Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware Year End twenty eighteen Results Conference Call. At this time, all lines are in a listen only mode. But 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 needed assistance, please press 0 for the operator. Also note that the call is being recorded on Thursday, 01/24/2019.
Thank you. Good afternoon, ladies and gentlemen, and welcome to Richelieu's conference call for the fourth quarter and twelve month period ended November 3038. With me is Antoine Eau Claire, 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. In 2018, continued to strengthen its leadership in its key markets in North America.
For the first time in 2018, Richelieu has slightly exceeded $1,000,000,000 in sales. We are very pleased with these milestones. Together with our EBITDA of over $100,000,000 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 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 $130,000,000 Overall, our markets performed well in 2018 and we achieved good growth.
Let's look at financial highlights. Fourth quarter sales reached $258,500,000 up by 3.3%, of which 1% was from internal growth and 2.3% from acquisitions. Sales to manufacturers stood at $124,200,000 up by 4.9%, 2.2% from internal growth and 2.7 In the hardware retailers and the innovation superstores market, we achieved sales of $33,300,000 down by 6%. In Canada, sales amounted to 174,600,000.0 stable with the same quarter of last year. Our sales manufacturers reached $144,200,000 up by 2.3%.
As for the hardware retailers and innovation superstores market, sales stood at $30,400,000 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 customers in the fourth quarter compared to last year. In The U. S, sales totaled $61,400,000 in U. Dollars, up by 6.37.2% from acquisition and an internal decrease of 0.9% resulting from the termination of a supply agreement with the major customers, as mentioned in previous quarter. At comparable sales, the internal growth would have been 8.6%.
Sales to manufacturers reached US61.1 million 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 13.4%. Total sales in The U. S. Reached $84,000,000 in Canadian dollars, an increase of 10.8%, representing 32.5% of our total sales.
Total sales in 2018 reached over $1,000,000,000 up by 6.6%, 3.2% for internal growth and 3.4% for acquisition. At comparable U. S. Exchange rates, the same period of last year in the same period of last year, sales growth would have been 6.9%. Sales to manufacturers reached $851,000,000 up by 6.4%, 2.4% from internal growth and 4% from acquisitions.
Sales to auto retailers and innovation superstores market stood at $153,500,000 an increase of 7.7%. In Canada, sales totaled $668,300,000 up by 6.9%, of which 4.1% from internal growth and 2.8% from acquisitions. Our sales to manufacturers amounted to $549,000,000 up by 8.3%, of which 4.8% from internal growth and 3.5% from acquisitions. Sales to other retailers and renovation superstores grew by 1.3% to $128,000,000 In The U. S, sales amounted to $252,700,000 up by 7%, 2.2% from internal growth and 4.7 from acquisitions.
We reached $226,100,000 in Canadian dollars, up by 5.9%, accounting for 32% of total sales. Sales to manufacturers reached US233.9 million 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 innovation 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 $29,200,000 compared with $30,100,000 last year. The gross margin and the EBITDA margin were influenced by lower gross margin 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 €106,000,000 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 18,500,000.0 compared with $20,000,000 last year. Net earnings per share reached zero three two dollars basic and diluted compared with $0.34 for the same quarter of last year.
For the year, net earnings attributable to shareholders reached $67,800,000 Net earnings per share were $1.17 diluted, up by 1.7 percent. Fourth quarter cash flow from operating activities before net change in non cash working capital balances were up by 5% to $23,400,000 or $0.40 per share. Net change in non cash working capital balances represented a cash flow of 2,200,000,000 For the year, they were up 5.6% totaling $84,000,000 or $1.45 per share. Net change in non cash working capital balances used cash flows of €42,200,000 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 €13,800,000 of which $3,400,000 were in the fourth quarter and repurchased common shares for $26,500,000 We have thus distributed a total of $40,400,000 to our shareholders in this year.
We also invested €21,400,000 during the year, of which €9,000,000 was for business acquisition and €12,400,000 for equipment to improve operational efficiencies and improvements to some buildings and IT equipment. As at November 3038, cash totaled $7,400,000 and our working capital was $329,000,000 for a current ratio of 4.6 to one. 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. So now I'll be happy to answer your questions.
And your first question will be from Zachary Evershed at National Bank Financial. First
question for you is on the drop in retailer revenue, came in at $34,000,000 Last quarter, we talked about a quarterly run rate of about $40,000,000 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 nonrecurring?
Actually, as I explained as I do explain in every quarter, dealing with the hardware retailers, dealing with that, we have to also to deal with cyclical sales. So last year, that particular retailer had a tremendous amount of promoting activities that generated a lot of sales in the last quarter. And we also believe, it's a belief actually, that they also make some efforts to reduce their inventory because they have announced that they're going to close some stores in Canada. So 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. And 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're expecting. Can you speak to that and what the benefits will look like going forward?
Yes. Being 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 receiving and auto department in the warehouse, plus the fact that place that we have spared due to the incoming of the auto stores it's not finished yet in terms of reorganizing everything.
So we expect that to go still for a couple of months. The reduction of the labor that we have to get because of the auto stores, it's done, it's in the past. And 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. But to what extent, I don't know. But keep in mind that the auto stores have done its job, is working pretty well.
And I can tell you one thing though, that's the comment that comes from our operating people actually, that without the auto stores, the last six months would 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 .com companies, for example, that does require it's very profitable at the end of the month. But 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 SKUs. So it does create more demand in picking efforts in the warehouse. And this is very nice because at the end of the year, we're going have more sales, it's going be profitable.
But we don't have other costs than the operating costs in the warehouse, but we have to deal 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? And have you gotten any kind of feedback from clients?
It's done already. So we our margin in The U. S. Will be taken care of the new tariffs. The price has been increased.
We have other price increases that will take place in Canada in February. So 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. Now how do you view your capital allocation priorities? You mentioned some very interesting opportunities in the pipeline that you're reviewing. Is M and A are M and A and the NCIB still top of the list?
Yes. M and A is definitely the priority. So the pipeline of acquisition is promising. And the share buyback is also an option. So we have a share buyback program in place.
But at the end of the day, for cash, priority is 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.
Yes. Actually, we have without acquisitions, our sales in Eastern Canada, which is Quebec and the Atlantic the Maritime And Atlantic area. We have to mention to you though that newfoundland market is really, really very, very low. It's worse than ever. But 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%. So I think it's a very good performance in the Canadian market without acquisition. I would say, if we look for market segment, kitchen manufacturers still bought for point 4% more. The commercial woodworking, they were flat.
We have the residential furniture and office furniture that increased by 2%. And basically, that's the performance of various market segments. And as you know, the retailers in Canada, it's down by 9.7% because of the what we have explained earlier.
Very helpful. Thank you very much. That's it for me.
Thank you.
Thank you. And at this time, Mr. Lau, 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, and we don't see our competitors making an equation. I don't think I think, Aswane, if do you remember when the our competitors, the last acquisition, they made something like five years ago, four years ago?
Yes. When it happens, it's more on the business. The board business, yes.
Which is the lower margin business. We try to concentrate on the hardware business and also to the board business, but 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, but it's very decent at the
end of the year, the EBITDA level. So the pipeline is healthy. The multiple are similar to last year.
Okay. And you probably saw Sherwin Williams reducing their estimates. I'm not sure if
it was
weather related, but I definitely saw a lot of weakness. When you don't seem to see that type of weakness, so is it because you are in different markets or painting, I would say, would probably be, you know, go along renovation and remodeling?
It's because we keep we keep on investing in in new customer development. When we make an acquisition, the first per first, I think, should you use 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 increased we have tremendously increased our inventory in the last February of last fiscal.
But that's the way to make sure that we have a solid base to increase our sales in the future because if we would stayed we would be the same company that we were ten years ago, you would not have seen Richard Gruyere at $1,000,000,000 sales. So this is so 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. There is a lot of room still for expansion in the North American market for us. So 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, like as mentioned earlier, the return on the auto store because the return is there, but it's been muted, I like the word, by other expenses in order to improve the business for the future.
Okay. Thank you.
Thank you. And at this time, Mr. Lau, 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.