Good afternoon, ladies and gentlemen, and welcome to the Vishalu Hardware First Quarter Results Conference Call. At this time, note that all lines are in a listen only mode. Following the presentations, we will conduct a question and answer session, which will be restricted to analysts only. If at any time during the call you require immediate assistance, please press 0 for the operator. Also note that the call is being recorded on 04/09/2020.
Thank you. Good afternoon, ladies and gentlemen, and welcome to the Richelieu's conference call for the first quarter ended 02/29/2020. It is to be noted that Antoine and I are attending from different locations via telephone telephone. As usual, note that some of the this issue include forward looking information, which is provided with the usual disclaimer as reported in our financial filings. In view of the current circumstances, this morning, we held our annual general meeting in attendance of the proxy holders.
In accordance with strict guidelines issued by government health authorities, we respectfully ask our shareholders to refrain from attending the meeting in person. As such, our shareholders are participated by voting by proxy, and they have the possibility to ask their question using two options made available to them. As we mentioned in our press release, Vishalu will continue to monitor the COVID nineteen situation closely closely and to comply with all applicable health and safety guidelines issued by our governments and authorities. I will come back to this point after our financial review. Regarding our first quarter ended February 29, we are very pleased with our growth of 10.2% in sales, 18.9% in EBITDA, and 18.4% in net earnings attributable to shareholders.
We benefited from the strong contributions of our acquisitions added to a positive internal growth in our main market segments. We are pleased to see that our sustained innovation and acquisition strategies combined with our market development initiatives, our unit service concept and the depth of our product lines positively impacted the quarter's performance. Furthermore, during the quarter, we made three new acquisitions in Canada and in The US that lead our growth expansion criteria and give us access to new geographic markets while strengthening our activities in markets where we were already present. The two acquisitions add approximately $60,000,000 in sales on an annual basis as well as new customers, products, and expertise. They are DecoTech acquired in December 2019, which serves a customer base of Canadian manufacturers.
MyBowl also acquired in last December, which serves a customer base of retailers in Canada and in The US. And the last the last one acquired on February 3, Oahu, which serves mainly manufacturers and operates three centers in Nebraska, Iowa, and South Dakota, giving us access to these new geographic market. As we always do, we will create sales synergy with the EU acquisition through our network, which now counts 82 centers in North America. To conclude this overview, in an effort to protect Leucherio's current cash position and mitigate financial impact likely to resolve from the COVID-nineteen crisis, this morning, the Board of Directors has elected not to declare a new dividend for the first quarter of twenty twenty. I will now ask Antoine to go through the financial highlights of the first quarter.
I will come back with additional comments. Antoine?
Thanks, Richard. First quarter sales reached €249,400,000 up by 10.2%, of which 3.5 from internal growth and 6.7% from acquisitions. At comparable U. S. Exchange rates in 2019, sales growth would have been 10.6%.
Sales to manufacturers stood at 210,500,000.0, up by 9.5%, 4.8 from internal growth and 4.7% from acquisitions. In the Hardware Retailers and Renovation Superstores market, we achieved sales of €38,900,000 up by €4,900,000 or 14.4%, of which 18.5% from acquisition and internal decrease of 4.1% caused by the decrease of sales to retailers in The United States. In Canada, sales amounted to €156,700,000 up by 9%, of which 3% from internal growth and 6% from acquisitions. Our sales to manufacturers reached 127,600,000.0, up by 8.4%, of which 2.2% from internal growth and 6.2% from acquisitions. As for the hardware retailers and renovation superstores market, sales stood at 29,100,000 up 11.9%, of which 3.7% from internal growth and 8.2% from acquisitions.
In The U. S, sales totaled $70,300,000 in U. S. Dollar, up 13%, 5.1% from internal growth and 8.2% from acquisition. They reached CAD 92,700,000.0, an increase of 12% and represented 37.2% of the total sales.
Sales to manufacturers reached 3,000,000 in U. S. Dollar, up by 12.1%, 9.8 from internal growth and 2.3% from acquisitions. In the Hardware Retailers and Renovation Superstores market, sales grew by 23%, of which 61.3% from acquisition and 38.3% of internal decrease caused by higher cyclical sales and initial sales made last year. First quarter EBITDA reached €24,900,000 up by €3,900,000 or 18.9% over the first quarter of twenty nineteen.
The gross margin was maintained and the EBITDA margin improved due to increase in sales and continued control of expenses and stood at 10% compared to 9.2% same quarter last year. Amortization expenses for the 2020 was up EUR €1,100,000 due to the increased amortization expense resulting from our latest business acquisitions. First quarter net earnings attributable to shareholders totaled €11,800,000 up by 18.4%. Diluted net earnings per share rose to $0.21 compared with $0.17 for the first quarter of twenty nineteen, an increase of 23.5%. First quarter cash flow from operating activities before net change in working capital balances amounted to $20,100,000 or $0.36 per share, an increase of 19.1%.
For the first quarter of twenty twenty, dividends paid to shareholders amounted to €3,800,000 up 3.8% over 2019. We also invested €26,500,000 of which €34,000,000 for the three business acquisitions mentioned earlier and €2,400,000 for new equipment to improve and maintain operational efficiency. Richard?
Thanks, Chardois. In this difficult time, our priority is to take all appropriate steps to ensure the safety of our employees, suppliers, customers, families, and visitors while continuing supporting our customers. In this regard, we make sure that we comply and exceed all guidelines from governments and authorities. COVID-nineteen has a serious impact on our business. In most jurisdictions, all operation except three in Quebec continue as essential services and comply with local jurisdictions.
We remain active wherever appropriate and authorized and have reorganized our activities in order to focus on essential services with most of our locations still being in operation with, however, a reduced number of resources. All locations have been operating under strict procedures intended to minimize contact between individuals and other sanitization procedures. March sale was strong in the first half, but we started to see a decline toward the end of the month. And based on the last few days trend, our consolidated sales are negatively impacted by approximately 40% resulting from a decline of 45% in Canada and 30% in The US. Most specifically, we are experiencing a decline of 75% in Quebec, 30% in Ontario, 25% in Western Canada, and 25% in the Atlantic Provinces.
We took important and difficult measures to adjust the cost structure accordingly, including workforce reduction, reduced hours, and the complete closure of three locations. We also reduced Board of Directors fees and my CEO remuneration by 25% and other manager by 20%. We currently have over 600 employees working from home. Thanks to our IT department. We are closing closely and rigorously monitoring cash flows on a daily basis.
We are currently analyzing all government support program that that could apply to Vishalu in the future. More than ever, we will make we make sure to keep our business model well adapted to the needs of our customers in Canada and The US in order to meet their needs and not to stay their expectation, especially in these difficult market conditions. Keep in mind that our network of 82 interconnected distribution centers combined with our transactional website, which is also exceptional, allow us to ship from every location across North America in a very short period of time. Tissueiu's value added concept is still based on our diversified and unique product offering, our distinctive multi access service, our exceptional online service with tissueiu.com, and the strong expectings expectings of our team. Our strong balance sheet and cash position will certainly help us to get through these difficult times.
Thanks, everyone. We'll now be happy to answer your questions.
Thank you. Ladies and gentlemen, we will now take questions from analysts. If you would like to ask a question, please press star followed by one on your touch tone phone. You will hear a pre tone prompt acknowledging your request. And if you would like to withdraw your questions, you will need to press star followed by 2.
And if you're using a speakerphone, please lift the handset before pressing any keys. And your first question will be from Amir Patel at CIBC Capital Markets. Please go ahead.
Richard, thanks for those preliminary figures. I may have missed some of them. Can you just, just remind us again what you were saying your quarter to date, aggregate sales were tracking?
You we track actually, we track our sales in the last five days to make sure that we analyze the trend, the very, very current trend. As I mentioned, our sales decreased by 40%. It's, and it's 45% in Canada and 30% in the in The US. This is the clear decision. That seems to be stable five days after five days regarding the way that we analyze it.
Okay. So
that's I can add, I mean, Richard said, March started very strong. So we started to see the decline more towards the end of the month.
Also, I think it's important to mention, if you look at our first quarter, I think we have started this year in a very, very strong manner with the sales increase and the profit increase that we've seen. Unfortunately, the COVID nineteen is changing everything, but, that was supposed to be a very strong strong year for Michelin.
Okay. And and and, Richard, are you seeing, you know, your your retailers' sales, how are those holding up? Because from what we're seeing, it seems like the big box stores are actually performing a bit better than the rest of the market.
Yes. Good question. We see a decrease of our sales by about 40% there as well. But we think that that 40% should remain stable. So, not only stable, also the accounts receivable from those accounts is really very, very safe.
So basically, what we see, I think, is probably the worst. I think the the bottom of the barrel regarding the sales to other retailers. Maybe we can see some some improvement in the future weeks, depending on the government decisions.
Okay. Richard, I appreciate the the 40% figure. That's that's helpful. Is I'm not sure if you're able to, parse out maybe how much, how that figure would vary for your residential versus commercial end markets.
What we see actually is, it's rather stable. It's all the market that are touched. Well, we have many customers that also still are still working because the the they are there for the essential services. So our customers, you know, they they repair roofing, they repair hospital, they they repair places with that that have emergency needs. You see a lot of product being sold actually for the protection of the employees in the grocery stores and the and the hardware store and everywhere.
So we we basically sell those products. We, traditionally, we sell a lot of product that are anti, whatever the the, I'd call that antibacterial products Bacterial. That are very popular, actually. It's not that big sales, but it it does create some sales, and and many of our customers are working on that that type of projects.
And Richard, if the the 40%, if if we assume that that's largely a a volume figure, are are you expecting that we'll see some product pricing deflation that could kinda add to that, or have you seen any signs of product pricing coming off?
No. We don't see that, actually. I think, I think it's also important to mention. We don't see any price decrease in view, And we see also that we are on inventory actually is healthy, at least for you, because we usually place the first quarter of the year, it's a low quarter in terms of sales. So we always prepare the procurements to make sure that we have the inventory for the second quarter.
So all the product needed that that were forecasted for the the second quarter are already in place on the ocean coming. So, basically, we having inventory, I think, is important. What's going to happen after that thing last more than two months? We don't know. But so far, I think it's important to be secure with good inventory.
Okay. And Juan, I was just wondering if if you could comment on how you're you're managing your your receivables right now and any any, you know, data points you might have there?
Yeah. We're basically, we're managing the receivable at account by I think account per account. So we've we it's clear with our credit officers that we're we're not taking additional risk with credit limits. So we are we are involved on a day leases, and we make sure that we monitor the accounts receivable on a region by region basis. So far, we did not see any deterioration in terms of of our days sales outstanding.
So it's we're looking at it on a daily basis, as I said. So so far, so good. But, obviously, this is this is definitely a risk that we are taking very seriously and monitoring.
The
next question will be from Zach Evershed at National Bank.
Thank you very much. Congrats on the quarter.
Thanks.
So a lot of the major questions have been asked already. But given the end market uncertainty introduced by the pandemic, what are your CapEx plans for the rest of the year?
Before the pandemic, it was it would have been between 10,000,000 and $12,000,000 So obviously, with everything that happens, the maintenance still needs to occur, but we're going to review any CapEx demand. So it's to answer what it will be, Zach, but it's going to be for sure, it's going to be lower than 10,000,000 to $12,000,000
Understood. And so with CapEx trend and the dividend suspended for now, should we expect M and A activity to also be paused?
Yes. M and A activity will always be part of our strategy. So we're always on the hunt.
I understand.
We should not should not miss a good deal.
I should think that due diligence on the ground might be a little bit difficult at the moment, though.
Yeah. Sure. You're you're exactly right. We're we are on the hunt, but closing closing a due deal to as of today would be obviously very difficult. But but the current environment will probably bring us some more opportunities in the future as well.
So so we'll see. Mhmm.
Perfect. And then moving on to the hours and salary reductions. What what degree are we looking at there in terms of hour reductions and then the cut salaries?
I can say that, over 50% of our employees have been touched by either temporary layoff, part time on reduced renumeration. So, basically, I think that we we've done, what has, what has to be done. And, unfortunately, this is these are not very funny moves to make, but, we did did not have too much choice on that. And I think the next step also is to analyze carefully the opportunity that the government support programs can bring to us. I think Artois and his team would be working on that next week and see what we can get or what we can get from that because retaining our talents is very important.
You know, any company works well because of of its team and is good employees. So, basically, we we pay attention to that, and we pay attention to our people, and we're gonna we're gonna we're gonna see, the best that we can do to retain and to make sure that when the business come back, all our talents are also back, with us and happy at the same time. So but we follow-up that very closely. Actually, we have a cash position, which is positive, and, we will try to maintain that and do our best to, again, I repeat myself, to retain our talents for the long term.
Thank you very much. And one last one for me. You you spoke a little bit to inventory in the supply chain, and the sixty days on water. But, looking looking at the longer term, if we do see a longer duration shutdown, what kind of actions can you take to deal with international interruptions?
Oh, we can cancel some some orders. We can we can change our forecast. Actually, we we the inventory that is coming will come. That's it. But we do before we reorder, we have to make sure that we we adjust our forecast according to whatever the government will will how they will release the various activities that will take place.
So basically, think the best interest of our government, you know, when they made some changes to make sure that the small contractors and manufacturers of cabinets or whatever are going to be back to life because actually, they are needed in the society. If you look at the in Canada and The US, 80% of our customers are small, manufacturers. And these guys, they need to have some work and they need to they need to survive, and they need they need to to move forward. So, hopefully, the government programs will will contribute to, for them for a better start.
That's very helpful. Oh, and then just one for Antoine. We're seeing what looks to be a $3,600,000 lift to EBITDA from the implementation of IFRS 16. Would you say that that's accurate? And do you think that the level will stay fairly steady for Q2?
Yes. Actually, it's the impact on the EBITDA is in the amortization and also in the interest. And the total impact is $4,300,000 If you compare Q1 this year versus with or before IFRS 16, so the impact is $228,000 So the total impact the estimated total impact for 2020 of the IFRS 16 implementation is approximately $1,000,000 on the bottom line.
Thank you very much. I'll leave it there.
Thank you. And your next question will be from John Mowex at CCNL. Please go ahead, John.
Richard, is there any risk that you now have overordered with respect to inventories given, you know, the sales trends you mentioned over the last week?
Even though if that would be the case, that will not be a big problem. Actually, the only things we need is more space to for for to stock those those products that will be in excess of our needs. But I don't see that as a problem because the problem that the product the product that we sell sells, you know, across North America that are needed for the customer, I don't think we have reached the end of the world. The business will come back and go one day or the other. The the inventory might cost some some money to us, maybe maybe but low cost.
Warehousing products temporarily does not cost a fortune, and I think it's safe to have that inventory. The but but the situation though would be to to look after. We what's if that thing lasts forever, we all have a big problem here. But I don't see that as a as a big problem. That could be a a few million dollar, let's say, 5 to $10,000,000 excess of inventory on one.
I don't think that would that could hurt us a lot in terms of cash flows. And regarding the warehousing cost, that that doesn't cost a fortune, and we don't and the inventory that is ordered is good inventory. These are good products that are needed by by all our products in North America. And don't forget that if we have a problem, our competitors also have a problem. If they don't have enough inventory before, and it's important for us to have a to have the good inventory.
Any any concern that you might the inventory itself may be overpriced? I mean, we're seeing deflationary pressures both in resins and in various metals. And I just wondered if you thought there could be a potential impact on margins going forward if we see these deflationary pressures on the raw materials continue?
Yes. You're right. That that we could be impacted by that, by how much? I don't know. But again, all the industry have the same problem.
I guess the next order that we're gonna place for the the the future quarters would be at a lower price. Yes. Temporarily, our margin could be affected by product that we have paid at the right price at the time that we bought it, but that if we reorder now the same product, it would be at a lower price. Yes, that's a risk. How much what what is the impact exactly in dollars?
I don't know. But that has a certain impact. Yes.
And I know you deal with a vast array of customers from very large to very small. Any concern in terms of bad debt, particularly with your small and medium sized private customers?
Yes. I think that we will we all have that concern that we our clients team monitor that very closely. First of all, we could say that 15 to 20% of our sales are for the retailer. That's rather safe. We still have a lot of customers that are still active.
Basically, they make good money and they pay their bills well. And and the other customer that we have very small, I will let Antoine complete, how he sees that. But the small customers taken individually are not big risk. But overall, though, yes, that could represent additional bad debts. We don't know.
We are very conservative. Antoine, I will let you complete that because you have all the numbers in mind.
Yes. We're conservative on the bad debt on the provision, certainly. But we have like I said earlier, we monitor the accounts receivable on a daily basis. We make sure that we do not increase the risk on credit limits. We encourage the payment by credit card.
So there are many things that we're doing and we're monitoring with our credit team. But as of today, as we speak, we haven't seen a deterioration of the of the of the credit. So as we speak, but it's gonna if if there if there is, there will probably be one. It's it's gonna be in the next month or so.
If I may compete with the if I may compete with the the product range that that we sell, actually, our customers, if they have some business or they come back in business, I think it's good for them to pay additional users because, you know, they they need our products. So, in order to have additional product, they would have to pay their bill. That does help. This is what we see that we've seen in the past, and that should be the case again. I think it's a good move for a customer to pay the review in order to have the inventory that they will need to continue their business.
Thank you very much. Thank
you. And currently, mister Law, we have no other questions. Please proceed.
If there's no more question, thanks again. It's always a pleasure to talk to you. Thank you very much for all your good questions, and wish you a good health. Stay safe until we have our next meeting for the next quarter. Thank you very much.
If you need to call us, we're there. Thank you.
Thank you, mister Long. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your line. Enjoy the rest of your day.