease in operating expenses as a percentage of sales, the EBITDA margin improved to 11.8% from 11.5% in the first six months of the previous year.

Although EBITDA increased, income taxes amounted to $8.1 million, remaining relatively stable compared with the first half of 2011, on account of fluctuations in results by region where the Company and its subsidiaries are subject to tax rates and tax regulations differing from one another.

Second-quarter net earnings grew by 19.9%. Considering non-controlling interests, net earnings attributable to shareholders of the Company totalled $12.0 million, up 19.8% over the corresponding quarter of 2011. Earnings per share amounted to $0.57 (basic and diluted), compared with $0.48 basic and $0.47 diluted for the second quarter of 2011, an increase of 18.8% and 21.3% respectively.

Comprehensive income stood at $14.0 million, on account of a positive adjustment of $1.9 million on translation of the financial statements of the subsidiary in the United States, compared with $10.0 million for the corresponding quarter of 2011, on account of a negative adjustment of $0.1 million on translation of the financial statements of the subsidiary in the United States.

First-half net earnings grew by 18.0%. Considering non-controlling interests, net earnings attributable to shareholders of the Company totalled $20.0 million, up 17.6% over the first six months of 2011. Earnings per share amounted to $0.96 basic and $0.95 diluted, compared with $0.81 basic and $0.80 diluted for the first half of 2011, an increase of 18.5% and 18.8% respectively.

Comprehensive income totalled $20.8 million, on account of a positive adjustment of $0.6 million on translation of the financial statements of the subsidiary in the United States, compared with $15.6 million for the first half of 2011, on account of a negative adjustment of $1.5 million on translation of the financial statements of the subsidiary in the United States.

FINANCIAL POSITION

Analysis of principal cash flows for the second quarter and first six months ended May 31, 2012

Operating activities

Second-quarter cash flows related to operating activities (before net change in non-cash working capital balances related to operations) amounted to $13.9 million or $0.66 per share, compared with $12.2 million or $0.57 per share for the second quarter of 2011, an increase of 13.7% primarily reflecting the $2.0 million increase in net earnings and the $0.3 million decrease in amortization of capital and intangible assets due to the fact that the equipment and tooling acquired three years ago have now been fully amortized. Net change in non-cash working capital balances related to operations used cash flows of $5.1 million, compared with $3.4 million in the second quarter of 2011. This net change for the quarter primarily reflects the $9.0 million increase in accounts receivable related mainly to the sales growth and the $1.7 million decrease in accounts payable, whereas inventories, prepaid expenses and income taxes receivable represented a total net decrease of $5.7 million. Consequently, operating activities provided cash flows of $8.8 million, similar to those for the second quarter of 2011.

First-half cash flows related to operating activities (before net change in non-cash working capital balances related to operations) totalled $24.1 million or $1.15 per share, compared with $21.3 million or $1.00 per share for the first six months of 2011, an increase of 13.1% primarily reflecting the $3.1 million increase in net earnings. Net change in non-cash working capital balances related to operations used cash flows of $12.7 million, compared with $17.4 million in the first half of 2011. This net change for the period primarily reflects the increase of $8.0 million in accounts receivable (mainly related to the sales growth), of $3.3 million in inventories (notably related to the acquisition closed in May 2012 and the increase in demand for the period), and of $1.6 million in income taxes receivable and prepaid expenses, whereas accounts payable represented an increase of $0.3 million. Consequently, operating activities provided cash flows of $11.4 million for the first six months, compared with $3.9 million for the first half of 2011.

Financing activities

In the second quarter, Richelieu paid shareholder dividends of $2.5 million, up 7.7% over the corresponding quarter of 2011, on account of the 9.1% dividend increase announced in January 2012. The Company also issued common shares for $1.6 million upon the exercise of stock options under its stock option plan. Consequently, financing activities represented a cash outflow of $0.9 million, compared with $7.5 million for the corresponding quarter of 2011 when it had repurchased common shares under its normal course issuer bid for a consideration of $5.6 million.

In the first half, Richelieu repaid a total of $2.5 million long-term debt, compared with $0.1 million in the first six months of 2011, and paid shareholder dividends of $5.0 million, up 7.7% over the corresponding period of 2011, on account of the 9.1% dividend increase announced in January 2012. The Company also issued common shares for $2.2 million upon the exercise of stock options under its stock option plan, compared with $0.8 million in the corresponding period of 2011, and repurchased common shares under its normal course issuer bid for a consideration of $0.3 million, compared with $5.6 million in the first half of 2011. Consequently, financing activities represented a cash outflow of $5.6 million, compared with $9.6 million for the first six months of 2011.

Investing activities

In the second quarter, Richelieu invested a total of $3.0 million, of which $2.4 million in the acquisition of the net assets of CourterCo and $0.6 million mostly in software and operational equipment, whereas it had invested $12.6 million in the corresponding quarter of 2011, of which $7.5 million in the acquisition of Provincial and $5.1 million in capital assets, primarily for the expansion of the Montreal and Laval distribution centres as well as complementary modules to the Company’s information technology system.

In the first half, Richelieu invested a total of $4.1 million, of which $2.4 million in the acquisition of the net assets of CourterCo and $1.7 million mostly in software and operational equipment, whereas it had invested $26.9 million in the first six months of 2011, of which $18.5 million in the acquisition of the net assets of Outwater, the shares of Madico and 85% of the common shares of Provincial plus $8.4 million in capital assets, primarily for the expansion of the Montreal and Laval distribution centres as well as complementary modules to the Company’s information technology system.

Sources of financing

As at May 31, 2012, cash and cash equivalents totalled $30.8 million, compared with $29.1 million as at November 30, 2011. The Company posted a working capital of $185.2 million for a current ratio of 4.3:1, compared with $167.3 million (4.0:1 ratio) as at November 30, 2011.

Richelieu believes it has the capital resources to fulfill its ongoing commitments and obligations in the second half of 2012 and to assume the funding requirements needed for its growth and the financing and investing activities planned for the rest of the year. Furthermore, the Company continues to benefit from an authorized line of credit of $26 million, renewable annually and bearing interest at the bank’s prime rate, as well as a line of credit of US$5 million bearing interest at prime rate plus 2%. In addition, the Company estimates it could obtain access to other outside financing if necessary.

Source: Richelieu