Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware Year-End 2018 Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session, which will be restricted to analysts only. If at any time during this call you require immediate assistance, please press star zero for the operator. Also, note that the call is being recorded on Thursday, January 24, 2019. Richard Lord: [Foreign language]
Thank you.
Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the fourth quarter and 12-month period ended November 30, 2018. With me is Antoine Auclair, CFO. As usual, note that some of today's issues include forward-looking information, which is provided with the usual disclaimer as reported in our financial filings. In 2018, Richelieu continued to strengthen its leadership in its key markets in North America.
For the first time in 2018, Richelieu has slightly exceeded CAD 1 billion in sales. We are very pleased with these milestones, together with our EBITDA of over CAD 100 million, and our almost debt-free balance sheet. Thanks to our innovation and acquisition key strategies, our market penetration and development efforts, and the sales synergy with our acquisitions, it's a strong step forward for the future. We are also pleased with the expansion achieved during the year with our two strategic acquisitions in the U.S., which contributed to this year's growth. One allows us to expand and sustain our presence in Florida, where we now have nine distribution centers. The other one strengthens our presence, product offering, and customer base in the important furniture manufacturer market, while adding four distribution centers, three in North Carolina and one in Tennessee.
Over the past five years, we have completed 14 acquisitions that have provided additional annual sales of more than CAD 130 million. Overall, our markets performed well in 2018, and we achieved good growth. Let's look at financial highlights. Fourth quarter sales reached CAD 258.5 million, up by 3.3%, of which 1% was from internal growth and 2.3% from acquisitions. Sales to manufacturers stood at CAD 224.2 million, up by 4.9%, 2.2% from internal growth and 2.7% from acquisitions. In the hardware retailers and renovation superstore market, we achieved sales of CAD 33.3 million, down by 6%. In Canada, sales amounted to CAD 174.6 million, stable with the same quarter of last year. Our sales to manufacturers reached CAD 144.2 million, up by 2.3%.
As for the hardware retailers and renovation superstore market, sales stood at CAD 30.4 million, down by 9.5% due to higher cyclical sales in the same period of 2017 and a substantial decrease in the level of purchases from one major customer in the fourth quarter compared to last year. In the U.S., sales totaled $61.4 million in U.S. dollars, up by 6.3%, 7.2% from acquisition, and an internal decrease of 0.9%, resulting from the termination of a supply agreement with a major customer, as mentioned in the previous quarter. At comparable sales, the internal growth would have been 8.6%. Sales to manufacturers reached $61.1 million in U.S. dollars, up by 5.3%, 7.5% from acquisition, and an internal decrease of 2.2%, up 7.7% at comparable sales. In the hardware retailers and renovation superstores market, sales were up by 30.4%.
Total sales in the U.S. reached CAD 84 million in Canadian dollars, an increase of 10.8%, representing 32.5% of our total sales. Total sales in 2018 reached over CAD 1 billion, up by 6.6%, 2.2% from internal growth and 3.4% from acquisitions. At comparable U.S. exchange rates, in the same period of last year, sales growth would have been 6.9%. Sales to manufacturers reached CAD 851 million, up by 6.4%, 2.4% from internal growth and 4% from acquisitions. Sales to hardware retailers and renovation superstore market stood at CAD 153.5 million, an increase of 7.7%. In Canada, sales totaled CAD 678.3 million, up by 6.9%, of which 4.1% from internal growth and 2.8% from acquisitions. Our sales to manufacturers amounted to CAD 549 million, up by 8.3%, of which 4.8% from internal growth and 3.5% from acquisitions.
Sales to hardware retailers and renovation superstores grew by 1.3% to CAD 128 million. In the U.S., sales amounted to $252.7 million in U.S. dollars, up by 7%, 2.2% from internal growth and 4.7% from acquisitions. They reached CAD 326.1 million in Canadian dollars, up by 5.9%, accounting for 32% of total sales. Sales to manufacturers reached $233.9 million in U.S. dollars, an increase of 4%, of which 4.8% from acquisition and an internal decrease of 0.8% or an increase of 6.2% in comparable sales. Sales in the hardware retailers and renovation superstores market were up by 63.5% in U.S. dollars, resulting primarily from our market development efforts, the addition of new customers, and significant cyclical sales. Fourth quarter EBITDA stood at CAD 29.2 million, compared with CAD 30.1 million last year.
The gross margin and the EBITDA margin were influenced by lower gross margins of certain recent acquisitions due to their different product mix, as well as lower sales in the Canadian retailers market, U.S. market development costs, and the cost of introducing new products.
The EBITDA margin stood at 11.3%, compared with 12% in 2017. For the year, EBITDA was CAD 106 million, up by 2.9%. The gross margin was slightly down from 2017, influenced by lower gross margin of some recent acquisitions due to their different product mix. Considering the continued investment in market development, the reorganization of some distribution centers, the cost of implementing new technology, and the cost of introducing new products, the EBITDA margin stood at 10.6%, compared with 10.9% for 2017. Fourth quarter net earnings attributable to shareholders totaled CAD 18.5 million, compared with CAD 20 million last year.
Net earnings per share reached CAD 0.32 basic and diluted, compared with CAD 0.34 for the same quarter of last year. For the year, net earnings attributable to shareholders reached CAD 67.8 million. Net earnings per share were CAD 1.17 diluted, up by 1.7%. Fourth quarter cash flow from operating activity before net change in non-cash working capital balances were up by 5% to CAD 23.4 million or CAD 0.40 per share. Net change in non-cash working capital balances presented a cash flow of CAD 2.2 million. For the year, they were up 5.6%, totaling CAD 84 million or CAD 1.45 per share. Net change in non-cash working capital balances used cash flows of CAD 42.2 million, mainly due to investment in inventory as a result of adding new products in order to increase sales in the future.
During the year, we paid dividends of CAD 13.8 million, of which CAD 3.4 million were in the fourth quarter, and repurchased common shares for CAD 26.5 million. We have thus distributed a total of CAD 40.4 million to our shareholders in this year. We also invested CAD 21.4 million during the year, of which CAD 9 million was for business acquisition and CAD 12.4 million for equipment to improve operational efficiencies, improvements to some buildings, and IT equipment.
As at November 30th, 2018, cash totaled CAD 7.4 million, and our working capital was CAD 329 million for a current ratio of 4.6 to 1. Turning to our outlook. Our financial strength allows us to pursue our innovation and acquisition strategies. We are very active and currently reviewing some very interesting acquisition opportunities. We continue to focus on operating profitability, efficient integration of our recent acquisition, and market share gains in Canada and in the U.S.
We are very confident to do well in 2019. That concludes my overview. I will now be happy to answer your questions.
Thank you. [Foreign language] Merci. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. Note that questions will be taken in the order received. If you should decide to withdraw your request, please press star followed by two. We do ask that if you're using a speakerphone, to please lift the handset before pressing any key. Please go ahead and press star one now if you have any questions. Your first question will be from Zachary Evershed at National Bank Financial. Please go ahead.
Good afternoon, everyone. How are you?
Good afternoon.
First question for you is on the drop in retailer revenue, which came in at CAD 34 million. Last quarter, we talked about a quarterly run rate of about CAD 40 million. You did mention a decrease in level of purchases from one major customer from last year in your prepared remarks. Did those sales get pushed forward to next quarter, or are they non-recurring?
As I do explain in every quarter, dealing with the hardware retailers, we have to also deal with cyclical sales. Last year, that particular retailer had a tremendous amount of promoting activities that generated a lot of sales in the last quarter. We also believe, it's a belief actually, that they also make some effort to reduce their inventory because they have announced that they're going to close some stores in Canada.
We believe that there is some inventory reduction already taking place for that particular customer. Will that continue for the whole year? I don't think so. I think we have only two quarters to live with that type of situation. After that, we see things coming smooth as usual because we have not lose any product or any space in each of the stores with that particular customer.
Okay. Thanks for the clarification. Moving on to the initiatives and new technology implementation benefits scheduled to appear in Q4, lifting margins. Looks like the impact was maybe masked or more muted than we were expecting. Can you speak to that and what the benefits will look like going forward?
Yeah. The more muted is a good choice of words. I would say that actually we do have the reduction of what we call in our industry the pickers, the people that just pick the items to be shipped to the customer. We do have that reduction, but this is actually offset by the introduction and the incoming of many new products into the inventory that created some turbulence in the receivings and other department in the warehouse. The fact that the place that we have spare due to the incoming of the AutoStore is not finished yet in terms of reorganizing everything. We expect that to go still for a couple of months, but the reduction of the labor that we had to get because of the AutoStore, it's done, it's in the past.
The rest, we don't know what will be the OPEX here in Montreal in the months to come, but it will probably be reduced. To what extent? I don't know. Keep in mind that the AutoStore has done its job. It's working pretty well. I can tell you one thing, though, that's the comment that comes from our operating people actually, that without the AutoStore, the last six months would have cost much more money to operate the warehouse because of the incoming new products and also the increase of sales in some area like the dot-com companies, for example. It's very profitable at the end of the month. It does require much more work in the warehouse because you have more shipping of one, two, three and five items at the same time for one SKU.
It does create more demand in picking efforts in the warehouse. This is very nice because at the end of the year, we're going to have more sales. It's going to be profitable, but we don't have other costs than the operating costs in the warehouse, but we have to live with that.
That's great color. Thank you. A quick one on tariffs for you. Any update on the plan to increase prices to counterbalance tariffs? Have you gotten any kind of feedback from clients?
It's done already. Our margin in the U.S., they take care of the new tariffs. The price has been increased. We have other price increases that will take place in Canada in February. Basically, we keep up with our margin with the increased cost in Canada, if we have any, as well as in the U.S., if we have any.
I see. Thank you. How do you view your capital allocation priorities? You mentioned some very interesting opportunities in the pipeline that you're reviewing. Is M&A and the NCIB still top of the list?
Yeah, M&A is definitely the priority. The pipeline of acquisition is promising and the share buyback is also an option. We have a share buyback program in place. At the end of the day, for cash, priority number one is acquisitions.
Thanks. Appreciate that. One more for me. We'd appreciate any additional color you can give us on your end markets and geographic performance.
Actually, without acquisitions, our sales in Eastern Canada, which is Quebec and the Maritime and Atlantic area. We have to mention to you, though, that Newfoundland market is really very low. It's worse than ever. In spite of that, in Eastern Canada, our sales increased by 2.8%. Our sales in Ontario were flat. Our sales in Western Canada increased by 6%. I think it's a very good performance in the Canadian market without acquisition. I would say if we look per market segment, kitchen manufacturers still bought for 4.4% more. The commercial woodworking, they were flat. We had residential furniture and office furniture that increased by 2%. Basically that's the performance of various market segments. You know well for the retailers in Canada, it's down by 9.7% because of what we have explained earlier.
Very helpful. Thank you very much. That's it for me.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, if you do have any question, please press star followed by one on your touchtone phone. At this time, Mr. Lord, we have no other questions, sir. Oh, I do apologize. We have a question from Valerie at Mackenzie. Please go ahead.
Good afternoon. You mentioned that you have a healthy pipeline of acquisitions. Could you maybe give us some color about the pricing and competition for these assets versus a year ago? Is it more of a buyer's market or seller market?
The multiples are similar to last year. We don't see our competitors making an acquisition. I think, Antoine, do you remember when our competitor, the last acquisition that they made something like five years ago, four years ago? Yeah. When it happens, it's more on the board business. Yeah. Which is their lower margin business. Yeah. We try to concentrate on the hardware business and also to the board business. We try to sell premium panels with which we can achieve much better gross margins. It's not the margin that we can get with hardware. It's very decent at the end of the EBITDA level. The pipeline is healthy. The multiple are similar to last year.
Okay. You probably saw Sherwin-Williams reducing their estimates. I'm not sure if it was weather related. I definitely saw a lot of weakness. When you don't seem to have seen that type of weakness, is it because you are in different markets or painting, I would say, would probably go along with renovation and remodeling?
It's because we keep on investing in new customer development. When you make an acquisition, the first purchase, Richelieu, is to buy a customer list and add some products and add some talents to sell these products and establish the relationship with those customers. That's what we're looking for. We're lucky enough to be in the business where we can do some innovation. I just mentioned a little bit earlier that we have tremendously increased our inventory in the last two quarters of the last fiscal. That's the way to make sure that we have a solid base to increase our sales in the future. Because if we would be the same company that we were 10 years ago, you would not have seen Richelieu at CAD 1 billion sales.
I think we're lucky enough to be in a market where there is a lot of innovation, new market to be conquered, new products to get from around the world, and there is a lot of room still for expansion in the North American market for us. That's the reason why I think we not only had a growth in the past, but we will continue to have a growth in the future because we keep investing. Sometimes we have the trouble that come with, like we don't achieve, as mentioned earlier, the return on the AutoStore because the return is there, but it's been used, I like the word by other expenses in order to improve the business for the future.
Okay. Thank you.
Thank you. At this time, Monsieur Lord, we have no other questions, sir.
Thank you very much to all of you.
Thank you. Ladies and gentlemen, this does 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.