TRADING SYMBOL: Toronto Stock Exchange - HDI
Fourth quarter sales up 4.7%, profit per share
increases 14.8%
Dividend of $0.085 per share
declared
LANGLEY, BC, March 19, 2020 /CNW/ - Hardwoods
Distribution Inc. ("HDI" or the "Company") today announced
financial results for the three and twelve months ended
December 31, 2019. HDI is
North America's largest wholesale
distributor of architectural grade building products to the
residential and commercial construction markets, with a
comprehensive US and Canadian distribution network.
Highlights
- Grew Q4 2019 sales by 4.7% and full-year sales by 3.3%
year-over-year
- Gross profit margin percentage increased to 18.3% in the fourth
quarter and 18.1% on a full-year basis, up from 17.3% and 17.7%,
respectively, in the same periods of 2018
- Increased Q4 2019 profit to $6.6
million, or $0.31 per share;
achieved full-year 2019 profit of $29.6
million, or $1.38 per
share
- Generated a record $92.8 million
of cash flow from operating activities in 2019, an increase of
$66.7 million from 2018
- Completed two acquisitions in 2019, adding six new locations
and over $90 million in annualized
sales
- Subsequent to the quarter-end on March
9, 2020, acquired Diamond Hardwoods ("Diamond"), adding two
additional locations in California
and another $8 million in annualized
sales
- Returned $10.3 million of cash to
shareholders in 2019 in the form of dividends and share
re-purchases, while increasing dividend rate for the seventh
consecutive year
- Achieved a net bank debt-to-Adjusted EBITDA after rent ratio of
2.0x and net bank debt-to-capital ratio of just 27%; $69.8 million of unused borrowing capacity as at
December 31, 2019
- The Board of Directors approved a quarterly dividend to
$0.085 per share, payable on
April 30, 2020 to shareholders of
record as at April 16, 2020
"We achieved our tenth consecutive year of growth in 2019,
increasing sales to nearly $1.2
billion, while improving our gross profit margin to 18.1%,
and generating record cash flow from operating activities," said
Rob Brown, HDI's President and
CEO. "Acquisitions played an important role in our top-line
growth, with newly acquired businesses contributing $36.3 million of sales in 2019. Our bottom-line
performance also reflects a strong finish to the year as our
revitalized import program gained momentum and contributed to
improved margins in the third and fourth quarters."
"Importantly, our results underscore the strength and stability
of our business model," added Mr. Brown. "In a year that brought
external challenges including lost sales days and a late start to
the construction season as a result of severe weather, uneven
market sentiment in some US construction markets, and significantly
lower market prices in the hardwood lumber category, we maintained
strong performance and generated very strong cash flow from
operations. Our significant diversification across
geographies, end-markets and product lines, our agility in
responding to challenges, the cash flow efficiency of our business
model and the efficient nature of our working capital all played a
role in our success. Our performance enabled us to increase the
dividend by 6% as announced in November, our seventh increase in
seven years, and return $3.4 million
of cash to shareholders through share buybacks in 2019."
"Moving now into a rapidly changing economic environment, HDI's
size, strength and agility will prove more important than
ever. We do not yet know what the full impact of the COVID-19
situation will be, but we are well prepared to respond to the
challenge. Our balance sheet is in excellent shape and we maintain
significant financial flexibility. Our business is larger, stronger
and more diversified than ever. And we have a business model that
has proved itself through over 60 years of changing economic
conditions."
"As we move forward, we will prioritize the health and safety of
our employees and customers, drawing on our increasing operational
sophistication to adapt our ways of doing business as required. We
will also continue to advance our growth strategy. We have already
announced our first acquisition of 2020, the purchase of Diamond
Hardwoods, which brings us two new locations in California and annualized sales of
approximately US$6 million. Our
acquisitions pipeline will remain active, and with our continued
balance sheet strength, we intend to pursue additional transactions
that complement our internal growth strategies," said Mr.
Brown.
Outlook
While the outlook for US construction markets coming into 2020
was positive, the rapidly evolving COVID-19 situation is having a
significant impact on global economies and could influence
near-term demand levels and disrupt supply chains. The Company is
monitoring this situation closely.
Over the longer term, HDI remains well positioned for
success. As the only North American-wide distributor of
architectural building products, the Company benefits from a large
and diverse geographic network and a comprehensive suite of
architectural building products, including proprietary offerings
from a diverse global supply chain. In addition, HDI has a robust
pipeline of accretive acquisition targets, maintains a strong
balance sheet, and benefits from a business model that generates
significant cash from operations with exceptional cash flow
conversion efficiency.
Moving forward HDI will continue to pursue its business
strategies, which include:
- capturing market growth and market share in the US, leveraging
the platform and significant resources to create competitive
advantages;
- capitalizing on its strong balance sheet and the significant
opportunities in the fragmented distribution market to continue
growing through acquisitions; and
- improving profitability as it enhances and leverages supply
chain and partner management strengths, employs technology-enabled
solutions, and optimizes strategic human resources
capabilities.
Capital allocation priorities for 2020 include:
- Maintaining sufficient capital reserves to weather the impacts
of a potential economic slowdown;
- executing on our acquisitions pipeline;
- continuing to return value to shareholders in the form of
dividends and share re-purchases; and
- ensuring continued strong management of the balance sheet.
On January 8, 2020 HDI renewed its
normal course issuer bid for the coming year. The Company believe
that the underlying share value of HDI may not be reflected in the
current market price of its shares and, as a result, will consider
share repurchases depending upon future price movements, capital
allocation priorities, and other factors.
Annual and Q4 2019 Investor Call
HDI will hold an investor call on Friday
March 20, 2020 at 8:00 am
Pacific (11:00 am Eastern).
Participants should dial 1-888-390-0546 or (416) 764-8688 (GTA) at
least five minutes before the call begins. 1-888-664-6383 or (416)
764-8650 (GTA) at least five minutes before the call begins. A
replay will be available through April 3,
2020 by calling toll free 1-888-390-0541 or (416) 764-8677
(GTA), followed by passcode 099306.
Summary of Results
|
Selected Unaudited
Consolidated Financial Information (in thousands of Canadian
dollars)
|
|
Three
months
ended Dec
30
2019
|
Restated(1)
Three
months
ended Dec
30
2018
|
Twelve
months
ended Dec
30
2019
|
Restated(1)
Twelve
months
ended Dec
30
2018
|
Total
sales
|
$
|
287,830
|
274,986
|
$
|
1,171,921
|
$
|
1,134,267
|
Sales in the US
(US$)
|
193,260
|
182,933
|
779,203
|
766,662
|
Sales in
Canada
|
32,845
|
33,231
|
138,100
|
140,903
|
Gross
profit
|
52,647
|
47,627
|
211,979
|
201,263
|
Gross profit
%
|
18.3%
|
17.3%
|
18.1%
|
17.7%
|
Operating
expenses
|
(42,167)
|
(38,041)
|
(163,721)
|
(150,931)
|
Profit from operating
activities
|
10,480
|
9,586
|
48,258
|
50,332
|
Add: Depreciation and
amortization
|
7,686
|
6,641
|
27,953
|
25,537
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
|
amortization
("EBITDA")
|
$
|
18,165
|
16,227
|
$
|
76,211
|
$
|
75,869
|
EBITDA as a % of
revenue
|
6.3%
|
5.9%
|
|
6.4%
|
|
6.7%
|
Add
(deduct):
|
|
|
|
|
Depreciation and
amortization
|
(7,686)
|
(6,641)
|
(27,953)
|
(25,537)
|
Net finance income
(expense)
|
(2,756)
|
(1,877)
|
(9,158)
|
(7,979)
|
Income tax
expense
|
(1,142)
|
(1,905)
|
(9,520)
|
(10,634)
|
Profit for the
period
|
$
|
6,582
|
$
|
5,804
|
$
|
29,581
|
$
|
31,719
|
Basic profit per
share
|
$
|
0.31
|
$
|
0.27
|
$
|
1.38
|
$
|
1.48
|
Diluted profit per
share
|
$
|
0.31
|
$
|
0.27
|
$
|
1.38
|
$
|
1.47
|
Average Canadian
dollar exchange rate for one US dollar
|
$
|
1.320
|
$
|
1.320
|
$
|
1.327
|
$
|
1.296
|
|
Analysis of
Specific Items Affecting Comparability (in thousands of Canadian
dollars)
|
|
Three months
ended Dec 30
2019
|
Restated(1)
Three months
ended Dec 30
2018
|
Twelve
months
ended Dec 30
2019
|
Restated(1) Twelve months
ended Dec 30
2018
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
amortization
("EBITDA"), per table above
|
$
|
18,175
|
$
|
16,227
|
$
|
76,221
|
$
|
75,869
|
Non-cash LTIP
expense
|
529
|
(261)
|
2,249
|
2,096
|
Transaction
expenses
|
433
|
—
|
509
|
89
|
Allowance related to
duty deposits receivable
|
$
|
—
|
$
|
—
|
$
|
—
|
$ 880
|
Adjusted
EBITDA
|
$
|
19,137
|
$
|
15,966
|
$
|
78,979
|
$
|
78,934
|
Adjusted EBITDA as
a % of revenue
|
6.6%
|
5.8%
|
6.7%
|
7.0%
|
|
|
|
|
|
Profit for the
period, as reported
|
$
|
6,582
|
$
|
5,804
|
$
|
29,581
|
$
|
31,719
|
Adjustments, net of
tax
|
780
|
(267)
|
2,360
|
2,623
|
Adjusted profit for
the period
|
$
|
7,362
|
$
|
5,537
|
$
|
31,941
|
$
|
34,342
|
|
|
|
|
|
Basic profit per
share, as reported
|
$
|
0.31
|
$
|
0.27
|
$
|
1.38
|
$
|
1.48
|
Net impact of above
items per share
|
0.04
|
(0.01)
|
0.11
|
0.12
|
Adjusted basic profit
per share
|
$
|
0.35
|
$
|
0.26
|
$
|
1.49
|
$
|
1.60
|
|
|
|
|
|
Diluted profit per
share, as reported
|
$
|
0.31
|
$
|
0.27
|
$
|
1.38
|
$
|
1.47
|
Net impact of above
items per share
|
0.04
|
(0.01)
|
0.11
|
0.12
|
Adjusted diluted
profit per share
|
$
|
0.35
|
$
|
0.26
|
$
|
1.49
|
$
|
1.59
|
|
|
|
|
|
|
(1) Restated for the
adoption of IFRS 16 - leases. See Section 7.2
|
Results from Operations - Twelve Months Ended
December 31, 2019
For the year ended December 31, 2019, total sales increased
3.3% to $1,171.9 million, from
$1,134.3 million in 2018, a
year-over-year improvement of $37.7
million. The addition of Acquired Businesses contributed
$36.3 million of this growth,
representing a 3.2% increase in total sales, and $23.4 million of the increase related to a
favorable foreign exchange impact from a stronger Canadian dollar
when translating our US sales to Canadian dollars for reporting
purposes. These gains were partially offset by a year-over-year
organic sales decrease of $22.1
million, which represents a 1.9% decrease in total
sales.
Sales from US operations increased by US$12.5 million, or 1.6%, to US$779.2 million, from US$766.7 million in 2018. The Acquired Businesses
contributed sales growth of US$27.4
million, which was partially offset by a US$14.8 million reduction in organic sales.
Organic sales were impacted by softer market conditions in 2019 and
lower prices for hardwood lumber products. Sales in Canada decreased by $2.8 million, or 2.0%, year-over-year.
Demand-supply dynamics and government policy aimed at cooling the
housing market continued to moderate Canadian construction
markets.
Gross profit for the year ended December 31, 2019 increased
5.3% to $212.0 million, from
$201.3 million in 2018. This
$10.7 million improvement primarily
reflects the increased sales and a higher gross profit margin,
which improved year-over-year to 18.1%, from 17.7%. The gross
margin percentage improvement includes the benefit realized in the
second half of the year relating to the Company's re-established
import supply lines.
For the year ended December 31, 2019, operating expenses
were $163.7 million as compared to
$150.9 in 2018. The
$12.8 million increase includes
$7.1 million of operating expenses
from the Acquired Businesses net of transaction costs, $3.3 million of expenses related to the impact of
a stronger US dollar on translation of US operating expenses,
$2.2 million of increased expense
related to a return to a more typical level of bad debt expense,
and $0.2 million of added costs to
support HDI's growth strategy. As a percentage of sales, operating
expenses were 14.0%, compared to 13.3% in the same period last
year.
For the year ended December 31, 2019, HDI reported Adjusted
EBITDA of $79.0 million, as compared
to $78.9 million in 2018.
Contributing to the 2019 results was a $10.7
million increase in gross profit, offset by a $10.6 million increase in operating expenses
(before changes in depreciation and amortization, non-cash LTIP
expense, allowance related to duty deposits receivable, and
transaction expenses)
For the year ended December 31, 2019, net finance expense
increased to $9.2 million, from
$8.0 million in 2018. The
year-over-year increase primarily relates to higher interest
expense on bank indebtedness.
Income tax expense decreased to $9.5
million for the year ended December 31, 2019, from
$10.6 million during the same period
in 2018. The decrease was primarily driven by a lower taxable
income as compared to 2018.
Profit for the year ended December 31, 2019 was
$29.6 million, as compared to
$31.7 million in 2018. The
$2.1 million decrease primarily
reflects the $12.8 million increase
in operating expenses and a $1.2
million increase in net finance expense, partially offset by
the $10.7 million increase in gross
profit and the $1.1 million decrease
in income tax expense. Diluted profit per share was $1.38 as compared to $1.47 in 2018.
Adjusted profit for the year ended December 31, 2019 was
$31.9 million, as compared to
$34.3 million in 2018. Adjusted
diluted profit per share was $1.49,
as compared to $1.60 in 2018.
Results from Operations - Three Months Ended
December 31, 2019
For the three months ended December 31, 2019, total sales
increased 4.7% to $287.8 million,
from $275.0 million during the same
period in 2018, a year-over-year increase of $12.8 million. The addition of Acquired
Businesses contributed $16.8 million
of this increase, representing a 6.1% increase in total sales.
These gains were partially offset by a year-over-year organic
sales decrease of $3.9 million, which
represents a 1.4% decrease in total sales.
Fourth quarter sales from US operations increased to
US$193.3 million, from US$182.9 million in the same period in 2018, an
increase of US10.3 million, or 5.6%. The Acquired Businesses
contributed sales growth of US$12.7
million, partially offset by a US$2.4
million reduction in organic sales. Fourth quarter sales in
Canada decreased by $0.4 million, or 1.2%, year-over-year.
Demand-supply dynamics and government policy aimed at cooling the
housing market continued to moderate Canadian construction
markets.
Gross profit for the three months ended December 31, 2019
increased 10.5% to $52.6 million,
from $47.6 million during the same
period in 2018. This $5.0
million improvement primarily reflects the higher sales and
a higher gross profit margin. As a percentage of sales, fourth
quarter gross profit margin increased to 18.3%, from 17.3%
year-over-year as HDI benefited from re-established import supply
lines and the inclusion of sales from the newly acquired Pacific
Mutual Door operations, which carry a higher gross profit margin
relative to the rest of the business.
For the three months ended December 31, 2019, operating
expenses were $42.2 million as
compared to $38.0 million during the
same period in 2018. The $4.2
million increase includes $3.9
million of operating expenses from the Acquired Business,
transaction costs of $0.4 million,
and $1.1 million of added costs to
support the Company's growth strategy. As a percentage of sales,
fourth quarter operating expenses were 14.6%, compared to 13.8% in
Q4 2018.
For the three months ended December 31, 2019, Adjusted
EBITDA increased to $19.1 million,
from $16.0 million during the same
period in 2018. The $3.1 million
improvement primarily reflects the $5.0
million increase in gross profit, partially offset by the
$1.9 million increase in operating
expenses (before changes in depreciation and amortization, non-cash
LTIP expense, and transaction expenses). Included in EBITDA results
for the quarter is a $0.6 million
reversal of bad debt expense, and a $0.6
million contribution from the Pacific Mutual Door
business.
Profit for the three months ended December 31, 2019 was
$6.6 million, as compared to
$5.8 million in the same period in
2018. The $0.8 million or 13.4%
increase primarily reflects the $5.0
million increase in gross profit, partially offset by the
$4.2 million increase in operating
expenses. Fourth quarter diluted profit per share was $0.31, as compared to $0.27 in Q4 2018.
Adjusted profit for the three months ended December 31,
2019 increased 33.0% to $7.4 million,
from $5.5 million in the same period
in 2018. Fourth quarter Adjusted diluted profit per share was
$0.35 as compared to $0.26 in Q4 2018.
About HDI.
HDI is North America's largest
wholesale distributor of architectural grade building products to
the residential and commercial construction sectors. The Company
operates a North American network of 64 distribution centres, as
well as one sawmill and kiln drying operation.
Non-GAAP Measures - EBITDA
References to "EBITDA" are to earnings before interest, income
taxes, depreciation and amortization, where interest is defined as
net finance costs as per the consolidated statement of
comprehensive income. Furthermore, this press release
references certain EBITDA Ratios, such as EBITDA margin (being
EBITDA as a percentage of revenues). In addition to profit,
HDI considers EBITDA and EBITDA Ratios to be useful supplemental
measures of the Company's ability to meet debt service and capital
expenditure requirements, and interprets trends in EBITDA and
EBITDA Ratios as an indicator of relative operating
performance.
References to "Adjusted EBITDA" are EBITDA as defined above,
before certain items related to business acquisition activities.
"Adjusted EBITDA margin" is as defined above, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. References to
"Adjusted profit", "Adjusted basic profit per share", and "Adjusted
diluted profit per share" are profit for the period, basic profit
per share, and diluted profit per share, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. The
aforementioned adjusted measures are collectively referenced as
"the Adjusted Measures". HDI considers the Adjusted Measures to be
useful supplemental measures of the Company's profitability, its
ability to meet debt service and capital expenditure requirements,
and as an indicator of relative operating performance, before
considering the impact of business acquisition activities.
EBITDA, EBITDA Ratios, and the Adjusted Measures (collectively
"the Non-GAAP Measures") are not measures recognized by
International Financial Reporting Standards ("IFRS") and do not
have a standardized meaning prescribed by IFRS. Investors are
cautioned that the Non-GAAP Measures should not replace profit,
earnings per share or cash flows (as determined in accordance with
IFRS) as an indicator of our performance. HDI's method of
calculating the Non-GAAP Measures may differ from the methods used
by other issuers. Therefore, Non-GAAP Measures may not be
comparable to similar measures presented by other issuers.
Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This news release includes forward-looking statements. These
involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements or
industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements are
identified by the use of terms and phrases such as "anticipate",
"believe", "estimate", "expect", "may", "plan", "will", and similar
terms and phrases, including references to assumptions. Such
statements may involve, but are not limited to: Moving now into a
rapidly changing economic environment, HDI's size, strength and
agility will prove more important than ever; we do not yet know
what the full impact of the COVID-19 situation will be, but we are
well prepared to face challenges; our balance sheet is in excellent
shape and we maintain significant financial flexibility; our
business is larger, stronger and more diversified than ever; we
have a business model that has proved itself through over 60 years
of changing economic conditions; as we move forward, we will
prioritize the health and safety of our employees and customers,
drawing on our increasing operational sophistication to adapt our
ways of doing business as required; we will also continue to
advance our growth strategy; our acquisitions pipeline will remain
active, and with our continued balance sheet strength, we intend to
pursue additional transactions that complement our internal growth
strategies; while the outlook for US construction markets coming
into 2020 was positive, the rapidly evolving COVID-19 situation is
having a significant impact on global economies and could influence
near-term demand levels and disrupt supply chains; over the longer
term, HDI remains well positioned for success as the only North
American-wide distributor in the industry; the Company benefits
from a large and diverse geographic network and a comprehensive
suite of architectural building products, including proprietary
offerings from a diverse global supply chain; HDI has a robust
pipeline of accretive acquisition targets, maintains a strong
balance sheet, and benefits from a business model that generates
significant cash from operations with exceptional cash flow
conversion efficiency; moving forward HDI will continue to pursue
its business strategies, which include capturing market growth and
market share, leveraging the platform and significant resources to
create competitive advantages, capitalizing on its strong balance
sheet and the significant opportunities in the fragmented
distribution market to continue growing through acquisitions, and
improving profitability as it enhances and leverages supply chain
and partner management strengths, employs technology-enabled
solutions, and optimizes strategic human resources capabilities;
Capital allocation priorities for 2020 include include maintaining
sufficient capital reserves to weather the impacts of a potential
economic slowdown, executing on our acquisitions pipeline,
continuing to return value to shareholders in the form of dividends
and share re-purchases, and ensuring continued strong management of
the balance sheet; the Company believes that the underlying share
value of HDI may not be reflected in the current market price of
its shares and, as a result, will consider share repurchases
depending upon future price movements, capital allocation
priorities, and other factors.
These forward-looking statements reflect current expectations of
management regarding future events and operating performance as of
the date of this news release. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not such results
will be achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward-looking
statements, including, but not limited to: national and local
business conditions; political or economic instability in local
markets; competition; consumer preferences; spending patterns and
demographic trends; legislation or governmental regulation;
acquisition and integration risks.
Although the forward-looking statements contained in this news
release are based upon what management believes to be reasonable
assumptions, management cannot assure investors that actual results
will be consistent with these forward-looking statements. The
forward-looking statements reflect management's current beliefs and
are based on information currently available.
All forward-looking information in this news release is
qualified in its entirety by this cautionary statement and, except
as may be required by law, HDI undertakes no obligation to revise
or update any forward-looking information as a result of new
information, future events or otherwise after the date hereof.
SOURCE Hardwoods Distribution Inc.