Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware Fourth Quarter Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session, which will be restricted to analysts only. At any time during this call, you require immediate assistance, please press 0 for the operator. Note that this call is being recorded on Thursday, 01/23/2020.
Thank you. Good afternoon, ladies and gentlemen, and welcome to our Richelieu's conference call for the fourth quarter and twelve month period ended November 3039. With me is Antoine Auclair, CFO. 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. The fourth quarter benefited from the impact of our acquisitions completed in Canada during the year.
These new acquisitions have a good potential and they expand our reach in some specialized markets. Combined with our market development and innovation strategies, they contributed to generate sales growth of 2.4%, which is welcome given the slowdown especially in Western Canada and the challenges we were facing with the hardware retailers. These acquisitions contributed well to our performance in the manufacturers market. But in the retailers market, sales were down due to the condition we explained in previous quarter, mainly store closure and inventory alignments of some of our retailers' customers retailing customers. Cyclical sales were also lower in the fourth quarter.
It has to be noted that our EBITDA margin continued to improve during the period, reaching 11.8%, thanks to rigorous control of gross margin, operating and freight costs. EBITDA for the quarter increased by 6.8% and net earnings by 5.6%. I'll now ask Antoine to go through the financial highlights on the fourth quarter and fiscal twenty nineteen, and I will come back with additional comments. Antoine? Thanks, Richard.
Fourth quarter sales reached €265,000,000 up by 2.4%. Sales to manufacturers stood at €233,500,000 up by 4%, 0.6% from internal growth and 3.4% from acquisition. In the hardware retailers and renovation superstore market, we achieved sales of $31,500,000 down by 8.2%. In Canada, sales amounted to $179,000,000 an increase of $4,100,000 Our sales to manufacturers reached $150,400,000 up by 4%. As for the hardware retailers and renovation superstores market, sales stood at $28,600,000 down by 5.6%.
The general slowdown felt in this market during the 2019 continued to have a downward effect on sales in the fourth quarter. In The U. S, sales totaled $65,650,000 up by 1.4% resulting from internal growth. Sales to manufacturers reached US62.8 million dollars up by 2.8%. In the hardware retailers and renovation superstore market, sales were down 26.7% for the quarter, mainly caused by lower cyclical sales, but are up 4.8% for fiscal twenty nineteen.
Total sales in The U. S. Reached 86,000,000, an increase of 2.5%, representing 32.4% of our total sales. Total sales in 2019 reached CAD $1,042,000,000, up by 3.7%, 0.1% from internal growth and 3.6% from acquisitions. Sales to manufacturers reached $898,000,000 up by 5.5%, 1.2% from internal growth and 4.3% from acquisitions.
Sales to hardware retailers and renovation superstores stood at $143,800,000 down by 6.1%. In Canada, sales totaled $685,700,000 up by 1.1%, of which 3.2% from acquisition and 2.1% from internal decrease. Our sales to manufacturers amounted to $568,000,000 up by 3.4%, of which 3.9% resulting from acquisition and 0.5% from internal decrease. Sales to hardware retailers and renovation superstores were $129,000,000 down by 8.8%. The slowdown in this market, mainly in the first half as well as the closure of several stores over major customers impacted sales downwards.
In The U. S, sales amounted to US267.8 million dollars up by 6%, 1.6% from internal growth and 4.4% from acquisitions. They reached CAD356 million, up by 9.2%, accounting for 34% of our total sales. Sales to manufacturers reached US248.1 million dollars an increase of 6.1%, of which 4.7% from acquisition and 1.4% from internal growth. As reported in previous quarters, the internal growth in the manufacturers' market was affected in the first quarter by the termination of a supply agreement with a major customer.
At comparable sales level, internal growth in this market would have been 3.2%. Sales in the hardware retailers and renovation superstores markets were up 4.8% in U. S. Dollar. Fourth quarter EBITDA stood at $31,200,000 compared with $29,200,000 last year.
EBITDA margins stood at 11.8% compared with 11.3% for the fourth quarter of twenty eighteen, resulting from improvement in gross margin and operating costs. For the year, EBITDA was $109,500,000 up by 3.3%. Gross margin and EBITDA margin remained stable with 2018. Fourth quarter net earnings attributable to shareholders totaled $19,500,000 compared with $18,500,000 last year. Net earnings per share reached $0.34 basic and diluted compared with $0.32 for the same quarter last year, an increase of 6.3%.
For the year, net earnings attributable to shareholders reached $67,500,000 Net earnings per share were $1.18 diluted, up 5.9%. Fourth quarter cash flows from operating activities before net change in non cash working capital balances were up by 6.9% to $24,800,000 or $0.43 per share. Net change in non cash working capital balances represented a cash inflow of $7,900,000 For the year, they were up 2.3%, totaling $86,000,000 or $1.5 per share. Net change in non cash working capital balance represented a cash inflow of $2,400,000 while $41,500,000 of cash flow was used in 2018. During the year, we paid dividends of $14,400,000 of which $3,600,000 were in the fourth quarter and repurchased common share for $25,200,000 We have thus distributed a total of $39,600,000 to our shareholders this year.
We also invested $31,300,000 during the year, of which $20,800,000 was for business acquisitions and $10,600,000 for equipment to maintain and improve operational efficiency and for IT equipment. As at November 3039, cash totaled $24,700,000 and our working capital was $250,000,000 for a current ratio of 4.7 to one. I'll now turn it over to Richard.
Thank you, Antoine. 2019 was a very active year. We continued our efforts to expand and develop markets, which included strengthening our presence in specialized market through our recent acquisition, such as door and window hardware, architectural hardware for stair and wheeling, including stainless steel and glass. Under our innovation strategy, we continue to broaden and diversify our product offerings to stay ahead of trend. In early December, we opened a new distribution center in Montlorel, a suburb of Philadelphia.
This new center houses a wide range of premium decorative panels for this region. The implementation of our new center in New York is well underway. We anticipate that the official opening of the showroom will hopefully take place before the end of the second quarter. This key location with a state of the art showroom for our customers and the New York community of architects and designers is designed to serve as a friendly workspace where they can obtain detailed and complete information about Richelieu's product and services. We continue to improve our operational efficiency and customer service.
We manage our supply chain, taking advantage of the best practices and technologies in order to minimize costs and maximize customer satisfaction. Our highly effective and reliable auto store system is now expanding. We further invest in initialio.com, which is used extensively by our customers in both Canada and The U. S. Our online sales are growing and now reach about 39% of our sales in Canada and 28% in The U.
S. We are pleased to have started fiscal twenty twenty with two new acquisitions. On 12/09/2019, we acquired DecoTech, a distributor of decorative panels and related products with a distribution center in the Toronto suburb of North York and Mybro, a distributor of hardware products and power tool accessories for the retailers market. MyBro has been the leader in its field for over sixty five years and serves a wide range of customers in Canada and in The U. S.
From two distribution centers located in Toronto and Buffalo. The integration of MyVault enables us to broaden our offer to hardware retailers both in Canada and in The U. S. Where their annual sales are approximately $15,000,000 in U. S.
Dollars. This also reinforces our sales force and product management team in this market. We already started our integration process and we'll take necessary action in order to gradually improve the profitability and take it to an acceptable level as per the revenue standards. Combined with the four acquisitions completed in fiscal twenty nineteen, we add approximately $70,000,000 in annual sales. We also recently signed an agreement in principle to acquire a U.
S. Distributor operating in new strategic regions for Richelieu. This transaction should generate additional sales of approximately US15 million dollars on an annual basis. Our strong network now includes 80 centers, 43 in Canada and 37 in The U. S.
In 2020, we will remain focused on innovation, outstanding customer service, market share gain in Canada and in The U. S, new synergies, operational efficiency and profitability and new acquisition opportunity. The result would be to continue to create long term value for Richelieu and its shareholder. Thanks, everyone. We'll now be happy to answer your questions.
Thank And your first question will be from Amir Patel at CIBC. Please go ahead.
Hi, good afternoon. Richard, could
you for the acquisitions that are expected to close in Q1 that you've already announced, the $40,000,000 that has closed and that sort of $15,000,000 of sales under the agreement, What's the purchase price associated with those three transactions?
It's around $23,000,000 Anir. I'm talking about the two acquisitions closed in December.
Okay. And what about the one in principal? Is there a figure for that one yet?
It's too early for us to talk about that.
Okay. Fair enough. And Richard, you referenced for the one under the agreement in principle that it's going to expand Richelieu into a new strategic region. Any more color you can give on which part of The U. S.
Or North America that expansion is going to take place?
I think this is according to our strategy in The U. S. To continue to our market penetration to get new DCs in new regions where we can expand our product offering and increase our sales and create more value for the future in the long term as well by expanding our network in this country. And that should continue on for the months to come as well with the same strategy.
Right. Okay. So is that sort of U. S. South, U.
S. West, anything you can
It's hard to tell because it's a
very small market. You have to
tell where it is, the competitors and since this is very confidential, that will be easy for people to guess who we're talking about in The U. S. Market.
Okay. Okay. Fair enough.
Then Sorry just about that.
That's okay. Final one for me for now. The retailer market for Canada and The U. S, when would you expect each region to get back to positive comps?
We don't think the for the next two quarters, this market to be positive for Fisher U. Both in Canada and The U. S. But with the acquisition of MyBrodo, we are well, not only expanding, creating I think we're to develop almost develop our sales to the hardware retailers in The U. S.
And also we a new sales team is joining us that is very active in The U. S. As well as in Canada. And we expect in the months to come some very, very good synergies in terms of increasing our sales in both countries using the sales forces that we both have and combining the best that we can. So basically, we're happy about that acquisition for the good value it does represent for Richelieu for the midterm and the long term.
Great. Thanks. That's all I have for now. Get back in queue. Thank
you. And your next question will be from Zach Frischoff at National Bank. Please go ahead.
Good afternoon. Congrats on the quarter.
Thank you.
Especially the margin improvement year over year, that's three straight quarters now. Can you tell us a little bit about which initiatives are helping out with improving gross margins and reducing operational costs?
Actually, have a tight control over the gross margin. So it's been the it's always been tight, but this year, we've paid a special attention for the timing of the price revision when they have to be revised. Regarding the expenses, before acquisition, we have decreased slightly, very slightly our operating expenses in North America. And regarding the freight costs, we had as I have mentioned last year and a few times during the course of last year as well, that we have established some tight control and we have not only we have stabilized, but we have slightly decreased as a percentage of our sales, have slightly decreased the cost of the freight, and we continue to work on that. I think the cost of the freight is a major issue for all companies in the world.
So basically, that does remain a very important item for us to keep an eye on. So we're happy with the end result. That is an increase in our EBITDA margin.
That's great color. Thank you. Do you think 12% EBITDA margins are achievable over the next couple of years, given your current infrastructure and geographic network?
Everything could be achievable. But if we look at the long term, we have to make sure that we remain reasonable with our pricing, that our marketing strategy is sound with what we've done and what we our customers expected. But pretty much, it's a top priority for Vishalu to maintain our margin. And I cannot commit it well, but we have that in mind too.
Beautiful. Thank you. And then moving on to organic growth, quite weak there, and that's lapping a soft Q4 last year. You mentioned that retailer sales won't hit positive comps for maybe two quarters. But what can you tell us about your view on internal growth in 2020 for the company as a whole?
It's hard to tell. I think we have aggressive we have an aggressive plan, as Richard you. We expect to have a growth a reasonable growth. I cannot commit on any number, but that's our goal. Regarding the hardware retailers, basically that's something which is out of our control.
You know that one of our big customers is closing 34 more stores. They actually is doing that at this time. So it does create some I would say, some sales decrease for a while in the retailer market. In the long term, it does not anything for us because we sell to all the customers in Canada. So sales should go somewhere else.
But for the time being, this big customer doesn't buy and reshuffle the inventory in other stores. So that's affect the market. We also I was reading in the paper this morning that Mr. Poloz was talking yesterday or the day before to the market. And I think now they realize that Canada it's all over Canada.
The retail sales are difficult since a few months. So this is what we see with our customers. Mainly we've seen that mainly for the first two quarters of the last year. And the last two quarters were a little bit better, but it's not what we used to see. Anyways, we just hope that things will improve over the months.
But for the next two quarters, we don't expect anything positive for the retailers. Regarding the manufacturers, we see now that Western Canada is getting worse. This is what we see in the last month and the month before. And the Quebec should remain stable as well as Ontario, but the Western Canada is going to affect our sales in total. That would take, I think, an important decrease of the sales.
We're talking here about maybe 10% decrease, something like that. So even though we do not represent a high percentage of our sales, the end, it does have an impact. So that's something that we live with. But in The U. S, we expect to have a good year.
We have a good start in The U. S. For the beginning of this new year, and we expect to have a decent growth for the whole year for the manufacturers. For the retailers, the forecast is a bit more difficult. It's going to be very positive because of MIMO.
But for the rest of the market, I think the basic market that we have should be will be positive. But the cyclical sales with the big the store that we're talking about here, we never know from one quarter to the other what's going to happen.
That's extremely helpful. Thank you. And then just one last point for me. The acquisitions, very busy with DecoTech and Mybro. How long have you been working on those ones?
Mybro was at the something that has been opened about ten years ago here. So we have opened and closed the file for a couple of time before we're finally, we've got a deal that we think it's a very interesting fit for Vishalu. We're happy that it's done now. DecoTech has been very quick. I think When you It took a month or a month and a half?
Oh, wow. Okay. So then how's the pipeline looking going forward? Do you have anything maybe the size of another Mybro or maybe a Weston that you're looking to get across the finish line?
No, it's still there's the one in The U. S. The pipeline is still healthy in Canada and also in The U. S. And it's we're talking about pretty much the same kind of profile of company that we've acquired.
So we have nice things in front of us.
Next question is a follow-up from Amir Patel.
Richard, you referenced Western Canada manufacturer sales could be down, I think you said 10% in 2020. What percent of your manufacturer sales is Western Canada again?
About 6% or 7% of our sales, not Western?
Yes. It's slightly higher than that. It's around 10%.
For the sales manufacturers? Sales manufacturers. Okay. Yes.
Okay, great. No, that's helpful. And Richard, you also referenced, I think, some sort of the order store continuing to expand. So how do we think about CapEx for 2020?
CapEx will be similar to 2019, I mean, so between 10,000,000 and $11,000,000
old store deal, new investment is not very high because we already have made all the software that was associated with the addition of store here. So really what we have to do is we need to to get the space and and build the the the the module that has to be built in order to install the the expansion, but we don't have any software expenses and whatever IT many IT people involved in that type of thing. So that should be an easy one.
Great. Thanks. Antoine, I know we're probably not going get the MD and A for a few weeks, but how do we think about Q1 will be your first quarter under IFRS 16. So what sort of EBITDA impact and lease liabilities should we be factoring in?
Yes. We're still we're going to be finalizing Q1 impact, but we're talking about close to $70,000,000 of addition on the asset side and liability as well. And in terms of potential impact on the bottom line, it's for 2019, it's around $1,000,000 lower profits for 2019. So we'll see for Q1 and 2020, but that's the impact on 2019.
Sorry. And then the so EBITDA impact for
Okay.
The EBITDA impact, it's 15,000,000
one-five, okay.
One-five, yes. 15,000,000 increase in EBITDA and an impact on the amortization and interest.
Okay, great. That's all I had. I'll turn it over. Thanks.
Thank you. And at this time, Mr. Lal, we have no other questions. So I would like to turn the call back over to you, sir.
Well, thank you very much, everyone. We'd be happy to receive your phone call if you have any further questions. Thank you very much. Have a good afternoon.
Thank you. 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 lines. Enjoy the rest of your day.