Montreal — “The second quarter ended May 31st yielded good growth, driven by our strategy rooted in innovation, market development and the acquisitions we efficiently integrate by creating sales and operational synergies. Since the beginning of 2014, we have closed three acquisitions in growth markets – two in Canada and one in the U.S. These acquisitions represent additional annual sales of approximately $18 million. Our two latest acquisitions will add three distribution centres in Western Canada and four in Florida. Our solid financial health positions us to remain focused on growth,” indicated Mr. Richard Lord, President and Chief Executive Officer of Richelieu.

NEXT DIVIDEND PAYMENT

At its meeting on July 3, 2014, the Board of Directors approved the payment of a quarterly dividend of $0.14 per share. This dividend is payable on July 31, 2014 to shareholders of record as at July 17, 2014.

ANALYSIS OF OPERATING RESULTS FOR THE SECOND QUARTER AND FIRST SIX MONTHS ENDED MAY 31, 2014 COMPARED WITH THE SECOND QUARTER AND FIRST SIX MONTHS ENDED MAY 31, 2013

Consolidated sales

Second-quarter consolidated sales amounted to $165.2 million, compared with $156.2 million for the corresponding quarter of 2013, an increase of $9.0 million or 5.7%, of which 3.7% from internal growth and 2.0% from acquisitions. It is to be noted that this quarter included one less business day than the corresponding quarter of 2013.

Richelieu recorded sales to manufacturers of $141.0 million, compared with $132.4 million for the corresponding period of 2013, an increase of $8.6 million or 6.5%, of which 4.2% internal growth with the contribution of all market segments and 2.3% from acquisitions. Sales to hardware retailers and renovation superstores amounted to $24.1 million, up 1.2%.

In Canada, sales totalled $122.3 million, an increase of 3.4% over the second quarter of 2013, of which 0.8% from internal growth and 2.6% from acquisitions. Sales to manufacturers grew by 4.4% to $101.3 million. As for sales to retailers and renovation superstores, they amounted to $20.9 million, a slight 1.2% decrease from the corresponding quarter of 2013.

In the United States, the Corporation achieved sales of US$39.0 million, compared with US$37.2 million for the corresponding quarter of 2013, an increase of 4.9%, of which 4.7% from internal growth and 0.2% from acquisitions. Sales to manufacturers reached US$36.1 million, up 4.4% over the second quarter of 2013 thanks to sustained market penetration efforts. As for sales to retailers and renovation superstores, they grew by 11.6% (in US$). Considering exchange rate fluctuations, total U.S. sales expressed in Canadian dollars amounted to $42.9 million, an increase of 13.0%. They accounted for 26.0% of consolidated sales for the second quarter of 2014, whereas they had represented 24.3% of the period’s consolidated sales for the second quarter of 2013.

First-half consolidated sales totalled $301.3 million, an increase of $18.9 million or 6.7% over the corresponding six months of 2013, of which 4.7% from internal growth and 2.0% from acquisitions.

Sales to manufacturers amounted to $254.8 million, compared with $236.6 million for the corresponding six months of 2013, an increase of $18.2 million or 7.7%, of which internal growth of 5.3% and 2.4% from acquisitions. Sales to hardware retailers and renovation superstores totalled $46.5 million, compared with $45.7 million for the first half of 2013, an increase of 1.7%.

In Canada, sales totalled $220.7 million, compared with $213.3 million for the first six months of 2013, an increase of 3.5%, of which 1.1% from internal growth and the rest from acquisitions. Sales to manufacturers stood at $180.2 million, an increase of 4.1% over the first half of 2013, of which 1.2% from internal growth and 2.9% from acquisitions. As for sales to hardware retailers and renovation superstores, they amounted to $40.5 million, up 0.8% over the corresponding period of 2013.

In the United States, Richelieu recorded sales of US$73.6 million, compared with US$68.4 million for the first half of 2013, an increase of US$5.2 million or 7.6%, of which 7.0% from internal growth and 0.6% from acquisitions. Sales to manufacturers totalled US$68.1 million, an increase of 8.3% over the first six months of 2013, of which 7.6% from internal growth and 0.7% from acquisitions. Sales to retailers and renovation superstores were relatively stable. Considering exchange rate fluctuations, U.S. sales expressed in Canadian dollars totalled $80.5 million, compared with $69.1 million for the corresponding six months of 2013, an increase of 16.6%. They accounted for 26.7% of consolidated sales for the first half of 2014, whereas they had represented 24.5% of the period’s consolidated sales for the first six months of 2013.

Consolidated EBITDA and EBITDA margin

Second-quarter earnings before income taxes, interest and amortization (EBITDA) grew to $19.2 million, an increase of 5.4% over the corresponding quarter of 2013. It is to be noted that the second-quarter gross margin and EBITDA margin remained stable despite the lower profit margins of some prior acquisitions having a different product mix and the higher proportion of sales in the United States where the product mix is also different.

Income taxes amounted to $4.4 million, an increase of $0.2 million over the second quarter of 2013.

First-half earnings before income taxes, interest and amortization (EBITDA) totalled $32.9 million, an increase of $1.8 million or 5.8% over the first half of 2013. The gross margin and EBITDA margin remained stable despite the lower profit margins of some prior acquisitions having a different product mix and the higher proportion of sales in the United States where the product mix is also different.

Income taxes totalled $7.6 million, an increase of $0.4 million over the first six months of 2013.

Net earnings

Second-quarter net earnings increased by 6.9%. Considering non-controlling interests, net earnings attributable to shareholders of the Corporation amounted to $13.0 million, up 7.4% over the second quarter of 2013. Net earnings per share rose to $0.67 basic and $0.66 diluted, compared with $0.59 basic and $0.58 diluted for the corresponding quarter of 2013, an increase of 13.6% and 13.8% respectively.

Comprehensive income amounted to $11.8 million, considering a negative adjustment of $1.3 million on translation of the financial statements of the subsidiary in the United States, compared with $12.5 million for the second quarter of 2013, considering a positive adjustment of $0.3 million on translation of the financial statements of the subsidiary in the United States.

First-half net earnings grew by 7.4%. Considering non-controlling interests, net earnings attributable to shareholders of the Corporation totalled $21.9 million, up 7.9% over the corresponding half of 2013. Net earnings per share rose to $1.11 basic and $1.09 diluted, compared with $0.98 basic and $0.96 diluted for the first six months of 2013, an increase of 13.3% and 13.5% respectively.

Comprehensive income totalled $23.1 million, considering a positive adjustment of $1.2 million on translation of the financial statements of the subsidiary in the United States, compared with $22.4 million for the first six months of 2013, considering a positive adjustment of $2.0 million on translation of the financial statements of the subsidiary in the United States.

FINANCIAL POSITION

Operating activities

Second-quarter cash flows from operating activities (before net change in non-cash working capital balances) totalled $14.8 million or $0.75 per share, compared with $14.4 million or $0.69 per share for the second quarter of 2013, an increase of 2.9% stemming mainly from the growth in net earnings. Net change in non-cash working capital balances used cash flows of $1.1 million, representing the $7.2 million variation in accounts receivable and the $1.7 million variation in inventories and other items, whereas accounts payable represented a cash inflow of $7.8 million. Consequently, operating activities provided cash flows of $13.7 million, compared with $9.8 million for the corresponding quarter of 2013.

First-half cash flows from operating activities (before net change in non-cash working capital balances) totalled $25.8 million or $1.29 per share, compared with $24.9 million or $1.18 per share for the first six months of 2013, an increase of 3.7% stemming mainly from the growth in net earnings. Net change in non-cash working capital balances used cash flows of $13.9 million, representing the $10.0 million variation in inventories and the $5.5 million variation in accounts receivable, whereas accounts payable and other items represented a cash inflow of $1.6 million. Consequently, operating activities provided cash flows of $11.9 million, whereas they had provided cash flows of $4.2 million for the first six months of 2013.

Financing activities

Second-quarter financing activities represented a cash outflow of $2.5 million, compared with $17.1 million for the corresponding quarter of 2013. This change stems mainly from the fact that the Corporation repurchased common shares for cancellation for $0.5 million during the second quarter of 2014, compared with $14.6 million in the same period of 2013. Richelieu paid shareholder dividends of $2.7 million during the second quarter of 2014, relatively equivalent to those paid during the corresponding quarter of 2013.

First-half financing activities represented a cash outflow of $30.1 million, compared with $18.6 million for the corresponding half of 2013. During the first six months of the year, Richelieu repurchased common shares for cancellation for $27.5 million, compared with $14.6 million during the first half of 2013. The Corporation paid shareholder dividends of $5.5 million, up 2.2% over the first six months of 2013. Furthermore, shares were issued for $3.0 million, compared with a $2.0 million share issue during the first half of 2013.

Investing activities

Second-quarter investing activities totalled $2.9 million, of which $1.7 million for the acquisition of the principal assets of Pleasantside and $1.2 million for equipment needed for operations, including software.

First-half investing activities amounted to $5.0 million for the acquisition of the principal assets of Procraft and Pleasantside, as well as for equipment needed for operations, including software.

Sources of financing

As at May 31, 2014, cash and cash equivalents totalled $23.0 million, compared with $46.2 million as at November 30, 2013. This variation primarily reflects the significant share repurchases in the first half of 2014. The Corporation posted a working capital of $196.4 million for a current ratio of 4.1:1, compared with $204.1 million (4.5:1 ratio) as at November 30, 2013.

Richelieu believes it has the capital resources to fulfill its ongoing commitments and obligations and to assume the funding requirements needed for its growth and the financing and investing activities planned for the second half of 2014. The Corporation continues to benefit from an authorized line of credit of CA$26 million as well as a line of credit of US$6 million renewable annually and bearing interest respectively at prime and base rates. In addition, the Corporation estimates it could obtain access to other outside financing if necessary.

Source: Richelieu