Good afternoon, ladies and gentlemen, and welcome to Richelieu Hardware Third 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. Also note that this call is being recorded on October 7, 2021.
Thank you. Good afternoon, ladies and gentlemen, and welcome to Nishu News conference call for the Q3 9 month period ended August 31, 2021. With me is Antonio Clerc, CFO. As usual, note that some of today's issues include forward looking information, This is provided with the usual disclaimer as reported in our financial filings. In line with previous periods this year, We had a strong Q3 and our 1st 9 months showed solid growth.
In Q3, sales grew to 2 73,000,000 A 20% increase and EBITDA margin reached 17.1%. Our Israel sales were over $1,000,000,000 Our EBITDA reached $163,000,000 We have made early efforts to provide our customers with the most effective support, Especially in this challenging environment. Our business model is very supportive in challenging situations. We are supported by highly efficient logistics, well adapted to our customer needs, our multi channel approach And our one stop interconnect does not American network our one stop shop interconnect does not American network, All this provides our customers with quick and easy access to our products. With our focus on maintaining right inventories In our continuous innovation strategy, we have been able to offer our customers a unique diversity of products and to meet many alternatives Furthermore, thanks to our website, our customers can contribute Many products application according to specific needs, which is also very valuable in these circumstances.
Our manufacturers market performed very well and drove growth in the quarter with internal sales up 23.9%. In Canada, a considerable growth of 35.2% in the U. S. Meanwhile, sales to retailers and immigration superstores I'll now normalize to the pre pandemic business level. This strong performance was reflected in our EBITDA margin And we ended the 1st 9 months with a further strengthened financial position.
We remained focused on our acquisition strategy, OSCAN Industrial Fasteners and Enterco Division 10 as previously announced, followed by 2 more after the quarter: Koch Fasteners, a school and board distributor, operating 1 distribution center in distrover, Ontario, serving industrial markets customer And then Anders Schalklei with a panel distributor operating 2 centers in New Zealand and New Istanbul in Pennsylvania. So far this year, we completed 5 acquisitions that will be adding $75,000,000 of potential annual sales. In addition, we have opened 2 additional distribution centers in the U. S. Since the beginning of the year, 1 in Rochester, upstate New York, which is our 5th center in the state.
And during the Q3, we added 1 in Reading, Pennsylvania, I'll now turn to Aswan for the financial review for the period.
Thanks, Richard. 3rd quarter sales reached $373,300,000 up by 20%, Of which 14.1 percent from internal growth and 5.9% from acquisitions. At comparable exchange rates to last year, Sales increase would have been 23.2%. In Canada, sales amounted to $246,200,000 up by 21.2%, of which 12.9% from internal growth and 8.4% from acquisitions. Our sales to manufacturers reached $205,300,000 up by 32.5 percent, of which 23.9 percent from internal growth and 8.6% from acquisitions.
As for the hardware retailers, Sales stood at $40,900,000 down 14.8%, returning to pre pandemic business level. In the U. S, sales grew to $102,100,000 up 26.7%, 25.2% from internal growth And 1.4 percent from acquisitions. Sales to manufacturers reached US91 $1,000,000 Up 36.7 percent, 35.2 percent from internal growth and 1.4% from acquisitions. The hardware retailers and innovation superstores market sales were down 21.6%.
Total sales in the U. S. $127,100,000 in Canadian dollars an increase of 17.5% and representing 34% of total sales. For the 1st 9 months, sales reached $1,42,000,000 up 28.9 percent, of which 25.1 percent from internal growth and 3.8 percent from acquisitions. In Canada, Sales reached $687,500,000 up by $172,600,000 or 33.5 percent, of which 29% from internal growth and 4.5% from acquisitions.
Sales to manufacturers reached $562,600,000 up by $155,100,000 or 38.1 percent. Sales to hardware retailers and renovation superstores reached $124,900,000 compared to $107,400,000 up 16.3%.
In the U. S,
Sales amounted to $283,400,000 in U. S. Dollars, up 30.4 percent, of which 27.6 From internal growth and 2.8 percent from acquisition. They reached C354,800,000 in Canadian dollars, up by 20.7 percent, accounting for 34% of total sales. Sales to manufacturers totaled 247,300,000 An increase of $63,000,000 or 24.2 percent, of which 30.9% from internal growth And 3.2 percent from acquisitions.
Sales to hardware retailers and renovation superstores were up 9.4% compared to last year. 3rd quarter EBITDA reached $63,900,000 up $14,900,000 or 30.3 percent over last year, resulting from significant increase in sales and continued control on expenses. Gross margin also improved and the EBITDA margin stood at 17.1% compared to 15.8% last year. For the 1st 9 months, EBITDA reached 163,100,000 Up 51.3 percent. As for the EBITDA margin, it stood at 15.6% compared to 13.3% last year.
3rd quarter net earnings attributable to shareholders totaled $38,700,000 up 35.2%. Net earnings per share were 0.69 basic and diluted compared to 0.51 basic and 0.50 dollars diluted last year, an increase of 35.3 and 38%, respectively. For the 1st 9 months, net earnings attributable to shareholders reached 97,200,000 up 67.1 percent. Diluted net earnings per share stood at $1.72 compared to $1.03 up 67%. 3rd quarter cash flow from operating activities before net change in non cash flow came in GAAP amounted to $48,600,000 or 0.86 cents per share, an increase of 27.7 percent, resulting primarily from the net earnings growth.
Net change in non cash working capital used cash flow of $14,900,000 in part due to increased inventories resulting from higher demand and, to a lesser extent, Cost of products. For the 1st 9 months, they were up 47.3 percent, totaling $125,000,000 or $2.22 per For the Q3 of 2021, financing activities used cash flow of $17,300,000 compared to $9,200,000 last year. Dividends paid to shareholders of the corporation amounted to $3,900,000 compared to $2,800,000 in the same period of 2020. We also repurchased common share for an amount of $9,800,000 For the 1st 9 months, financing activities used cash flow of 39.6 $1,000,000 compared to $19,900,000 in 2020. Dividends paid to shareholders amounted to $15,500,000 compared to $7,500,000 last year.
The Q1 of 2021, a special dividend of $0.06 per share was paid In addition to a quarterly dividend of $0.07 per share, we also repurchased common share for a total amount of $13,100,000 in the 1st line month of 2021, while no share repurchase in 2020. During the Q3, we invested $29,600,000 $56,300,000 in the 1st 9 months, of which $44,200,000 for the business acquisition and $12,100,000 primarily for the purchase of equipment to maintain and improve operational efficiency as well as further investments in IT infrastructure. We continue to benefit from a healthy and solid financial position. Cash balance of $66,700,000 almost no debt A working capital of $416,900,000 for a current ratio of 2.3 to 1 and an average return on equity of 21.2%. I now turn it over to Richard.
Thank you, Antoine. In conclusion, we'll continue to provide the best possible support to our North American customers By relying our value added multi channel service and all the strengths that have contributed to the U. S. Leadership. As mentioned last quarter, We have ongoing expansion projects at some of our U.
S. Centers such as Detroit, Dallas, Orlando, Austin, Atlanta, We announced the speed of our future growth in the U. S. And in order to better meet demand and provide the best service possible. We will continue to efficiently integrate our recent acquisition while developing potential synergies.
We will seize new acquisition opportunities as long as they are consistent With our objectives, maintaining strict cost control and making optimal use of our resources also remains a priority. We are confident that we will close this year with strong results, maintaining our successful strategies. Thanks, everyone. And I'll be happy to answer your questions.
Thank you. And if you would like to withdraw your question, simply press star followed by 2. And if you're using a speakerphone, we ask that you please lift the handset And your first question will be from Amir Patel At CRDC Capital Markets, please go ahead.
Hi, good afternoon.
Good
afternoon. Richard, could Could you give us a sense as to how your sales fared in the month of September for manufacturers and retailers?
As mentioned earlier, the sales retailers are down because they normalize. They're getting more close to the And so which is not only the circumstances, which is being confirmed at the point of sales report that we have from our main The manufacturer sales are very strong. It continues to be very strong. I think people what we hear from our sales force actually is that our customers are still very busy and should continue to be busy for a Two quarters because actually some projects have been postponed because of inflation, while many projects are still going on. Those projects that are postponed It should take place after you would see more normal driving because we what we read also is that Both in Canada and where the consumers are somebody at the bank, and I think it's a smart way to spend their money.
And this thing in the kitchen cabinet, the closet and The project that our customers, WSU customers can undertake.
Thanks, Roger. That's helpful. And I want to ask about Supply chain, I guess, 2 ways. So it sounds like you're not seeing the supply chain issues that we're seeing globally affecting Demand, at least from the manufacturer side. But could you comment on how it's your own ability to source product and has that changed the mix of geographic mix of where you're bringing product Ram, and maybe if you can just remind us what that mix is today.
The good news actually, you see while looking at our financial statement that our inventory It's increasing. So that's good news. That means that we can get more products coming in. And actually, I think the business is additionally business model, as mentioned at the beginning of the speech, is very consisting of omni channel in many ways for the customers to reach customers through the web, a quick connection with our sales rep, Which usually on the road, they're not on the road now, but they might be sitting at home because of the COVID, but they are answering to inside one minute, they can't answer Call whatever the customer has punched a button on the website or give a phone call. We also have another people supporting across all the other phones.
And now all these people, they are product specialists. So if customers have one difficulty is acquiring one product. So let's say that one product is not available, Our people, we suggest our customers an alternative product that we do exactly the same job because one of the strength of the issue is to have You know a plan A, B and C and sometimes D in terms of all the product that we sell. So that gives many opportunities to our customers and also all our warehouses I connected together and we have what we call here is an open bar policy actually for our customers. Whatever you have situated in North America, you need the product.
The product is going to come from wherever the product is available to you at our own expense. And this result in strong increase in sales And bottom line, as you can see, so we're quite proud with that strategy and we're also quite proud Of the specialized team that we have and the quick response that we can give to our customers, whatever the question is or the problem is.
And then, Richard, so on that note, in the past, I think you'd previously sort of said 20% of the products come from Asia. Is that Still a good number? Or is that a lower number now just given some of the logistics issues?
In terms of dollar, that's still a good number.
Yes. 20 Asia, 20 Europe and 60 North America.
Perfect. Thanks, Antoine. And just a last question for me. Antoine, as you Start to plan for 2022. Are there any larger capital projects that are worth noting?
Not as we speak. We have of course, we have ongoing expansion projects that we discussed in the last quarter, but We're not talking about material investments. So as we speak, no, it's going to be mainly maintenance CapEx Next year for now. If there's something else, we'll tell you.
Great. Thanks. That's all I had. I'll turn it over.
Thanks.
Thank you. Next question will be from Megan Annette at TD Securities. Please go ahead.
Thank you. Good afternoon. Just looking at the EBITDA margin, very strong again this quarter. Can you just give some color maybe around Cost containment initiatives that might be contributing to that performance, are there any costs you anticipate to maybe come back as we hopefully continue to manage through the pandemic, things like travel. Is there any color you can give us around your margin expectation for Q4?
Yes. The main contributor for this for the EBITDA, Megan, is definitely the sales volume. So that's the main factor. In terms of we're still very rigid in terms of cost control. That's for sure.
Yes, there's a certain portion of those costs that Come back over time, like you just said, the travel and living expenses, we're still Very rigid on those. It will come back. It will not come back at the same level of 2019, but it will some of these costs will come back. So you will you might see a bit of Pressure on the operation expense, but nothing major there. And When we're going to be coming back to a pre pandemic level, the EBITDA could be anywhere between 13.5%, 14%, Something around that, 13.5 to 14.
Okay, great. And then just looking at the inventory position, so Was a pretty sizable increase there. Can you maybe just talk about the rationale for the magnitude of the increase? And Just how are you planning to manage that, assuming you continue to see sales at retail tapering off?
Yes. But with the pressure we have on the service level for sure that we were expecting the inventory to increase, there There's also the impact of the acquisitions as well. So those acquisitions doesn't come without inventory. So they increased the inventory levels. Also, The cost increase had an impact.
So 3 major elements of volume, acquisition and cost increase.
And just to mention also that we're slowing down the purchase for the inventory for the retailers, but that only accounts for 18% of our sales. Many of the products that we sell to retailers, we also sell to the manufacturing side of the business. So that will not be a very big material Reduction of the inventory because of the retailers.
Thank you. That's it for me. Thank you. And your next question will be from Zachary Evershed of National Bank Financial.
Good afternoon. Thanks for taking my questions. Yes.
How long of a tail do
you see on the professional market before it Also pulls back to pre pandemic levels. You mentioned a few quarters given the cost inflation we've seen postponing some projects. Do you have a number in mind?
Will you ever come back to the pre pandemic levels, we don't know, but we see that the issue is market share increasing. I'm quite proud to mention actually that our sales growth in Canada is 25%. It's 35% in U. S. Dollar in the U.
S. So that means that we're capturing more market share. And we also actually, we gained many new customers. And we even refuse we don't assume, let's say, that we're dealing some customer actually that would like to join us, Currently, we'd like to join us. So we have to tell them, give us some more time to establish the right level of inventory, And we will be back to you in 3 months or 4 months from now.
So I think the pandemic Actually, it has been a springboard for Richelieu in order to gain new customers and increase sales to the actual to your current customers. So this is very positive. And with the we also have the acquisition, as a matter of fact. But If we come back to the essence of your question, actually, we expect the quarter the current quarter to be as strong as the one that you have just seen. The Q1 of next year, if you remember well, the growth was not that outstanding in the Q1 of last year, so the growth should be strong.
After that, what we should see is, I would say, the sales in dollar being at the level that we see now plus inflation at least in a month. So that will be valid the second, the third and the 4th quarter, this is what we expect. While the sales to our retailers should be in the same pattern that we see now to the preponder Nicolas deux, which is still Very good numbers. So basically, this is as far as we can see what we can explain to you.
That makes sense. Thank you. And then your inventory is picked up, which is good. But would you say that you're having any difficulty sourcing Certain products and is that constraining your organic growth in Eirikis?
Well, we have the difficulties like anybody else, but I think we're First of all, we have made the first issue that we made at the beginning of the pandemic is not to slow down our purchasing with our inventory. So that's an advance compared to our competitors. And in spite of the difficulties to get the products on time and We have not anticipated to pay extra costs for getting the merchandising from Asia, for example, from Europe. So we've paid containers up to $25,000 and we've paid air freight. I would say most of our competitors would refuse to pay those amounts because they We'll say, hey, we can have a container that $12,000 but the that will delay the delivery for 3 months.
At least we will make the decision on the spot. We're going to put the prototype on the $20,000 and we're going to get the inventory earlier. So and those extra costs I'm not part of the cost of our products. We have not increased our selling price because of those outstanding costs Out of any room cost for bringing the containers here, they are afraid. So we have absorbed so far this year for $5,000,000 Which is included in our expenses and has not been answered as the cost of inventory and has not been answered for increasing our pricing because it does increase the cost of our product These are decisions that we've made container after container in order to make sure that we have I'll call it as early as we can in order to satisfy our customers.
Got you. Thanks. And Then could you just compare and contrast? You have this open bar policy where no matter where it is in the country, your customers will get it and RCH will absorb that cost. And you have RCH absorbing the costs for higher priced containers and air freight as well.
But then you have these fantastic margins reported in the quarter from cost containment and Higher gross margins. So how long do you think you can drive that?
As long as it is We have to do it. As I said, we need to do it. But I don't know what will happen in the months to come, but I don't want to make any further free here. But What we see actually, we see when we read the report for Lowe's and Depot and whatnot in the U. S, I think their sales is all back to the pre pandemic So basically, that should spare some containers and ship to get merchandise for other customers in North America.
Hopefully, that will That should happen. That should happen. Probably after the Chinese New Year, regarding Asia.
Great color. Thanks. And just one last one for me. The acquisition pipeline, how is it shaping up for the rest of the year and for 2022? And with the Pennsylvania acquisition expanding your panel offering, do you see any major acquisition opportunities in similar markets?
Yes. It's still very healthy. So we concluded 5 acquisitions this year. The pipeline It's very interesting either in Canada or in the U. S.
And the acquisition in Reading It's a good one for us, and yes, it's going to open for other opportunities as well. So we're working on very interesting
Thank you very much. I'll turn it over. Thank you.
Thank you. And at this time, Michela, we have no further questions. Please proceed.
Okay. There's no more questions. Thanks again for attending. We'll be happy to talk to you if you need to. So have a nice day.
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 ask that you please disconnect your line.