At tuned to
WorldWide
innovationS
Partner in
YoUr SUcceSS
w w w . R i c h e l i e u . c o m
2 0 1 6 A n n u A l R e p o R t
At tuned to
woRldwide innovAtionS
innovation is a complex process
requiring creativit y, investments, and
a sustained commitment on the part
of manufacturers of functional and
decor ative hardware products and
solutions. as technology and design
evolve, residential and commercial
renovation and construction projects
evolve along with them, constantly r aising
the bar for functionalit y and qualit y.
as a leader in global innovation, richelieu makes
change happen.
through our commitment to investing in innovation
and the solid partnerships we have built with
leading international manufacturers, we keep
the north american market in step with global
developments. through our service, we provide our
customers with access to innovations that meet the
highest standards of technology and design.
For us, innovation is the foundation for growth,
as it is for our customers.
tAble
of
contentS
f i n a n ci a l h i g h l i g h t s
p r o f i l e
m es s ag e to s h a r eh o l d ers
d i r ec to rs a n d o f f i c er s
m a n ag em en t ’s r ep o r t
m a n ag em en t ’s a n d i n d ep en d en t au d i to r s ’ r ep o r t s
co n s o l i dat ed stat em en t s o f f i n a n ci a l p o s i t i o n
co n s o l i dat ed stat em en t s o f e a r n i n g s
co n s o l i dat ed stat em en t s o f co m p r eh en s i v e i n co m e
co n s o l i dat ed stat em en t s o f c h a n g es i n eq u i t y
co n s o l i dat ed stat em en t s o f c a s h f lows
n ot es to co n s o l i dat ed f i n a n ci a l stat em en t s
3
4
5
9
24
36
37
38
38
39
40
41
transfer agent and Registrar
Computershare trust Company of Canada
auditors
ernst & Young LLP
800 René-Lévesque Blvd. West
Suite 1900
Montreal, Quebec, H3B 1X9
Head office
Richelieu Hardware Ltd.
7900 Henri-Bourassa Blvd. West
Montreal, Quebec, H4S 1V4
telephone: 514 336-4144
Fax: 514 832-4002
the annual meeting of shareholders will be held on april 6, 2017 at 10:30 a.m.
at the omni mont-royal hotel, 1050 sherbrooke street west, montreal, quebec.
Printed in Canada
1
Partner
in SucceSS
We serve over 80,000 aCtive
Customers in north ameriCa.
earning and keeping their satisfaction
and trust is why we are in business.
VISION – CRE ATIVIT Y –
RIGOUR – DISCIPLINE
h ave been our watchwords since day
one, guiding our actions with respect
to our four pill a rs of grow th:
our customers, employees, suppliers,
a nd sh a reholders.
our vision is that of a customer-and innovation-driven
corporation focused on long-term growth and value
creation.
Creativity is inherent to every aspect of the services,
products, and solutions we provide. it’s the key to our
efficiency and is what sets us apart.
rigour is a value we put into practice every day through
our attention to details, quality execution, ethical and
transparent management, and social and environmental
responsibility.
DisCipline underpins our acquisition and integration
strategy and enables us to meet our goals of financial
stability and service quality and stay true to our corporate
culture, while still respecting the identity of each company
we acquire.
2
A GROWTH STRATEGY
THAT ENSURES STABILITY AND SOLIDIT Y
sales
(in millions $)
844.5
749.7
equity
Debt
(in millions $)
394.3
366.8
646.9
565.8
586.8
313.6
293.1
287.9
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
2,6
2
1
0
2
3
1
0
2
1,4
5,4
4
1
0
2
5
1
0
2
3,6
6
1
0
2
4,9
net earnings per share
attributable to
shareholDers (DiluteD)
(in $)
0.88
1.07
0.99
0.74
0.72
Cash floWs from
operating aCtivities (1)
(in millions $)
73.3
68.1
60.3
55.0
54.4
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
(1) Cash flows from operating activities is a non-IFRS measure,
as indicated on page 26 of this report
stoCk market performanCe
(in $)
27
24
21
18
15
12
9
6
3
0
Appreciation: 13.7% in 2016
RCH compound annual return: 17.1%
TSX compound annual return: 6.0%
$26.95
(30-11-2016)
Market capitalization
as at November 30, 2016: $1.5 B i LLi O n
Appreciation in share price (RCH)
since initial stock listing: 3,6 82%
Total return on share / 10 years*: 281.7%
2-for-1
share splits
3-for-1
share split
Effective
February 29, 2016
Average annual return
on share / 10 years*: 14.3%
*Including dividend reinvestment
1996 97
98 99 00 01 02 03 04 05 06 07 08 09 10 11
12 13 14 15 2016
3
FINANCIAL HIGHLIGHTS
YEARS ENDED NOVEMbER 30
(in thousands of $, except per share amounts, number of shares and data expressed as a %)
Sales
EbITDA (1)
EbITDA margin (%)
Net earnings
Net earnings attributable to the
shareholders of the Corporation
• basic per share ($) (3)
• diluted per share ($) (3)
Net margin attribuable to the
Shareholders of the Corporation (%)
Cash flows from operating activities (2)
• diluted per share ($) (3)
Dividends paid to shareholders
• per share ($) (3)
Weighted average number of shares
outstanding (diluted) (in thousands) (3)
As at November 30
Total assets
Working capital
Current ratio
Equity
Return on average equity (%)
book value ($)
Total debt
Cash and cash equivalents
2016
$
844,473
94,422
11.2
63,013
2015
$
749,646
87,681
11.7
58,878
201 4
$
201 3
$
2012
$
646,909
586,775
565,798
77,417
12.0
52,573
70,373
12.0
46,657
71,163
12.6
45,909
62,814
58,739
52,393
46,403
45,404
1.08
1.07
7.4
73,296
1.25
12,374
0.213
1.00
0.99
7.8
0.89
0.88
8.1
0.75
0.74
7.9
0.72
0.72
8.0
68,052
60,253
54,978
54,403
1.15
11,717
0.200
1.01
11,023
0.187
0.88
10,768
0.173
0.86
10,026
0.160
58,781
59,343
59,754
62,790
63,411
486,046
449,792
390,721
280,747
260,579
214,866
4.4
4.4
4.0
356,325
204,117
4.5
349,869
200,088
4.6
394,268
366,807
313,553
293,114
287,942
16.6
6.81
4,864
42,969
17.5
6.19
3,580
29,454
17.5
5.27
5,354
33,721
16.2
4.80
1,354
46,187
16.9
4.55
2,563
51,587
(1) EbITDA is a non-IFRS measure, as indicated on page 26 of this report.
(2) Cash flows from operating activities and cash flows from operating activities per share are non-IFRS measures, as indicated on page 26
of this report.
(3) All share data in this report have been restated to reflect the impact of the three-for-one split of all common shares effective February 29, 2016.
2012-2016 — 13 acquisitions
2016
Cabinetmakers Supply, Inc. (Houston, Texas)
JFH Corporation (Memphis, Tennessee)
Eveready Hardware Manufacturing Co, Inc.
(Long Island City, New York)
Neils Sorenson Hardware, Inc. (Portland, Maine)
2015
bD Enterprises, Inc. (Single Source Cabinet Supplies)
(Dallas, Texas)
2014
Procraft Industrial Ltd. (Maritime Provinces, Canada)
Pleasantside Distribution Ltd. (Western Canada)
CabinetWare, Inc. (Florida)
XM Export-Import Canada Inc. (Quebec)
Thruway Hardwood and Plywood Corp. (New York State)
2013
Hi-Tech Glazing Supplies (Vancouver)
CourterCo Savannah LLC (Georgia)
2012
CourterCo Inc. (Indiana, Kentucky, North Carolina)
4
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p
NORTH AMERICAN LEADER
in the import, distribution, and manufacturing
of specialty hardware and complementary products
PROFILE
we serve over 80,000 Customers: manufacturers
of kitchen and bathroom cabinets, storage and closets,
and home and office furnishing; residential and commercial
woodworkers; and hardware retailers, including renovation
superstores.
sheets and edgebanding products, a wide selection of
decorative mouldings, and components for the window
and door industry. in addition, many of our products are
manufactured according to our specifications and those
of our customers.
we employ over 2,000 people approximately half of
whom work in sales and marketing, and over 50% of our
employees are corporate shareholders.
we offer over 110,000 proDuCts (sKus) in a wide
variety of categories, including decorative and functional
hardware for: furniture, glass, and buildings; lighting
systems; finishing and decorating products; ergonomic
workstations; kitchen and closet storage solutions; sliding
door systems; decorative and functional panels; high-
pressure laminates; and floor protection products. our
two subsidiaries, les industries cedan inc. and menuiserie
des pins ltée, round out our offering with product lines
boasting unique features, including a variety of veneer
we operate a network of 69 Centers, including
showrooms and two manufacturing plants in north
america. our diversified product offering, one-stop-shop
service approach, and efficient logistics, combined with the
multiple advantages of our transactional website, optimize
customer response time.
our website, richelieu.com, is available in three
languages and is the leading tool of its kind in the industry.
it was designed to facilitate our customers’ projects and
transactions and provide users with information on our
entire range of products—the most comprehensive and
innovative in north america.
5
2016: GROWTH
AND FINANCIAL STABILITY
are the result of our customer-driven approach and rigorous
implementation of our innovation, service, market development,
and acquisition strategies.
riCharD lorD
president and chief executive officer
in 2016, We ContinueD to Deliver groWing
results — With a strong balanCe sheet
— anD We CompleteD four strategiC
u.s. aCquisitions WhiCh are generating
synergies through their integration
proCess.
finanCial stability is a funDamental
value at riChelieu. it is What enables
us to Continue investing in innovations,
serviCe, anD business aCquisitions in
orDer to Create long-term value for our
Customers, employees, suppliers, anD
shareholDers.
all of our north american market segments contributed
to the 12.6% increase in total sales for 2016, 10.4% of
which was internal growth. our two major markets
— manufacturers and retailers, including renovation
superstores — saw increases of 13% and 10.9%,
respectively. canadian markets produced solid internal
growth of 8.8%, while u.s. sales grew by 15.1% (us$),
8.2% of which came from internal growth and 6.9% from
acquisitions, representing 33.8% of total sales for the
fiscal year.
we paid out nearly 20% of net earnings in dividends
and distributed a total of $35.5 million to shareholders,
including share repurchases, while pursuing our
operational and expansion investment program. with
working capital of $280.7 million, $43 million in cash,
and almost no debt, we have further strengthened our
capacity to seize future opportunities. shareholders
benefited from a 13.7% rise in the richelieu share price
over the year and have seen share value grow by an
average of 13% per year over the last decade, bringing
our market capitalization to $1.5 billion in 2016.
6
our strategy of Constant innovation
our DistinCtive serviCe is key to our
alloWs us to offer our Customers
groWth anD is baseD on a business moDel
the very best proDuCts anD solutions
aDapteD to the neeDs of our Customers
available in the inDustry.
anD on our ability to listen, innovate,
innovation is the leaDing Driver of
anD Deliver quality.
our groWth, anD the CommerCial anD
We take a Customer-Driven approaCh to
resiDential renovation inDustry remains
skills management at every level of the
our main sourCe of inCome.
organiZation.
Innovation in functional and decorative
hardware products and solutions has been
driving the renovation and construction
industry forward for decades now, and the
future promises even more exciting changes
as we look forward to new generations of
products and high-quality innovative systems.
our customers, manufacturers, and retailers are
looking for solutions to optimize their residential
and commercial projects and stay a step ahead
of their clientele. they can count on richelieu’s
commitment and expertise to create the added
value that helps them differentiate and keeps
their customers coming back for more.
with our leadership and strategy of innovation,
we continue to drive change in north america’s
specialty hardware industry. we remain
committed to our customers and attuned to
worldwide innovation through our strategic
partnerships with some of the world’s most
innovative and demanding manufacturers, and
with architects and designers who are also
partners for change.
our offering grew again in 2016, with new
products that combine enhanced functionality
with innovative and balanced styling for the
residential and commercial markets. we remain
the product leader in many categories, including
closets, sliding door systems, retractable storage
solutions for small living spaces, state-of-the-
art lighting systems and products for glass, and
unparalleled selection of avant-garde decorative
panels and extensive range of ergonomic
solutions and environmentally friendly green-
certified products.
As a corporation whose main business is
distribution, Richelieu is service-oriented.
Our team of over 2,000 employees serves,
directly or indirectly depending on their
position, more than 80,000 active customers
across North America. our customers expect
exceptional service from us at all times, no
matter where they are. aligning talent and
expertise is essential for achieving our goals
and fulfilling our corporate vision.
we regularly assess service quality using
suitable metrics. the quality of our service is the
result of a set of key factors that we take very
seriously, including:
• Our ability to listen to the customer
• attention to details and quality of execution
• Our close relationship with our customers,
which allows us to provide personalized,
expert advice and service through our
decentralized network of local teams who
know their market
• An extensive sales network providing
customers with multiple channels for
accessing our products: through on-site
sales staff, by phone, at our sales outlets and
showrooms, and also through our website
richelieu.com
• a central information system that supplies
a constant flow of information across our
network, and a highly efficient supply chain.
together they ensure interconnectivity with
our suppliers and customers, reliable order
processing — generally within 24 hours of
order placement — and cost control
• specialized training for our service and sales
professionals
• the commitment of our employees, over 50%
of whom are corporate shareholders
7
our business aCquisition anD integration
strategy inCreases our aCtive presenCe
in north ameriCa, opens neW markets,
anD fosters internal groWth.
in 2016, we expanded our presence in texas
through a second acquisition in this major market,
with the purchase of Cornerstone hardware,
a houston-based specialty hardware distributor
whose clientele includes kitchen manufacturers
and residential and commercial woodworkers.
we then increased our market share in tennessee
— where we already had a presence with a center
in nashville — by acquiring Jfh Corporation,
a specialty hardware distributor in memphis. our
position in this market will help extend our reach to
neighboring states, including mississippi, arkansas,
and alabama. we also stepped up our presence in
new york City, adding to our existing center in the
city by acquiring eveready hardware, a specialty
hardware distributor strategically located in
long island city, near manhattan, which serves
kitchen and bathroom cabinet manufacturers,
woodworkers, and a significant number of
storage and closet manufacturers. we completed
our fourth acquisition of the financial year with
neils sorenson hardware, a specialty hardware
distributor serving kitchen cabinet and furniture
manufacturers and woodworkers in portland, maine.
in 2016, we continued to improve our processes
and technological tools to get to know our
customers better in order to serve them more
efficiently and provide them with new business
opportunities. we pride ourselves on helping
customers stay competitive by effectively
controlling inventory costs while at the same
time offering more choice and flexibility, including
for non-stock items. this is due in part to the
“long tail” strategy we use in conjunction with
our website to optimize our product offering
and stock management, while minimizing costs.
our customers truly appreciate the trilingual
richelieu.com website. not only is it the most
comprehensive in our industry, it is also a highly
useful tool for product selection and design and
for order processing.
our groWth strategy
remains rooteD in business aCquisitions
58 aCquisitions
Canada: 36
united states: 22
8
Over the years, we have made 58 acquisitions
in North America, all of which are compatible
with our activities and corporate culture.
of these acquisitions, nine were completed
over the past three years, seven of them in the
united states and two in canada, and represent
approximately $50 million in sales. in addition
to expanding our customer base, increasing
sales, and adding to our specialized product
offering, these acquisitions bring us new skills
and a greater understanding of local markets,
promoting close customer relationships.
as part of our integration approach, we proceed
with respect and care, pooling best practices
and consolidating our systems. our main goals
are to optimize customer service, foster internal
growth, and improve profitability by developing
sales synergies within our network, and
operational synergies when conditions allow.
to sustain our innovation anD groWth
DynamiC, We Will move aheaD With
our strategies in a rigorous anD
f0rsight Way — While maintaining
our business moDel aDapteD to our
Customers’ neeDs.
A consistent, high quality end-to-end customer
experience is at the core of our strategy.
our mission remains the same: make business
easier for our customers — manufacturers and
retailers — by providing them with the best
product offering, optimal service, and the most
effective sales tools.
our extensive north american network of
interconnected centers — our one-stop-shop
approach — and our strategic mix of local and
online service — give us the flexibility to respond
in real time and reliably meet the needs of our
customers, no matter where they are.
Our goals for 2017 and beyond remain
unchanged: achieve internal growth and
conclude acquisitions that add long-term
value to Richelieu. we will continue to show
consistent leadership in improving operational
efficiency and focus on innovation throughout
our organization with a view to meeting and
exceeding customer expectations.
every effort will be made to meet future
challenges. richelieu is here to grow and
prosper with the help of all the members of
our exceptional team, whom we thank for
their outstanding quality of work and their
commitment. we would also like to thank our
customers, our suppliers, our shareholders,
and all our other business partners.
(Signed) richard Lord
president and chief executive officer
9
DireCtors
offiCers
Jocelyn proteau
chairman of the board
richelieu hardware ltd.
corporate director
richard lord
president and chief executive officer
richelieu hardware ltd.
Denyse Chicoyne (2)
corporate director
robert Courteau (2)
president
courteau mainville management inc.
pierre pomerleau (1)
president and chief executive officer
pomerleau group
mathieu gauvin (1)
partner
richter advisory group inc.
marc poulin (1)
corporate director
sylvie vachon (2)
president and chief executive officer
montreal port authority
richard lord
president and chief executive officer
antoine auclair
vice-president and chief financial officer
guy grenier
vice-president, sales and marketing
— industrial
geneviève quevillon
vice-president
— logistics and supply chain
Jeff Crews
vice-president, business development
— retailers market, canada
Craig ratchford
vice-president, general manager
— united states
Éric Daignault
general manager of divisions
marion kloibhofer
general manager
— central canada
John statton
general manager
— western canada
and western united states
Christian Dion
manager — human resources
(1) member of the audit committee
(2) member of the human resources
and corporate governance committee
yannick godeau
legal affairs and corporate secretary
10
funCtionality
ergonomy
eleganCe
pull-out shelf
decorative hardware
whether it is for an addition or a full or partial transformation, kitchen and bathroom renovations give the best
return on investment in terms of resale value.
all of the concepts in this report incorporate richelieu products: decorative panels, storage solutions, sliding door systems, lighting
systems, knobs and pulls, and functional, finishing, and decorative hardware.
RESIDENTIAL 11
organiZation
eff iCienCy
style
we are a leader in storage systems and closet hardware and we serve a large clientele of closet design specialists.
revolving system
12
Our foldaway systems
and specialty
hardware products
make even the
smallest spaces
more functional and
comfortable.
wall bed
our product offering
includes pull-out tables
and foldaway beds paired
with storage spaces, sofas
convertible into bunkbeds,
and wall units that
maximize the layout
of small spaces.
our ergonomic products and systems optimize
storage solution functionality with clean
contemporary designs ideal for any configuration
and style of decor.
13
for small and large areas alike, attractive and
functional sliding door systems are excellent options.
they help optimize space, add visual appeal, and do
not require maintenance.
14
ARCHITECTS
AND
DESIGNERS
Partners
in expertise
and innovation
15
every residential and commercial renovation project has a unique potential that architects and
designers strive to showcase, using their expertise and ingenuity. we are proud to contribute to their
inspiration and help their projects come to life with innovative solutions and functional products that
meet the highest quality standards.
16
sustainability
funCtionality
esthetiCs
led lighting
antimicrobial pull
our extensive offering for commercial and institutional renovation and construction projects includes
technologically advanced products on the cutting edge of design. our resolutely inspired solutions help make
these renovations functional and esthetic, whether they are classic or original.
COMMERCIAL • INSTITUTIONAL 17
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p
inspiration
trenDy style
ConCept
contemporary metal knob
we work with the most experienced and demanding manufacturers in the world to provide our customers with
inspiring and functional solutions designed to optimize their workspace concepts.
18
architecture and decor are the elements that
set commercial and institutional spaces apart.
to bring their ideas to life, designers and
manufacturers can rely on our diversified and
top-quality innovative offering which includes
beautiful functional products in harmony with
the spirit of the space.
19
our comprehensive specialty and decorative glass hardware
offering contains high-tech products that are made from top
quality raw materials and meet the most exacting industry,
domestic, and commercial standards. it includes shower door
hinges, specialty tools, and doors and window parts.
innovative products that make it easy to
create elegant, high-quality decorative
surfaces.
decorative acrylic panel
20
re taiLerS
Every day, we proudly serve
thousands of small and mid-
sized stores, renovation
centers, and major retail
chains across Canada and
the United States.
we are committed to providing retailers with quality
and variety through strong brands, efficient and
reliable service, and a complete range of informative
sales tools.
SOCIAL AND ENVIRONMENTAL
RESPONSIBILITY
Richelieu is an environmentally friendly corporation,
with a commitment to the communities we work in.
21
As a corporation, we care about our environmental impact,
which is why we have implemented a waste management
program that enables us to reduce our environmental
footprint and promote sustainable development principles.
under the program, all of our sites are analyzed for the type of
waste materials they generate, and the level of waste recovery
and optimization. to promote responsible behaviour, the program
incorporates new waste collection equipment, clear signage, and
awareness training for employees. obsolete and non-functioning
computer equipment is sent for recycling, and certificates of
destruction are provided for hard drives. we work closely with
our suppliers and distribution centers regarding the packaging
used to ship products in order to reduce waste and optimize
transportation. our partnerships with transporters also enable
us to collectively reduce our carbon footprint.
our pool of printers optimization and sustainable printing
initiative, coupled with our ink cartridge recycling program,
enables us to reduce our environmental impact and printing
costs through simple measures like print tracking and control
and the elimination of paper reports. we use these steps to
promote best practices and reduce paper waste.
to minimize our greenhouse gas emissions, we encourage
employees to use videoconferencing as much as possible in
order to cut back on business travel. we give preference to white
roofing when replacing roofs on our buildings, a measure that
enhances employee comfort in the summer and reduces the
urban heat island effect.
We support causes that contribute to the well-being of
the communities we work in. our social focus is primarily
on education, youth culture and sports, health, and heritage
conservation, either through financial support or volunteer
initiatives by our local teams. every year, we reaffirm and
broaden our commitment to community and charitable
organizations that support these vital causes. throughout our
north american network, we share a culture built on partnership,
mutual assistance, and a set of fundamental values that guide
our economic and social actions. these values include sound
governance, service excellence, mutual respect, independence,
and the importance of generating growth for our employees,
customers, suppliers, and shareholders. we draw upon them to
establish and maintain trusting relationships with our partners
and a compensation policy that help us attract and retain the
best people. we also prioritize professional development and the
application of strict workplace safety measures. our economic
and social roles are intimately linked.
Richelieu offers an extensive range of eco-friendly
and green-certified products that meet LEED project
requirements. we select quality products that provide
outstanding environmental performance in order to support
our manufacturing customers in their green renovation
and construction projects and help retailers and renovation
superstores meet the steadily growing demand for
such products.
Ecological veneer
LED light
Ecological finishing products
22
richelieu.com
ExCELLENCE IN E-COMMERCE
• The only trilingual transactional site in North America
in our market
• Outstanding efficiency in finding and selecting products
• Virtual product and project design to customer specifications
with instructions on use and installation
• Automated management of the overall purchasing function
Our constant efforts to optimize
our website have consolidated
richelieu.com’s position as
the leading North American
e-commerce sites in our industry.
Our sales through richelieu.com
represent a significant portion of
total sales and are growing fast
every year.
• an outstanding showcase for richelieu’s
extensive selection of products and
innovations. Visitors and customers can
immediately appreciate the extensive selection
in every category and quickly discover new
products and innovations using the galleries
and videos.
• Mobile interface providing instant access to
site features.
• time savings for customers thanks to a
complete online order history and overall
management ensuring quality and reliability.
23
A STRONG NETWORK
OF 69 INTERCONNECTED CENTERS
A logistics function adapted to customer needs
• cost effectiveness in supply, stock and distribution management
• accurate management information
• optimal use of resources and assets
CANADA
36 DiStriButiOn
centreS
ba rrie
C al ga r y (3)
Da r tm o uth
Ed m o nto n ( 2 )
Kelow na
Kitch e n e r
L aval ( 2 )
Lo ngu euil ( 2 )
M o n c to n
M o ntreal
O t tawa
Q u e b e c (3)
Regina
S askato o n ( 2 )
St. J o h n’s
Su d b ur y
T h u n d e r bay
To ro nto ( 2 )
Va n co u ve r (5)
V ic to ria ( 2 )
Win nip eg ( 2 )
2 M a nuFac turinG centerS
Lo ngu euil
N otre - Da m e - D es- Pins
UNITED STATES
31 DiStriButiOn
centerS
Atla nta
bos to n
buffalo
Cha rlot te
Chicago
Cin cin nati
Dallas
Da nia
D etroit
Ha r tfo rd
Hialea h
G re e nsb o ro
G re e nville
H o us to n
In dia na p olis
Jacks o nville
Lin coln Pa rk
Lo uisville
M e m p his
Nashville
N ew Yo rk ( 2 )
O rla n d o
Po m pa n o
Po r tl a n d
Rivie ra beach
S a ras ota
S ava n na h
S eat tle
Sy racus e
Ta m pa bay
24
MANAGEMENT’S REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF OPERATING RESULTS AND FINANCIAL POSITION
year ended november 30, 2016
CONTENTS
2016 highlights
forward-looking statements
non-ifrs measures
general business overview as at november 30, 2016
mission and strategy
financial highlights
analysis of operating results
summary of quarterly results
fourth quarter
financial position
analysis of principal cash flows
analysis of financial position
contractual commitments
financial instruments
internal control over financial reporting
significant accounting policies and estimates
new accounting methods
risk factors
share information
outlook
supplementary information
25
26
26
27
27
28
28
29
30
31
31
31
32
32
32
33
33
33
35
35
35
252525
Four (4) acquisitions during the year:
• August 18, 2016 - Principal net assets of Neils Sorenson
Hardware, Inc., a specialized hardware distributor in
Portland, Maine;
• May 16, 2016 - Principal net assets of Eveready Hardware
Manufacturing Co., Inc., a specialized hardware distributor
in Long Island City, New York;
• April 18, 2016 - Principal net assets of JFH Corporation,
a specialized hardware distributor in Memphis, Tennessee;
• December 14, 2015 - All outstanding common shares of
Cabinetmakers Supply, Inc. (doing business as Cornerstone
Hardware & Supplies), a specialized hardware distributor in
Houston, Texas.
(1) EBITDA and cash flows from operating activities are non-IFRS
measures, as indicated on page 26 of this report.
HigHligHts of tHe year
ended november 30, 2016
Richelieu pursued its growth and expansion in 2016, as
reflected by its increased financial performance, excellent
financial position, and four strategic acquisitions in the U.S.
Its innovation and market development strategies, its
customer approach, and the quality of its service contributed
to growth in its main market segments in Canada and the U.S.
Strong internal growth was complemented by acquisition-
driven growth in the U.S., where Richelieu now operates
31 distribution centers generating nearly 34% of total sales.
The performance posted during the year further strengthened
its market positioning for the future while creating value for
shareholders. In 2016, Richelieu saw its market capitalization
rise to $1.5 billion. Its share price (RCH/TSX) has appreciated
by 13.7% over the course of the year and by an annual average
of 13% over the last decade.
• Consolidated sales totalled $844.5 million, an increase of
12.6%, of which 10.4% from internal growth and 2.2% from
acquisitions.
• Earnings before income taxes, interest and amortization
(EBITDA)(1) grew by 7.7% to $94.4 million. The EBITDA mar-
gin stood at 11.2%.
• Net earnings attributable to shareholders increased by
6.9% to $62.8 million or $1.08 per share (basic) and $1.07
(diluted), up by 8.0% and 8.1% respectively.
• Cash flows from operating activities(1) (before net change
in non-cash working capital balances) grew by 7.7% to
$73.3 million.
• Working capital increased by 7.7% to $280.7 million, a cur-
rent ratio of 4.4:1.
• Cash and cash equivalents totalled $43 million.
• Total debt stood at $4.9 million, including $4.3 million in
short-term debt.
• Repurchase of 1,004,700 common shares for $23.1 million
and payment of $12.4 million in dividends to sharehold-
ers (representing 19.7% of net earnings attributable to
shareholders for fiscal 2016). Richelieu thus distributed
$35.5 million to shareholders in 2016 while retaining the
financial resources necessary for growth in 2017.
262626
This management’s report relates to Richelieu Hardware Ltd.’s
consolidated operating results and cash flows for the year
ended November 30, 2016 in comparison with the year
ended November 30, 2015, as well as the Corporation’s
financial position at those dates. This report should be
read in conjunction with the audited consolidated financial
statements and accompanying notes for the year ended
November 30, 2016 appearing in the Corporation’s Annual
Report. In this management’s report, “Richelieu” or the
“Corporation” designates, as the case may be, Richelieu
Hardware Ltd. and its subsidiaries and divisions, or one of
its subsidiaries or divisions. Supplementary information,
such as the Annual Information Form, interim management’s
reports, Management Proxy Circular, certificates signed by
the Corporation’s President and Chief Executive Officer
and Vice-President and Chief Financial Officer, as well as
press releases issued during the year ended November
30, 2016, is available on the website of the System for
Electronic Document Analysis and Retrieval (“SEDAR”) at
www.sedar.com.
The information contained in this management’s report
accounts for any major event occurring prior to January 19,
2017, on which date the audited consolidated financial
statements and annual management’s report were approved
by the Corporation’s Board of Directors. Unless otherwise
indicated,
information presented below,
including tabular amounts, is expressed in Canadian dollars
and prepared in accordance with International Financial
Reporting Standards (“IFRS”).
financial
the
FORWARD-LOOKING STATEMENTS
in
Certain statements set forth in this management’s report,
including statements relating to the expected sufficiency of
cash flows to cover contractual commitments, to maintain
growth and to provide for financing and investing activities,
its
growth outlook, Richelieu’s competitive position
industry, Richelieu’s ability to weather the current economic
context and access other external financing, the closing of
new acquisitions, and other statements not pertaining to past
events, constitute forward-looking statements. In some cases,
these statements are identified by the use of terms such as
“may”, “could”, “might”, “intend” “should”, “expect”, “project”,
“plan”, “believe”, “estimate” or the negative form of these
expressions or other comparable variants. These statements
are based on the information available at the time they are
written, on assumptions made by management and on the
expectations of management, acting in good faith regarding
future events. Assumptions are that economic conditions
and exchange rates will not significantly deteriorate, the
Corporation’s deliveries will be sufficient to fulfill Richelieu’s
needs, the availability of credit will remain stable during the
year and no extraordinary events will require supplementary
capital expenditures.
Although management believes these assumptions and
expectations to be reasonable based on the information
available at the time they are written, they could prove
inaccurate. Forward-looking statements are also subject,
by their very nature, to known and unknown risks and
uncertainties such as
industry,
acquisitions, labour relations, credit, key officers, supply
and product liability, as well as other factors set forth in the
Corporation’s 2016 Annual Report (see the “Risk Factors”
section on page 33 of the 2016 Annual Report available on
SEDAR at www.sedar.com).
those related
the
to
Richelieu’s actual results could differ materially from those
indicated or underlying these forward-looking statements.
The reader is therefore recommended not to unduly rely
on
these forward-looking statements. Forward-looking
statements do not reflect the potential impact of special
items, any business combination or any other transaction that
may be announced or occur subsequent to the date hereof.
Richelieu undertakes no obligation to update or revise the
forward-looking statements to account for new events or
new circumstances, except where provided for by applicable
legislation.
NON-IFRS MEASURES
to assess
Richelieu uses earnings before interest, income taxes and
amortization (“EBITDA”) because this measure enables
management
the Corporation’s operational
performance. This measure is a widely accepted financial
indicator of a Corporation’s ability to service and incur debt.
However, EBITDA should not be considered by an investor
as an alternative to operating income or the net earnings
attributable to shareholders of the Corporation, as an indicator
of financial performance or cash flows, or as a measure of
liquidities. Since EBITDA is not a standardized measurement
as prescribed by IFRS, it may not be comparable to the
EBITDA of other companies.
Richelieu also uses cash flows from operating activities and
cash flows from operating activities per share. Cash flows
from operating activities are based on net earnings plus
amortization of property, plant and equipment and intangible
assets, deferred tax expense (or recovery) and share-based
compensation expense. These additional measures do not
account for net change in non-cash working capital items to
exclude seasonality effects and are used by management in
its assessments of cash flows from long-term operations.
Therefore, cash flows from operating activities may not be
comparable to the cash flows from operating activities of
other companies.
272727
MISSION AND STRATEGY
Richelieu’s mission is to create shareholder value and
contribute to its customers’ growth and success, while
favouring a business culture focused on quality of service and
results, partnership and entrepreneurship.
To sustain its growth and remain the leader in its specialty
market, the Corporation continues to implement the strategy
that has benefited it until now, with a focus on:
• continuing to strengthen its product selection by annually
introducing diversified products that meet its market
segment needs and position it as the specialist in functional
and decorative hardware for manufacturers and retailers;
• further developing its current markets in Canada and the
United States with the support of a specialized sales and
marketing force capable of providing customers with
personalized service; and
• expanding in North America through the opening of
distribution centres and through efficiently integrated,
profitable acquisitions made at the right price, offering high
growth potential and complementary to its product mix and
expertise.
Richelieu’s solid and efficient organization, highly diversified
product selection and long-term relationships with leading
suppliers worldwide, position it to compete effectively in a
fragmented market consisting mainly of a host of regional
distributors offering a limited range of products.
GENERAL BUSINESS OVERVIEW
as at November 30, 2016
Richelieu is a leading North American importer, distributor
and manufacturer of specialty hardware and related products.
Its products are targeted to an extensive customer base
of kitchen and bathroom cabinet, storage and closet, home
furnishing and office furniture manufacturers, residential and
commercial woodworkers, and hardware retailers including
renovation superstores. The residential and commercial
renovation industry is the Corporation’s major source of
growth.
Richelieu offers customers a broad mix of products sourced
from manufacturers worldwide. The solid relationships
Richelieu has built with the world’s leading suppliers enable
it to provide customers with the latest innovative products
tailored to their business needs. The Corporation’s product
selection consists of over 110,000 different items targeted to
a base of more than 80,000 customers who are served by
69 centres in North America with 36 distribution centres in
Canada, 31 distribution centres in the United States and two
manufacturing plants in Canada.
Main product categories include furniture, glass and building
decorative and functional hardware, lighting systems, finishing
and decorating products, ergonomic workstation components,
kitchen and closet storage solutions, sliding door systems,
decorative and functional panels, high-pressure laminates
and floor protection products. This offering is completed by
the Corporation’s two subsidiaries, Les Industries Cedan inc.
and Menuiserie des Pins Ltée, which manufacture a variety
of veneer sheets and edgebanding products as well as a
broad selection of decorative mouldings and components
for the window and door industry. In addition, many of the
Corporation’s products are manufactured according to its
specifications and those of its customers.
The Corporation employs over 2,000 people at its head office
and throughout the network, close to half of whom work in
marketing, sales and customer service. More than 50% of its
employees are Richelieu shareholders.
282828
FINANCIAL HIGHLIGHTS
(in thousands of $, except per-share amounts, number of shares and data expressed as a %)
Years ended November 30
Sales
EBITDA(1)
EBITDA margin (%)
Net earnings
Net earnings attributable to shareholders of the Corporation
• basic per share ($)(3)
• diluted per share ($)(3)
Net margin attributable to the shareholders of the Corporation (%)
Cash flows from operating activities(2)
• diluted per share ($)(3)
Dividends paid on shares
• per share ($)(3)
Weighted average number of shares outstanding (diluted)
(in thousands)(3)
As at November 30
Total assets
Working capital
Current ratio
2016
$
844,473
94,422
11.2
63,013
62,814
1.08
1.07
7.4
73,296
1.25
12,374
0.213
2015
$
2014
$
2013
$
2012
$
749,646
646,909
586,775
565,798
87,681
11.7
58,878
58,739
1.00
0.99
7.8
77,417
12.0
52,573
52,393
0.89
0.88
8.1
68,052
60,253
1.15
11,717
0.200
1.01
11,023
0.187
70,373
12.0
46,657
46,403
0.75
0.74
7.9
54,978
0.88
10,768
0.173
71,163
12.6
45,909
45,404
0.72
0.72
8.0
54,403
0.86
10,026
0.160
58,781
59,343
59,754
62,790
63,411
486,046
280,747
4.4
449,792
260,579
4.4
390,721
214,866
4.0
356,325
204,1 1 7
4.5
349,869
200,088
4.6
Equity attributable to shareholders of the Corporation
394,268
366,807
313,553
293,114
287,942
Return on average equity (%)
Book value ($)
Total debt
Cash and cash equivalents
16.6
6.81
4,864
42,969
17.5
6.19
3,580
29,454
17.5
5.27
5,354
33,721
16.2
4.80
1,354
46,187
16.9
4.55
2,563
51,587
(1) EBITDA is a non-IFRS measure, as indicated on page 26 of this report.
(2) Cash flows from operating activities and cash flows from operating activities per share are non-IFRS measures, as indicated on page 26
of this report.
(3) All share data in this report have been restated to reflect the impact of the three-for-one split of all common shares effective
February 29, 2016.
ANALYSIS OF OPERATING RESULTS FOR THE YEAR ENDED NOVEMBER 30, 2016
COMPARED WITH THE YEAR ENDED NOVEMBER 30, 2015
Consolidated sales
(in thousands of $, except exchange rate)
2016
2015
Years ended November 30
$
$
∆ (%)
Canada
559,137
513,743
+ 8.8
United States (CA$)
285,336
235,903
+ 21.0
(US$)
215,028
186,815
+ 15.1
Average exchange rate
1.3270
1.2628
Consolidated sales
844,473
749,646
+ 12.6
Consolidated sales reached $844.5 million, an increase of
$94.8 million or 12.6% over 2015, of which 10.4% from internal
growth and 2.2% from acquisitions. At comparable exchange
rates to 2015, the consolidated sales growth would have been
10.8% for the year ended November 30, 2016.
Sales to manufacturers grew to $721.1 million, compared
with $638.4 million for 2015, an increase of $82.7 million or
13.0%, of which 10.3% from internal growth and 2.7% from
acquisitions. Sales to hardware retailers and renovation su-
perstores grew by 10.9% or $12.1 million to total $123.4 mil-
lion. In Canada, Richelieu achieved sales of $559.1 million,
compared with $513.7 million for 2015, up by $45.4 million
or 8.8% from internal growth resulting primarily from market
development efforts and, to a lesser extent, from the increase
in selling prices to mitigate the impact of the appreciation in
the U.S. dollar and the euro. Sales to manufacturers rose
to $450.3 million, up by $33.6 million or 8.1% from internal
growth. Sales to hardware retailers and renovation super-
stores reached $108.8 million, compared with $97.0 million,
up by $11.8 million or 12.2% over 2015.
292929
In the United States, the Corporation recorded sales of
US$215.0 million, compared with US$186.8 million for 2015,
an increase of US$28.2 million or 15.1%, of which 8.2%
from internal growth and 6.9% from acquisitions. Sales to
manufacturers totalled US$204.1 million, compared with
US$175.6 million, an increase of US$28.5 million or 16.2%
over 2015, of which 8.9% from internal growth and 7.3%
from acquisitions. Sales to hardware retailers and renovation
superstores were down by 2.7% from the previous year.
Considering exchange rates, U.S. sales expressed in
Canadian dollars amounted to $285.3 million, compared with
$235.9 million for 2015, an increase of 21.0%. They accounted
for 33.8% of consolidated sales of 2016, whereas they had
represented 31.5% of the year’s consolidated sales in 2015.
Net earnings grew by 7.0%. Considering non-controlling inter-
ests, net earnings attributable to shareholders of the Corpora-
tion totalled $62.8 million, up by 6.9% over 2015. Net earnings
per share amounted to $1.08 basic and $1.07 diluted, compared
with $1.00 basic and $0.99 diluted for 2015, an increase of
8.0% and 8.1% respectively. Comprehensive income totalled
$63.8 million, considering a positive adjustment of $0.8 million
on translation of the financial statements of the subsidiary in
the United States, compared with $71.0 million for 2015, con-
sidering a positive adjustment of $12.2 million on translation of
the financial statements of the subsidiary in the United States.
SUMMARY OF QUARTERLY RESULTS
(in thousands of $, except per-share amounts)
Consolidated EBITDA and EBITDA margin
(in thousands of $, unless otherwise indicated)
Years ended November 30
Sales
EBITDA
EBITDA margin (%)
2016
$
2015
$
844,473
749,646
94,422
87,681
11.2
11.7
Earnings before income taxes, interest and amortization
(EBITDA) totalled $94.4 million, up by $6.7 million or 7.7% over
2015. The gross margin and the EBITDA margin were mainly
affected by the higher purchasing costs of certain products
attributable to the appreciation of the U.S. dollar and the euro
during the first semester of 2016, the higher proportion of
sales in the United States where the product mix is different,
and the lower margins of certain acquisitions also having a
different product mix. The EBITDA margin stood at 11.2%,
compared with 11.7% for 2015. Income taxes amounted to
$21.8 million, an increase of $1.3 million over 2015.
Consolidated net earnings attributable to shareholders
(in thousands of $, unless otherwise indicated)
Years ended November 30
EBITDA
Amortization of property, plant and
equipment and intangible assets
Financial costs, net
Income taxes
Net earnings
Net earnings attributable to
2016
$
2015
$
94,422
87,681
9,601
31
8,449
(149)
21,777
20,503
63,013
58,878
shareholders of the Corporation
62,814
58,739
Net margin attributable to the
shareholders of the Corporation (%)
Non-controlling interests
Net earnings
7.4
199
7.8
139
63,013
58,878
Trimestres
2016
• Sales
• EBITDA
• Net earnings
attributable to
shareholders of
the Corporation
basic per share
diluted per share
2015
• Sales
• EBITDA
• Net earnings
attributable to
shareholders of
the Corporation
basic per share
diluted per share
2014
• Sales
• EBITDA
• Net earnings
attributable to
shareholders of
the Corporation
basic per share
diluted per share
1
2
3
4
188,909 217,413 220,155 217,996
16,710
23,074
25,942
28,696
10,861
15,408
17,331
19,214
0.19
0.18
0.27
0.26
0.30
0.30
0.33
0.33
159,319 190,801
199,457 200,069
15,706
21,878
24,394
25,703
10,216
14,653
16,340
17,530
0.17
0.17
0.25
0.25
0.28
0.28
0.30
0.30
136,108
165,155 167,809
177,837
13,704
19,185
21,054
23,474
8,859
13,036
14,554
15,944
0.15
0.15
0.22
0.22
0.25
0.24
0.27
0.27
Quarterly variations in earnings — The first quarter closed
at the end of February is generally the year’s weakest for
Richelieu in light of the smaller number of business days due
to the end-of-year holiday period and a wintertime slowdown
in renovation and construction work. The third quarter ending
August 31 also includes a smaller number of business days
due to the summer holidays, which can be reflected in the
period’s financial results. The second and fourth quarters
respectively ending May 31 and November 30 generally
represent the year’s most active periods.
Note: For further information about the Corporation’s performance
in the first, second and third quarters of 2016, the reader is referred
to the interim management’s reports available on SEDAR’s website
at www.sedar.com.
.
Income taxes amounted to $7.0 million, an increase of
$1.1 million over 2015.
Net earnings grew by 9.4%. Considering non-controlling
interests, net earnings attributable to shareholders of the
Corporation amounted to $19.2 million, up by 9.6% over the
fourth quarter of 2015. Net earnings per share rose to $0.33
basic and diluted, compared with $0.30 basic and diluted for
the fourth quarter of 2015, an increase of 10.0%.
Comprehensive income amounted to $21.8 million, consider-
ing a positive adjustment of $2.6 million on translation of the
financial statements of the subsidiary in the United States,
compared with $18.9 million for the fourth quarter of 2015,
considering a positive adjustment of $1.3 million on trans-
lation of the financial statements of the subsidiary in the
United States.
Cash flows from operating activities (before net change in
non-cash working capital balances) amounted to $21.6 million
or $0.37 per share, compared with $19.7 million or $0.33 per
share for the fourth quarter of 2015, an increase of 10.0%
stemming primarily from the net earnings growth. Net
change in non-cash working capital balances represented a
cash inflow of $6.1 million, reflecting the change in accounts
receivable and payable ($1.9 million), whereas the change
in inventories and other items represented a cash inflow of
$8.0 million. Consequently, operating activities provided cash
flows of $27.7 million, compared with $13.8 million for the
fourth quarter of 2015.
Financing activities used cash flows of $2.9 million, compared
with $1.2 million for the fourth quarter of 2015. This change
mainly reflects the common shares issued of $2.0 million in
the fourth quarter of 2015 comparatively to $0.2 million for
the corresponding quarter of 2016.
Investing activities represented a cash outflow of $2.8 million
for equipment to improve operational efficiency.
303030
FOURTH QUARTER
ENDED NOVEMBER 30, 2016
Fourth-quarter consolidated sales amounted to $218.0 mil-
lion, compared with $200.1 million for the corresponding
quarter of 2015, an increase of $17.9 million or 9.0%, of which
6.5% from internal growth and 2.5% from acquisitions. At
comparable exchange rates to the fourth quarter of 2015,
the consolidated sales growth would have been 8.8% for the
quarter ended November 30, 2016.
Richelieu achieved sales of $187.1 million in the manufacturers
market, compared with $172.4 million for the fourth quarter
of 2015, an increase of $14.7 million or 8.5%, of which 5.6%
from internal growth and 2.9% from acquisitions. Sales to
hardware retailers and renovation superstores stood at
$30.9 million, up by $3.2 million or 11.6% over the fourth
quarter of 2015.
In Canada, Richelieu recorded sales of $144.7 million, an
increase of $8.2 million or 6% over the fourth quarter of
2015, entirely from internal growth, resulting primarily
from market development efforts and, to a lesser extent,
from the increase in selling prices to mitigate the impact
of the appreciation in the U.S. dollar and the euro. Sales to
manufacturers amounted to $117.5 million, an increase of
4.2%. Sales to hardware retailers and renovation superstores
grew to $27.2 million, up by $3.5 million or 14.8%, partially
due to exceptional seasonal sales.
the United States, sales totalled US$55.3 million,
In
compared with US$48.1 million for the fourth quarter of
2015, an increase of US$7.2 million or 15%, of which 7.3%
from internal growth and 7.7% from acquisitions. Sales to
manufacturers amounted to US$52.5 million, an increase of
US$7.4 million or 16.4% over the fourth quarter of 2015, of
which 8.2% from internal growth and 8.2% from acquisitions.
Sales to hardware retailers and renovation superstores
were down by 6.7% from the corresponding quarter of 2015.
Considering exchange rates, total U.S. sales expressed in
Canadian dollars stood at $73.3 million, an increase of 15.3%.
They accounted for 33.6% of consolidated sales for the fourth
quarter of 2016, whereas they had represented 31.8% of the
period’s consolidated sales for the fourth quarter of 2015.
Earnings before income taxes, interest and amortization
(EBITDA) amounted to $28.7 million, up by $3.0 million or
11.6% over the fourth quarter of 2015. The gross margin and
the EBITDA margin improve slightly over the fourth quarter
of 2015 which was impacted by the cost of introducing
additional products in stores. The EBITDA margin stood at
13.2%, compared with 12.8% for the fourth quarter of 2015.
FINANCIAL POSITION
Investing activities
313131
Analysis of principal cash flows for the year ended
November 30, 2016
Change in cash and cash equivalents and capital resources
(in thousands of $, unless otherwise indicated)
Years ended November 30
Cash flows provided by (used for):
Operating activities
Financing activities
Investing activities
2016
$
2015
$
66,529
27,3 11
(33,431)
(19,467)
(19,749)
(11,497)
Effect of exchange rate fluctuations
166
(614)
Net change in cash and cash
equivalents
Cash and cash equivalents,
beginning of year
Cash and cash equivalents,
end of year
As at November 30
Working capital
13,515
(4,267)
29,454
33,721
42,969
29,454
2016
2015
280,747
260,579
Renewable line of credit (CA$)
26,000
26,000
Renewable line of credit (US$)
6,000
6,000
Operating activities
Cash flows from operating activities (before net change in
non-cash working capital balances) reached $73.3 million or
$1.25 diluted per share, compared with $68.1 million or $1.15
diluted per share for 2015, an increase of 7.7% stemming
primarily from the net earnings growth. Net change in non-
cash working capital balances used cash flows of $6.8 million,
primarily representing changes
in accounts receivable
($8.9 million) whereas inventories, accounts payable and other
items represented a cash inflow of $2.1 million. Consequently,
operating activities provided cash flows of $66.5 million
compared with $27.3 million for 2015.
Financing activities
Financing activities used cash flows of $33.4 million, com-
pared with $19.5 million for 2015. During the year, Richelieu
repurchased common shares for cancellation for $23.1 mil-
lion, compared with $9.2 million in 2015. The Corporation
paid dividends to shareholders of $12.4 million, up by 5.6%
over 2015.
Investing activities represented a total cash outflow of
$19.7 million, of which $9.3 million for business acquisitions
and $10.5 million for the expansion of some distribution
centres, the purchase of computer hardware and equipment
to improve operational efficiency.
Sources of financing
As at November 30, 2016, cash and cash equivalents
amounted to $43.0 million, compared with $29.5 million as at
November 30, 2015. The Corporation posted a working capital
of $280.7 million for a current ratio of 4.4 : 1, compared with
$260.6 million (4.4:1 ratio) as at November 30, 2015.
Richelieu believes it has the capital resources to fulfill its
ongoing commitments and obligations and to assume the
funding requirements needed for its growth and the financing
and investing activities between now and the end of 2017. The
Corporation continues to benefit from an authorized line of
credit of $26 million as well as a line of credit of US$6 million
renewable annually and bearing interest respectively at prime
and base rates. In addition, Richelieu considers it could obtain
access to other outside financing if necessary.
The expectation set forth above consists of forward-looking
information based on the assumption that economic conditions and
exchange rates will not deteriorate significantly, operating expenses
will not increase considerably, deliveries will be sufficient to fulfill
Richelieu’s requirements, the availability of credit will remain
stable in 2017, and no unusual events will entail additional capital
expenditures. This expectation also remains subject to the risks
identified under the “Risk Factors” section.
Analysis of financial position
as at November 30, 2016
Summary of financial position
(in thousands of $, except exchange rate)
As at November 30
Current assets
Non-current assets
Total
Current liabilities
Non-current liabilities
Equity attributable to shareholders
of the Corporation
Non-controlling interests
Total
Exchange rate on translation of a
subsidiary in the United States
Assets
2016
$
2015
$
362,803
337,308
123,243
112,484
486,046
449,792
82,056
5,679
76,729
6,256
394,268
362,885
4,043
3,922
486,046
449,792
1.343
1.335
Total assets amounted to $486.0 million as at November 30,
2016, compared with $449.8 million as at November 30,
2015. Current assets increased by 7.6% or $25.5 million from
November 30, 2015. This increase resulted from the Corpora-
tion’s growth and the four acquisitions closed in 2016.
323232
Cash position
(in thousands of $)
As at November 30
Current portion of long-term debt
Long term-debt
Total debt
2016
$
4,336
528
4,864
2015
$
2,245
1,335
3,580
Cash and cash equivalents
42,969
29,454
As at November 30, 2016, the Corporation continues to
benefit from a healthy and solid financial position. Total debt
was $4.9 million, of which $0.5 million in long-term debt and
$4.3 million in short-term debt representing balances payable
on acquisitions and financing contracts for equipment.
Equity attributable to shareholders of the Corporation
totalled $394.3 million as at November 30, 2016, compared
with $362.9 million as at November 30, 2015, an increase of
$31.4 million stemming primarily from a growth of $27.9 mil-
lion in retained earnings which amounted to $336.8 million,
and of $2.6 million in share capital and contributed surplus,
whereas accumulated other comprehensive income increased
by $0.8 million. As at November 30, 2016, the book value per
share was $6.81, up by 10.0% over November 30, 2015 and
the return on average shareholder’s equity was 16.6%.
As at November 30, 2016, the Corporation’s share capital
consisted of 57,920,466 common shares (58,643,607 shares
as at November 30, 2015). In 2016, upon the exercise of options
under the stock option plan, Richelieu issued 281,559 common
shares at an average price of $8.42 (396,549 in 2015 at an
average price of $7.73). In addition, 1,004,700 common shares
were repurchased for cancellation under the normal course
issuer bid for a cash consideration of $23.1 million (451,800
common shares for a cash consideration of $9.2 million
in 2015).
The Corporation granted 356,500 stock options during the
year (246,900 in 2015). Consequently, as at November 30,
2016, 1,650,086 stock options were outstanding (1,578,645 as
at November 30, 2015).
CONTRACTUAL COMMITMENTS
Summary of contractual financial commitments
as at November 30, 2016
(in thousands of $)
Less
than
1 year
Between
1 and 5
years
More
than
5 years
Total
Long-term debt
4,336
528
—
4,864
Operating leases
10,917
23,598
4,012
38,527
Total
15,253
24,126
4,012
43,391
For 2017 and the foreseeable future, the Corporation expects
cash flows from operating activities and other sources of
financing to meet its ongoing contractual commitments.
The expectation set forth above consists of forward-looking
information based on the assumption that economic condi-
tions and exchange rates will not deteriorate significantly,
operating expenses will not increase considerably, deliveries
will be sufficient to fulfill Richelieu’s requirements, the avail-
ability of credit will remain stable in 2017, and no unusual
events will entail additional capital expenditures. This ex-
pectation also remains subject to the risks identified under
the “Risk Factors” section.
FINANCIAL INSTRUMENTS
into
Richelieu periodically enters
foreign exchange
forward contracts to fully or partially hedge the effects of
foreign currency fluctuations related to foreign-currency
denominated payables or to hedge forecasted purchase
transactions. The Corporation has a policy of not entering
into derivatives for speculative or negotiation purposes
and to enter into these contracts only with major financial
institutions.
Richelieu also uses equity swaps to reduce the effect of
fluctuations in its share price on net earnings in connection
with its deferred share unit plan.
In notes (1) and (12) of the audited consolidated financial
statements for the year ended November 30, 2016, the
Corporation presents the information on the classification
and fair value of its financial instruments, as well as on their
value and management of the risks arising from their use.
INTERNAL CONTROL OVER FINANCIAL
REPORTING
Management has designed and evaluated internal controls
over financial reporting (ICFR) and disclosure controls and
procedures (DC&P) to provide reasonable assurance that
the Corporation’s financial reporting is reliable and that its
publicly-disclosed financial statements are prepared in
accordance with IFRS. The President and Chief Executive
Officer and the Vice-President and Chief Financial Officer
have assessed, within the meaning of National Instrument
52-109 - Certification of Disclosure in Issuers’ Annual and
Interim Filings, the design and the effectiveness of internal
controls over financial reporting as at November 30, 2016.
In light of this assessment, they concluded that the design
and the effectiveness of internal controls over financial
reporting (ICFR and DC&P) were effective. During the year
ended November 30, 2016, management ensured that there
were no material changes in the Corporation’s procedures
that were reasonably likely to have a material impact on its
internal control over financial reporting. No such changes
were identified.
Due to their intrinsic limits, internal controls over financial
reporting only provide reasonable assurance and may not
prevent or detect misstatements. In addition, projections of an
assessment of effectiveness in future periods carry the risk
that controls will become inappropriate as a result of changes
in conditions or if the degree of conformity with standards
and methods should deteriorate.
SIGNIFICANT ACCOUNTING POLICIES AND
ESTIMATES
The Corporation’s audited consolidated financial statements
for the year ended November 30, 2016 have been prepared
by management in accordance with International Financial
Reporting Standards (IFRS). The preparation of the consoli-
dated financial statements requires management to make
estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompany-
ing notes. These estimates are based on management’s best
knowledge of current events and actions that the Corpora-
tion may undertake in the future and other factors deemed
relevant and reasonable.
judgments made by management
The
in applying the
accounting policies that have the most significant effect on the
amounts recognized in the consolidated financial statements
and the assumptions about the future and other major sources
of estimation uncertainty as at the end of the reporting period
that could potentially result in material adjustments to the
carrying amount of assets and liabilities during the following
period, are summarized as follows:
including
inventory
impairment,
Valuation of
loss and
obsolescence, goodwill and intangible assets with indefinite
useful lives and deferred tax assets requires the use of
judgment and assumptions that may affect the amounts
reported in the consolidated financial statements. The
underlying estimates and assumptions are reviewed regularly.
Revised accounting estimates, if any, are recognized in the
period in which the estimates are revised, as well as in the
future periods affected by the revisions. Actual results could
differ from those estimates.
333333
IFRS 16, Leases
IFRS 16 Leases replaces
IAS 17 Leases and related
interpretations. The new standard brings most leases on-
balance sheet for lessees under a single model, eliminating
the distinction between operating and finance leases. Lessor
accounting however remains largely unchanged and the
distinction between operating and finance leases is retained.
IFRS 16 supersedes IAS 17 Leases and related interpretations
and is effective for periods beginning on or after January 1st,
2019, with earlier adoption permitted if IFRS 15 Revenue from
Contracts with Customers has also been applied.
The Corporation will assess the impact these new standards
will have on its consolidated financial statements.
RISK FACTORS
Richelieu is exposed to different risks that can have a material
adverse effect on its profitability. To offset such risks, the
Corporation has adopted various strategies adapted to the
major risk factors below:
Economic conditions
The Corporation’s business and financial results partly depend
on general economic conditions and the economic factors
specific to the renovation and construction industry. Any
economic downturn could lead to a decline in sales and have
an adverse impact on the Corporation’s financial performance.
Market and competition
The specialty hardware and renovation products segment
is highly competitive. Richelieu has developed a business
strategy rooted in a diversified product offering in various
targeted niche markets in North America and sourced from
suppliers around the world, in creative marketing and in
unparalleled expertise and quality of service. Up to now, this
strategy has enabled it to benefit from a solid competitive
edge. However, if Richelieu were unable to implement its
business strategy with the same success in the future, it
could lose market shares and its financial performance could
be adversely affected.
NEW ACCOUNTING METHODS
Foreign currency
Recently issued
IFRS 15, Revenue from contracts with customers
IFRS 15 Revenue from Contracts with Customers replaces IAS
18 Revenue, IAS 11, Construction Contracts and related inter-
pretations. Under IFRS 15 standard, revenue is recognized at
the point in time when control of the goods or services trans-
fers to the customer rather than when the significant risks
and rewards are transferred. The new standard also requires
additional disclosures through notes to financial statements.
IFRS 15 shall be applied to fiscal years beginning on or after
January 1st, 2018. Earlier application is permitted.
Richelieu is exposed to the risks related to currency
fluctuations, primarily
foreign-currency
denominated purchases and sales made abroad.
regard
to
in
The Corporation’s products are regularly sourced from
abroad. Thus, any increase in foreign currencies (primarily the
U.S. dollar and Euro) compared with the Canadian dollar tends
to raise its supply cost and thereby affect its consolidated
financial results. These currency fluctuations related risks
are mitigated by the Corporation’s ability to adjust its selling
prices within a relatively short timeframe so as to protect
its profit margins although significant volatility in foreign
currencies may have an adverse impact on its sales.
343434
Sales made abroad are mainly recorded in the United States
and account for approximately 34% of Richelieu’s total sales.
Any volatility in the Canadian dollar therefore tends to affect
consolidated results. This risk is partially offset by the fact
that major purchases are denominated in U.S. dollars.
To manage its currency risk, the Corporation uses derivative
financial instruments, more specifically forward exchange
contracts in U.S. dollars and euros. There can be no assurance
that the Corporation will not sustain losses arising from these
financial instruments or fluctuations in foreign currency.
Supply and inventory management
Richelieu must anticipate and meet its customers’ supply
needs. To that end, Richelieu must maintain solid relationships
with suppliers respecting its supply criteria. The inability to
maintain such relationships or to efficiently manage the
supply chain and inventories could affect the Corporation’s
financial position. Similarly, Richelieu must track trends and
its customers’ preferences and maintain inventories meeting
their needs, failing which its financial performance could be
adversely affected.
To mitigate its supply-related risks, Richelieu has built solid
long-term relationships with numerous suppliers on several
continents, most of whom are world leaders.
Acquisitions
Acquisitions in North America remain an important strategic
focus for Richelieu. The Corporation will maintain its strict
acquisition criteria and pay particular attention to the
integration of its acquisitions. Nevertheless, there is no
guarantee that a business matching Richelieu’s acquisition
criteria will be available and there can be no assurance that
the Corporation will be able to make acquisitions at the same
pace as in the past. However, the fact that the U.S. market
remains highly fragmented and that acquisitions are generally
of limited size reduces the inherent financial and operational
risks.
Credit
The Corporation is exposed to the credit risk related to its
accounts receivable. Richelieu has adopted a policy defining
the credit conditions for its customers to safeguard against
credit losses arising from doing business with them. For each
customer, the Corporation sets a specific limit that is regularly
reviewed. The diversification of its products, customers and
suppliers reasonably safeguards the Corporation against a
concentration of its credit risk. No customer of the Corporation
accounts for more than 10% of its revenues.
Labour relations and qualified employees
To achieve its objectives, Richelieu must attract, train and
retain qualified employees while controlling its payroll. The
inability to attract, train and retain qualified employees and to
control its payroll could have an impact on the Corporation’s
financial performance. Close to 15% of Richelieu’s workforce
is unionized. The Corporation’s policy is to negotiate collective
agreements at conditions enabling it to maintain its competitive
edge and a positive and satisfactory working environment
for its entire team. Richelieu has not experienced any major
labour conflicts over the past five years. Any interruption
in operations as a result of a labour conflict could have an
adverse impact on the Corporation’s financial results.
Stability of key officers
Richelieu offers a stimulating working environment and a
competitive compensation plan, which help it retain a stable
management team. Failure to retain the services of a highly
qualified management team could compromise the success
of Richelieu’s strategic execution and expansion, which could
have an adverse impact on its financial results. To adequately
manage its future growth, the Corporation adjusts its
organizational structure as needed and strengthens the teams
at the various levels of its business. It should be noted that
more than 50% of its employees, including senior officers, are
Richelieu shareholders.
Product liability
In the normal course of business, Richelieu is exposed to
various product liability claims that could result in major
costs and affect the Corporation’s financial position. Richelieu
has agreements containing the usual limits with insurance
companies to cover the risks of claims associated with its
operations.
Crisis management, IT contingency plan and data security
The IT structure implemented by Richelieu enables it to support
its operations and contributes to ensure their efficiency. As
the occurrence of a disaster, including a major interruption of
its computer systems, could affect its operations and financial
performance, the Corporation has implemented a crisis
management and IT contingency plan to reduce the extent of
such a risk. This plan provides among others for an alternate
physical location in the event of a disaster, generators in the
event of power outages and a relief computer as powerful as
the central computer.
A breach of the Corporation’s IT security, loss of customer
data or system disruption could adversely affect its business
and reputation.
Richelieu’s business is dependent on its payroll, transaction,
financial, accounting and other data processing systems. The
Corporation relies on these systems to process, on a daily
basis, a large number of transactions. Any security breach
in its business processes and/or systems has the potential
to impact its customer information, which could result in
the potential loss of business. If any of these systems fail to
operate properly or become disabled, the Corporation could
potentially lose control of customer data and suffer financial
loss, a disruption of our businesses, liability to clients,
regulatory intervention or damage to its reputation.
In addition, any issue of data privacy as it relates to
unauthorized access to, or loss of, customer and/or employee
information could result in the potential loss of business,
damage to Richelieu’s market reputation, litigation and
regulatory investigation and penalties.
To reduce its risk, the Corporation continuously invests in the
security of its IT systems, business processes improvements
and enhancements to its culture of information security.
SHARE INFORMATION
AS AT JANUARY 19, 2017
Issued and outstanding common
shares :
Outstanding stock options :
57,933,441
1,968,611
353535
OUTLOOK
In 2017, as in the past, Richelieu will be customer-oriented,
focusing on quality of service and innovation. Its two major
sources of growth will remain innovation and business
acquisition strategies in its sector. The Corporation will
pursue its current market development in North America and
its efforts to penetrate new territories, especially in the United
States. It remains on the lookout for strategic acquisitions to
further strengthen its positioning and create additional sales
and operational synergies, while giving priority to operational
efficiency and sound financial management.
SUPPLEMENTARY INFORMATION
Further information about Richelieu, including its latest
Annual Information Form, is available on the System for
Electronic Document Analysis and Retrieval (SEDAR) website
at www.sedar.com.
(Signed) Richard Lord
(Signed) Antoine Auclair
President and
Chief Executive Officer
Vice-President and
Chief Financial Officer
January 19, 2017
3636
MANAGEMENT’S REPORT
Related to the consolidated financial statements
The consolidated financial statements of Richelieu Hardware Ltd. (the “Corporation”) and other financial information included
in this Annual Report are the responsibility of the Corporation’s management. These consolidated financial statements have
been prepared by management in accordance with IFRS and approved by the Board of Directors.
The Corporation maintains accounting and internal control systems which, in management’s opinion, reasonably ensure the
accuracy of the financial information and maintain proper standards of conduct in the Corporation’s activities.
The Board of Directors fulfills its responsibility regarding the consolidated financial statements included in the Annual Report,
primarily through its Audit Committee. This committee which meets periodically with the Corporation’s managers and external
auditors, has reviewed the consolidated financial statements of the Corporation and has recommended that they be approved
by the Board of Directors.
The consolidated financial statements have been audited by the Corporation’s external auditors, Ernst & Young LLP, Chartered
Professional Accountants.
Montreal, Canada, January 19, 2017
(Signed) Richard Lord
President and Chief Executive Officer
(Signed) Antoine Auclair
Vice-President and Chief Financial Officer
INDEPENDENT AUDITORS’ REPORT
To the shareholders of Richelieu Hardware Ltd.
We have audited the accompanying consolidated financial statements of Richelieu Hardware Ltd., which comprise the consolidated
statements of financial position as at November 30, 2016 and 2015, and the consolidated statements of income, comprehensive
income, changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material mis-
statement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors
consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Richelieu
Hardware Ltd. as at November 30, 2016 and 2015 and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards.
(Signed) Ernst & Young LLP
Montreal, Canada, January 19, 2017
1 CPA auditor, CA, public accountancy permit no. A120803
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at November 30
[In thousands of dollars]
Notes
3
3
4
5
5
9
3
9
7
3
7
9
8
8
11
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Non-current assets
Property, plant and equipment
Intangible assets
Goodwill
Deferred taxes
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities
Income taxes payable
Current portion of long-term debt
Non-current liabilities
Long-term debt
Deferred taxes
Other liabilities
Equity
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Equity attributable to shareholders of the Corporation
Non-controlling interests
Commitments and contingencies [note 10]
See accompanying notes to the consolidated financial statements.
On behalf of the Board of Directors :
373737
2016
$
2015
$
42,969
109,867
207,803
2,164
362,803
33,258
22,881
62,256
4,848
29,454
99,975
206,449
1,430
337,308
27,963
21,325
58,329
4,867
486,046
449,792
75,764
1,956
4,336
82,056
528
3,239
1,912
87,735
36,050
1,417
336,835
19,966
394,268
4,043
398,3 1 1
486,046
71,787
2,697
2,245
76,729
1,335
3,020
1,901
82,985
33,566
1,265
308,904
19,150
362,885
3,922
366,807
449,792
(Signed) Richard Lord
(Signed) Mathieu Gauvin
Director
Director
383838
CONSOLIDATED STATEMENTS OF EARNING
Years ended November 30
[In thousands of dollars, except earnings per share]
Sales
Operating expenses excluding amortization
Earnings before amortization, financial costs and income taxes
Amortization of property, plant and equipment
Amortization of intangible assets
Financial costs, net
Earnings before income taxes
Impôts sur le résultat
Income taxes
Net earnings attributable to:
Shareholders of the Corporation
Non-controlling interests
Notes
8, 12
9
Net earnings per share attributable to shareholders of the Corporation
8
Basic
Diluted
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended November 30
2016
$
844,473
750,051
94,422
6,497
3,104
31
9,632
84,790
21,777
63,013
62,814
199
63,013
1.08
1.07
2015
$
749,646
661,965
87,681
5,806
2,643
(149)
8,300
79,381
20,503
58,878
58,739
139
58,878
1.00
0.99
[In thousands of dollars]
Net earnings
Notes
2016
$
2015
$
63,013
58,878
Other comprehensive income that will be reclassified to net earnings
Exchange differences on translation of foreign operations
11
Comprehensive income
Comprehensive income attributable to:
Shareholders of the Corporation
Non-controlling interests
See accompanying notes to the consolidated financial statements.
816
63,829
63,630
1 99
63,829
12,165
71,043
70,904
139
71,043
393939
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended November 30
[In thousands of dollars]
Attributable to shareholders of the Corporation
Share
capital
Contributed
surplus
Retained
earnings
$
$
$
8
Accumulated
other
comprehensive
income
$
11
Non-controlling
interests
Total
equity
$
$
Total
$
Notes
Balance as at November 30, 2014
29,762
1,576
270,826
6,985
309,149
4,404
313,553
Net earnings
Other comprehensive income
Comprehensive income
Shares repurchased
Stock options exercised
Share-based compensation expense
Dividends [note 16]
Other liabilities
—
—
—
(236)
4,040
—
—
—
—
—
—
—
(973)
662
—
—
58,739
—
—
12,165
58,739
12,165
(8,944)
—
—
(11,717)
—
—
—
—
—
—
—
58,739
12,165
70,904
(9,180)
3,067
662
139
—
139
—
—
—
58,878
12,165
71,043
(9,180)
3,067
662
(11,717)
(596)
(12,313)
—
(17,168)
(25)
(621)
(25)
(17,789)
3,804
(311)
(20,661)
Balance as at November 30, 2015
33,566
1,265
308,904
19,150
362,885
3,922
366,807
Net earnings
Other comprehensive income
Comprehensive income
—
—
—
Shares repurchased
(578)
—
—
—
—
Stock options exercised
3,062
(692)
Share-based compensation
expense
Dividends [note 16]
Other liabilities
—
—
—
844
—
—
62,814
—
62,814
(22,509)
—
—
(12,374)
—
2,484
152
(34,883)
—
816
816
—
—
—
—
—
—
62,814
816
63,630
(23,087)
2,370
844
(12,374)
—
(32,247)
199
—
199
—
—
—
(67)
(11)
(78)
63,013
816
63,829
(23,087)
2,370
844
(12,441)
(11)
(32,325)
Balance as at November 30, 2016
36,050
1,417
336,835
19,966
394,268
4,043
398,311
See accompanying notes to the consolidated financial statements.
Flux de trésorerie
404040
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended November 30
[In thousands of dollars]
OPERATING ACTIVITIES
Net earnings
Items not affecting cash
Amortization of property, plant and equipment
Amortization of intangible assets
Deferred taxes
Share-based compensation expense
Net change in non-cash working capital balances
FINANCING ACTIVITIES
Repayment of long-term debt
Dividends paid to Shareholders of the Parent Corporation
Other dividends paid
Common shares issued
Common shares repurchased for cancellation
INVESTING ACTIVITIES
Business acquisitions
Additions to property, plant and equipment and intangible assets
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary information
Income taxes paid
Interest paid (received), net
See accompanying notes to the consolidated financial statements.
Notes
2016
$
2015
$
63,013
58,878
8
16
8
8
3
4, 5
6,497
3,104
(525)
1,207
73,296
(6,767)
66,529
(273)
(12,374)
(67)
2,370
(23,087)
(33,431)
(9,294)
(10,455)
(19,749)
166
13,515
29,454
42,969
23,240
31
5,806
2,643
(399)
1,124
68,052
(40,741)
27,3 1 1
(1,041)
(11,717)
(596)
3,067
(9,180)
(19,467)
(511)
(10,986)
(11,497)
(614)
(4,267)
33,721
29,454
20,721
(149)
Notes
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
41
41
NATURE OF BUSINESS
Inventories
Richelieu Hardware Ltd. [the “Corporation”] is incorporated
under the laws of Quebec, Canada. The Corporation is a dis-
tributor, importer, and manufacturer of specialty hardware and
complementary products. Its products are targeted to an exten-
sive customer base of kitchen and bathroom cabinet, storage
and closet, home furnishing and office furniture manufacturers,
residential and commercial woodworkers and hardware retailers
including renovation superstores. The Corporation’s head office
is located at 7900 Henri-Bourassa Blvd. West, Montreal, Quebec,
Canada, H4S 1V4.
1. SIGNIFICANT ACCOUNTING POLICIES
The Corporation’s consolidated financial statements, presented
in Canadian dollars, have been prepared by management in
accordance with International Financial Reporting Standards
[“IFRS”].
The preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements
and accompanying notes. These estimates are based on
management’s best knowledge of current events and actions that
the Corporation may undertake in the future and other factors
deemed relevant and reasonable.
The judgements made by management in applying the account-
ing policies that have the most significant effect on the amounts
recognized in the consolidated financial statements and the as-
sumptions about the future and other major sources of estima-
tion uncertainty as at the end of the reporting period that could
potentially result in material adjustments to the carrying amount
of assets and liabilities during the following period are the valua-
tion of inventory impairment, including loss and obsolescence,
goodwill and intangible assets with indefinite useful lives and
deferred tax assets require the use of judgement and assump-
tions that may affect the amounts reported in the consolidated
financial statements. The underlying estimates and assumptions
are reviewed regularly. Revised accounting estimates, if any, are
recognized in the period in which the estimates are revised, as
well as in future periods affected by the revisions. Actual results
could differ from those estimates.
The Corporation’s consolidated financial statements have been
properly prepared within the reasonable limits of materiality, in
accordance with the accounting policies summarized below:
Consolidation
The consolidated financial statements include the accounts of
Richelieu Hardware Ltd. and its subsidiaries described in note 13.
All significant intercompany balances and transactions have
been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and highly
liquid investments with an initial term of three months or less.
Cash and cash equivalents were classified in “financial assets
at fair value through net earnings” and measured at fair value.
Gains (losses) arising from remeasurement at each period-end
are recorded in the consolidated statement of earnings.
Accounts receivable
Accounts receivable are classified in “loans and receivables”
and carried at cost, which is equivalent to fair market value
on initial recognition. Subsequent measurements are recorded
at amortized cost using the effective interest method. For the
Corporation, this measurement is usually equivalent to cost due
to their short-term maturities.
Inventories, which consist primarily of finished goods, are valued
at the lower of average cost and net realizable value. Net real-
izable value is the expected selling price in the normal course
of business, less estimated costs to sell. The Corporation uses
judgment when estimating the effect of certain factors on the net
realizable value of inventory, such as inventory obsolescence and
losses. The quantity, age and condition of inventory are meas-
ured and assessed regularly during the year.
Property, plant and equipment
Property, plant and equipment are recorded at cost and amortized
on a straight-line basis over their estimated useful lives. The
main components have different useful lives and are amortized
separately. The amortization method and useful life estimates are
reviewed annually.
Buildings
20 years
Leasehold improvements
Lease terms, maximum 5 years
Machinery and equipment
Rolling stock
Furniture and fixtures
Computer equipment
Intangible assets
5-10 years
5 years
3-5 years
3-5 years
Intangible assets are acquired assets that lack physical sub-
stance and meet the specified criteria for recognition apart from
goodwill and property, plant and equipment. Intangible assets
consist mainly of purchased or internally developed software,
customer relationships, non-competition agreements and trade-
marks. Software and customer relationships are amortized on a
straight-line basis over their useful lives of 3 and 10-20 years,
respectively, while non-competition agreements are amortized
over the terms of the agreements. Trademarks have an indefinite
useful life and are therefore not amortized.
Goodwill
Goodwill represents the excess of the purchase price over
the fair value of net assets acquired and corresponds to the
development potential of the acquired businesses, combined with
the Corporation’s operations and from the expected synergies
and expanding of the product offering and network. Goodwill is
not amortized.
Impairment of non-current assets
At the end of each reporting period, the Corporation determines
whether indicators of impairment exist for its non-current
assets, excluding goodwill and intangible assets with indefinite
useful lives. If such indicators exist, the non-current assets are
tested for impairment. When the impairment test indicates that
the carrying amount of the tangible or intangible asset exceeds
its recoverable amount, an impairment loss is recognized in net
earnings in an amount equal to the excess.
The Corporation is required to test goodwill and intangible
assets with indefinite useful lives for impairment at least once a
year, whether or not indicators of impairment exist. Impairment
tests are carried out on the asset itself, the cash-generating
unit [“CGU”] or group of CGUs as at November 30. A CGU is the
smallest identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from other
assets or groups of assets. Goodwill and the supporting assets
that cannot be wholly allocated to a single CGU are tested for
impairment at the group of CGUs level.
Impairment tests consist in a comparison between the carrying
and recoverable amounts of an asset, CGU or group of CGUs. The
recoverable amount is the higher of value in use and fair value
less costs to sell.
Notes
42
42
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
1. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Foreign currency translation
Where the carrying amount exceeds the recoverable amount,
an impairment loss equal to the excess is recognized in net
earnings. Impairment losses related to CGUs or groups of CGUs
are allocated proportionately to the assets of the CGU or group
of CGUs; however, the carrying amount of the assets is not
reduced below the higher of their fair value less costs to sell
and their value in use. Other than for goodwill, if a reversal of
an impairment loss occurs, it must be recognized immediately
in net earnings. Reversals of impairment losses related to a CGU
or group of CGUs are allocated proportionately to the assets
of the CGU or group of CGUs. On reversal of an impairment
loss, the increased recoverable amount of an asset must not
exceed the carrying amount that would have been determined,
net of amortization, if no impairment loss had been recognized
in respect of the asset in prior years. In impairment testing of
goodwill and intangible assets with indefinite useful lives, value
in use is estimated using a discounted future cash flow model.
The application of this method is based on different assumptions
such as estimated future cash flows as described in note 5.
Other financial liabilities
Accounts payable and accrued liabilities and long-term debt are
classified in “other financial liabilities” and are initially recorded
at fair value. They are subsequently measured at amortized cost
using the effective interest method. For the Corporation, this
measurement is usually equivalent to cost. Options to purchase
non-controlling interests that correspond to the definition of a
financial liability are measured at fair value and presented under
other liabilities.
Revenue recognition
Revenues are recognized when products are shipped to custom-
ers. They are measured at the fair value of the consideration
received or receivable, net of returns and discounts granted.
Income taxes
The Corporation follows the liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are accounted for based on estimated taxes recoverable
or payable that would result from the recovery or settlement of
the carrying amount of assets and liabilities. Deferred tax assets
and liabilities are measured at the tax rates that are expected
to apply in the years in which the temporary differences are
expected to reverse. Changes in these balances are recognized
in net earnings in the year in which they arise.
Deferred tax assets are recognized to the extent that it is
probable that the Corporation will have future taxable income
against which these tax assets may be offset. In determining
these deferred tax assets, assumptions are considered, such as
the period for tax loss carrying forwards to be completely used
up and the level of future taxable income in accordance with tax
planning strategies.
Leases
Leases are classified as finance leases if substantially all risks
and rewards incidental to ownership are transferred to the les-
see. At the moment of initial recognition, the lessee records the
leased item as an asset at the lower of the fair value of the asset
and the present value of the minimum lease payments. A cor-
responding liability to the lessor is recorded in the consolidated
statement of financial position as a finance lease obligation. In
subsequent periods, the asset is depreciated on a straight-line
basis over the term of the lease and interest on the obligation is
expensed through net earnings.
Leases are classified as operating leases if substantially all risks
and rewards incidental to ownership are not transferred to the
lessee. The lease payments are recognized as an expense on a
straight-line basis over the lease term.
Monetary assets and liabilities of the Corporation are translated
at the exchange rate in effect at the end of the reporting period
and the other items in the statements of financial position and
earnings are translated at the exchange rates in effect at the date
of transaction. Foreign exchange gains and losses are recognized
in net earnings in the year in which they arise.
The assets and liabilities of the U.S. subsidiary are translated
into Canadian dollars at the exchange rate in effect at the end
of the reporting period. Revenues and expenses are translated
at the rate in effect at the date of transaction. Foreign exchange
gains and losses are recognized in the consolidated statements
of comprehensive income.
Derivative financial instruments
The Corporation periodically enters into foreign exchange
forward contracts with financial institutions to partially hedge the
effects of fluctuations in foreign exchange rates related to foreign
currency liabilities, as well as to hedge anticipated purchase
transactions.
The Corporation enters into equity swaps to reduce its exposure
on net earnings related to the fluctuations in the Corporation’s
share price relating to its deferred share unit plan.
The Corporation does not use derivatives for speculative
purposes. The Corporation uses hedge accounting only when IFRS
documentation criteria are met. Derivative financial instruments
designated as cash flow hedges are classified as available-for-
sale financial assets and liabilities and are measured at fair value,
which is the instruments’ approximate settlement value at market
rates. Gains and losses on remeasurement at each year-end
are recorded in comprehensive income. If the instrument is not
designated and documented as a hedge, changes in fair value are
recognized in the statement of consolidated earnings for the year.
Assets or liabilities related to financial instruments are included in
Accounts receivable or Accounts payable and accrued liabilities
in the consolidated statements of financial position.
Fair value measurements hierarchy
Fair value measurements of assets and liabilities recognized at
fair value in the consolidated statements of financial position
or whose fair value is presented in the notes to the financial
statements are categorized in accordance with the following
hierarchy:
Level 1 :
Level 2 :
quoted prices (unadjusted) in active markets for
identical assets or liabilities;
inputs other than quoted prices included in
Level 1 that are observable for the asset or
liability, either directly (i.e., as prices) or
indirectly (i.e., derived from prices);
Level 3 :
inputs for the asset or liability that are not
based on observable market data (unobservable
inputs).
Share-based payment
The Corporation offers a stock option plan to its directors,
officers and key employees. The subscription price of each share
issuable under the plan is equal to the weighted average market
price of the shares five (5) business days prior to the day the
option was granted and must be paid in full at the time the option
is exercised. Options vest at a rate of 25% per year starting one
year after grant date and expire on the tenth anniversary of the
grant date.
Notes
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
43
43
1. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
3. BUSINESS ACQUISITIONS
The Corporation recognizes stock-based compensation and
other share-based payments in net earnings using the fair value
method for stock options granted. The Black & Scholes model is
used to determine the grant date fair value of stock options. The
application of this method is based on different assumptions such
as risk free interest rate, expected life, volatility and dividend
yield as described in note 8.
Deferred share unit plan
The Corporation offers a deferred share unit [“DSU”] plan to its
directors who can elect to receive part or all of their compensation
in DSUs. The value of DSUs is redeemable for cash only when
a director ceases to be a member of the Board. The number of
DSUs granted to a director equals the compensation amount to
be converted in DSUs divided by the average closing price of the
shares on the Toronto Stock Exchange for the five (5) business
days immediately preceding the date of the payment. The DSU
liability is measured at fair value at each closing date on the
basis of the number of outstanding share units and the market
price of the Company’s common shares is included in Accounts
payable and accrued liabilities. The Corporation has entered into
equity swaps to reduce its exposure on net earnings related to
the fluctuations of the Corporation’s share price. The net effect
of the equity swaps mostly offsets the impact of the change in
the Corporation’s share price and is included in the Operating
expenses excluding amortization.
Net earnings per share
Net earnings per share are calculated based on the weighted
average number of common shares outstanding during the year.
Diluted earnings per share are calculated using the treasury
stock method and take into account all the elements that have a
dilutive effect.
2016
Effective August 18, 2016, the Corporation purchased the
principal net assets of Neils Sorenson Hardware, Inc., a specialty
hardware distributor located in Portland, Maine.
Effective May 16, 2016, the Corporation purchased the principal
net assets of Eveready Hardware Manufacturing Co., Inc., a
specialty hardware distributor located in Long Island City,
New York.
Effective April 18, 2016, the Corporation purchased the principal
net assets of JFH Corporation, a specialty hardware distributor
located in Memphis, Tennessee.
Effective December 14, 2015, the Corporation acquired all
outstanding common shares of Cabinetmakers Supply, Inc. (doing
business as Cornerstone Hardware & Supplies), a specialty
hardware distributor located in Houston, Texas.
Those 4 acquisitions jointly generated sales of $14,500. If these
acquisitions had all been completed as of December 1st 2015,
management considers that generated sales would have been
approximately $19,000.
2015
On June 18, 2015, the Corporation purchased the principal net
assets of BD Enterprises, Inc. (doing business as Single Source
Cabinet Supplies) a specialty hardware distributor located in
Dallas, Texas.
Summary of acquisitions
The purchase price allocations, at the transaction dates are
summarized as follows:
2. CHANGES IN ACCOUNTING METHODS
Recently issued
Current assets acquired
IFRS 15, Revenue from contracts with customers
Non current assets acquired
Current liabilities assumed
Non-current liabilities assumed
Net assets acquired
Considerations
Cash, net of cash acquired
Considerations payable [note 7]
IFRS 15 Revenue from Contracts with Customers replaces IAS 18
Revenue, IAS 11, Construction Contracts and related interpretations.
Under IFRS 15 standard, revenue is recognized at the point in
time when control of the goods or services transfers to the
customer rather than when the significant risks and rewards
are transferred. The new standard also requires additional
disclosures through notes to financial statements. IFRS 15 shall
be applied to fiscal years beginning on or after January 1st, 2018.
Earlier application is permitted.
IFRS 16, Leases
IFRS 16 Leases replaces IAS 17 Leases and related interpretations.
The new standard brings most leases on-balance sheet for
lessees under a single model, eliminating the distinction between
operating and finance leases. Lessor accounting however
remains largely unchanged and the distinction between operating
and finance leases is retained. IFRS 16 supersedes IAS 17 Leases
and related interpretations and is effective for periods beginning
on or after January 1st, 2019, with earlier adoption permitted if
IFRS 15 Revenue from Contracts with Customers has also been
applied.
The Corporation will assess the impact these new standards will
have on its consolidated financial statements.
During the year ended November 30, 2016, balances of sale were
reduced by $701 as a result of purchase price adjustments on
acquisitions from previous years.
2016
2015
$
4,111
8,641
$
977
5 1 1
12,752
1,488
1,574
784
10,394
9,294
1,100
10,394
932
—
556
511
45
556
44
44
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
4. PROPERTY, PLANT AND EQUIPMENT
Leasehold
improvements
Machinery and
equipment
Rolling
stock
Furniture
and fixtures
Computer
equipment
$
$
$
5,054
2,410
2,369
1,305
2,204
1,557
$
623
707
Total
$
22,895
10,277
53
44
17
12
159
(1,111)
(998)
(1,459)
(450)
(5,806)
111
1 1 9
144
19
438
6,517
28,587
2,839
9,861
2,463
16,047
9 1 1
27,963
10,945
100,398
—
(15,426)
(4,299)
(22,070)
(7,022)
(13,584)
(10,034)
(72,435)
3,652
10,848
733
6,517
2,839
2,463
9 1 1
27,963
Leasehold
improvements
Machinery and
equipment
Rolling
stock
Furniture
and fixtures
Computer
equipment
$
$
$
$
Total
$
Lands
Buildings
$
$
3,652
—
—
—
—
8,453
3,778
—
(1,383)
—
3,652
3,652
10,848
26,274
Lands
Buildings
$
$
3,652
10,848
—
—
—
—
1,317
—
(1,462)
—
3,652
3,652
10,703
27,591
Net carrying amount
as at November 30th, 2014
Acquisitions
Acquisitions through business
combinations
Amortization
Effect of changes in foreign exchange
rates
Net carrying amount
as at November 30th, 2015
Cost
Accumulated amortization
Net carrying amount
as at November 30th, 2015
Net carrying amount
as at November 30th, 2015
Acquisitions
Acquisitions through business
combinations
Amortization
Effect of changes in foreign exchange
rates
Net carrying amount
as at November 30th, 2016
Cost
Accumulated amortization
Net carrying amount
as at November 30th, 2016
$
540
520
33
(405)
45
733
5,032
$
733
1,095
191
(441)
—
1,578
6,515
6,517
3,820
2,839
1,850
2,463
1,089
911
2,124
27,963
11,295
126
23
70
76
486
(1,545)
(1,185)
(1,226)
(638)
(6,497)
3
5
1
2
1 1
8,921
3,532
32,752
10,838
2,397
17,641
2,475
33,258
12,695
111,684
—
(16,888)
(4,937)
(23,831)
(7,306)
(15,244)
(10,220)
(78,426)
3,652
10,703
1,578
8,921
3,532
2,397
2,475
33,258
$
$
Total
$
Goodwill
$
14,802
4,423
20,987
57,669
Additions during the year include $1,056 of property. plant and equipment under finance contract.
5. INTANGIBLE ASSETS AND GOODWILL
Softwares
Non-competition
agreements
Customer
relationships
Trademarks
Net carrying amount as at November 30th, 2014
Acquisitions
Acquisitions through business combinations
Amortization
Effect of changes in foreign exchange rates
Net carrying amount as at November 30th, 2015
Cost
Accumulated amortization
Net carrying amount as at November 30th, 2015
$
627
709
—
(458)
—
878
6,451
(5,573)
878
$
1,135
—
—
(461)
86
760
2,632
(1,872)
760
—
352
(1,724)
1,480
14,910
31,789
(16,879)
14,910
—
—
—
354
4,777
4,777
—
4,777
Net carrying amount as at November 30th, 2015
Acquisitions
Acquisitions through business combinations
Amortization
Effect of changes in foreign exchange rates
Net carrying amount as at November 30th, 2016
Cost
Accumulated amortization
Net carrying amount as at November 30th, 2016
Softwares
Non-competition
agreements
Customer
relationships
Trademarks
$
878
216
20
(495)
1
620
6,686
(6,066)
620
$
760
—
5 61
(602)
7
726
3,353
(2,627)
726
$
14,910
—
3,290
(2,007)
104
16,297
35,274
(18,977)
16,297
$
4,777
—
440
—
21
5,238
5,238
—
5,238
709
352
(2,643)
1,920
21,325
45,649
(24,324)
21,325
Total
$
21,325
216
4,311
(3,104)
133
22,881
50,551
(27,670)
22,881
—
—
—
660
58,329
58,329
—
58,329
Goodwill
$
58,329
—
3,844
—
83
62,256
71,023
(8,767)
62,256
Notes
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
45
45
5. INTANGIBLE ASSETS AND GOODWILL (cont’d)
Issued
Granted
Exercised
2016
2015
Cancelled
For impairment test purposes, the carrying value of goodwill
and intangible assets has been allocated to CGUs or groups of
CGUs. The carrying amounts of goodwill for the three CGUs that
are significant in comparison with the total carrying amount of
goodwill are $14.4 million, $11.2 million and $9 million respectively
while $27.7 million is allocated across multiple CGUs or groups of
CGUs with carrying values of goodwill that are not significant in
comparison with total carrying amount of goodwill.
The carrying amounts of intangible assets with indefinite useful
lives is allocated across multiple CGUs or groups of CGUs and
the amount allocated is not individually significant in compari-
son with the total carrying amount. The recoverable value of the
CGUs or groups of CGUs was determined on the basis of their
value in use, which was calculated using forecasted cash flows
before taxes over a period of five years, discount rates before
taxes between 12.5% and 13% and a terminal value calculated at
a rate of 2%. Main assumptions are based on historical data. No
reasonably possible change to the main assumptions used for the
impairment tests would result in a carrying amount higher than
the recoverable amount.
6. BANK INDEBTEDNESS
The Corporation has lines of credit with a Canadian banking
institution with respective authorized amount of $26 million in
Canadian dollar and $6 million in US dollar, bearing interest at the
bank’s prime and base rates, which were respectively 2.70% and
4% as at November 30, 2016 [2.70% and 3.75% in 2015]. Those
lines of credit are renewable annually.
7. LONG-TERM DEBT
Non-interest bearing financing contract,
repayable in 24 equal installments
1,056
$
Business acquisition considerations
payable, not bearing interests,
including US$ 2,835 [US$ 2,624
in 2015
Current portion of long-term debt
Long-term debt
3,808
4,864
4,336
528
$
—
3,580
3,580
2,245
1,335
Next years’ principal payments on long-term debt are 4,336 $ in
2017 and 528 $ in 2018.
8. SHARE CAPITAL
As at February 29, 2016, the Corporation carried out a 3-for-1
stock split of its common shares. All information pertaining to
shares have been retroactively restated to reflect the effect of
the stock split.
Authorized
Unlimited number of:
Common shares, participating, entitling the holder to one vote
per share.
Non-voting first and second ranking preferred shares issuable in
series, the characteristics of which are to be determined by the
Board of Directors.
2016
2015
$
$
36,050
33,566
57,920,466 common shares
[58,643,607 - 2015]
During 2016, the Corporation issued 281,559 common shares
[396,549 in 2015] at an average price of $8.42 per share [$7.73
in 2015] pursuant to the exercise of options under the share
option plan. The weighted average share price at the date of
exercise of options was $25.60 [$22.23 in 2015]. In addition,
during 2016, the Corporation, through a normal course issuer
bid, repurchased 1,004,700 common shares for cancellation
in consideration of $23,087 [451,800 common shares in
consideration of $9,180 in 2015], which resulted in a premium
on the redemption in the amount of $22,509 recorded in
retained earnings [premium of $8,944 in 2015].
Stock option plan
Changes in stock options are summarized as follows:
Number of
options
Weighted
average
share
price
$
Outstanding, November 30, 2014
1,761,594
8.93
246,900
18.83
(396,549)
7.73
(33,300)
12.66
1,578,645
356,500
10.70
22.31
(281,559)
8.42
(3,500)
18.93
Outstanding, November 30, 2015
Granted
Exercised
Cancelled
Outstanding, November 30, 2016
1,650,086
13.58
The table below summarizes information regarding the stock
options outstanding as at November 30, 2016:
Options outstanding
Exercisable options
Range in exercise
price
(in dollars)
Number of
options
Weighted aver-
age remaining
period
(years)
Weighted
average
exercise
price
(in dollars)
Weighted
average
exercise price
(in dollars)
Number of
options
5.57 - 10.06
645,486
2.06
6.85
645,486
6.85
10.07 - 14.07
228,525
5.87
12.30
180,488
12.19
14.08 - 18.08
179,550
7.21
15.12
89,775
15.12
18.09 - 26.29
596,525
8.87
20.90
60,506 18.83
1,650,086
5.61
13.58
976,255
9.34
During 2016, the Corporation granted 356,500 options [246,900
in 2015] with an average exercise price of $22.31 per share [$18.83
in 2015] and an average fair value of $4.21 per option [$4.14 in
2015] as determined using the Black & Scholes option pricing
model using an expected dividend yield of 1.0% [1.1% in 2015], a
volatility of 20% [21% in 2015], a risk free interest rate of 1.24%
[1.48% in 2015] and an expected life of 7 years [7 years in 2015]
and 3,500 options were cancelled. The compensation expense
related to stock options amounted to $844 [$662 in 2015] and is
recognized under Operating expenses excluding amortization.
Notes
46
46
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
8. SHARE CAPITAL (cont’d)
Deferred share unit plan
The financial liability resulting from the DSU plan of $5,847
[$6,022 in 2015] is presented under the Accounts payable
and accrued liabilities. As at November 30, 2016, the fair value
of the equity swaps amounted to an asset of $467 [$57 as at
November 30, 2015] and is presented under Accounts receivable.
The Corporation categorized the fair value measurement
in Level 2, as it is derived from observable market data. The
compensation expense for the DSUs in 2016, amounted to $363
[$462 in 2015] and is recognized under Operating expenses
excluding amortization.
The effective income tax rate differs from the combined statutory
rates for the following reasons:
2016
2015
$
$
Combined statutory rates
26.90%
26.90%
Income taxes at combined statutory rates
22,809
21,353
Increase (decrease) resulting from:
Impact of statutory rates changes for
the subsidiary outside Canada
Number of DSUs
2016
2015
Share-based compensation
Outstanding, beginning of year
254,055
235,005
Non-deductible expenses
Settled
Granted
Outstanding, end of year
Share purchase plan
(53,676)
—
16,565
19,050
216,944
254,055
Deferred tax assets not previously
recognized
Other
Compensation expense related to the share purchase plan
amounted to $610 for 2016 [$530 in 2015] and is recognized
under Operating expenses excluding amortization.
Net earnings per share
Basic net earnings per share and diluted net earnings per share
were calculated based on the following number of shares:
Deferred taxes reflect the net tax impact of temporary differences
between the value of assets and liabilities for accounting and tax
purposes. The major components of deferred tax assets and
liabilities of the Corporation were as follows:
2016
2015
Deferred taxes
Weighted average number of shares
outstanding - Basic
58,051
58,560
Dilutive effect under stock option plan
730
783
Weighted average number of shares
outstanding - Diluted
58,781
59,343
The computation of diluted net earnings per share includes all
outstanding options as at November 30, 2016.
9. INCOME TAXES
The main components of the income taxes expense are as
follows:
Translation of foreign exchange
currencies, reserve recognized for tax
purposes only upon disbursement and
other tax attributes
Excess of the tax value of Property, plant
and equipment over their net carrying
value
Excess of the net carrying value of
intangible assets and goodwill over
their tax value
Net amount
Current
Deferred:
2016
2015
$
$
22,302
20,902
Related to temporary differences
1,719
1,698
Deferred tax assets not previously
recognized
The net deferred taxes included the following as at November 30:
Deferred tax assets
Deferred tax liabilities
2016
2015
$
$
4,848
4,867
(3,239)
(3,020)
1,609
1,847
(2,244)
(2,097)
21,777
20,503
The net deferred taxes for the years ended November 30 is de-
tailed as follows:
Balance at the beginning of the year, net
In net earnings
Business acquisitions
Other
2016
2015
$
1,847
525
(784)
21
$
1,014
399
—
434
Balance at the end of the year, net
1,609
1,847
506
191
141
716
171
102
(2,244)
(2,097)
374
258
21,777
20,503
2016
2015
$
$
5,835
5,305
1,459
1,654
(5,685)
(5,112)
1,609
1,847
Notes
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
47
47
9. INCOME TAXES (cont’d)
Credit risk
The amount of deductible temporary differences and unused
tax losses for which no deferred tax assets was recognized to
the consolidated statement of financial position is $15,700 as at
November 30, 2016 [$18,900 in 2015].
10. COMMITMENTS AND CONTINGENCIES
[a] Leases
The Corporation has commitments under operating leases for
warehouse and office premises expiring on various dates up to
2026. The future minimum payments, excluding incidental costs
for which the Corporation is responsible, are as follows:
The Corporation sells its products to numerous customers in
Canada, and in a lesser proportion in the United States. The
credit risk refers to the possibility that customers will be unable
to assume their liabilities towards the Corporation. The average
days outstanding of accounts receivable, as at November 30,
2016 and 2015 is deemed acceptable given the industry in which
the Corporation operates.
The Corporation performs ongoing credit evaluation of customers
and generally does not require collateral. The allowance for
doubtful accounts for the years ended November 30 are as
follows:
Less than a year
Between 1 and 5 years
More than 5 years
$
10,917
23,598
4,012
38,527
[b] Foreign exchange forward contracts
As at November 30, 2016, the Corporation held the following
foreign exchange forward contracts having maturity dates in
December 2016 and January 2017.
Type
Currency in thousands Average exchange rate
Purchase
Purchase
3,625 euros
$US 2,838
1.45
1.29
[c] Claims
In the normal course of business, various proceedings and claims
are instituted against the Corporation. Management believes that
any forthcoming settlement in respect of these claims will not
have a material effect on the Corporation’s financial position or
consolidated net earnings.
11. ACCUMULATED COMPREHENSIVE INCOME
The accumulated other comprehensive income, including the
following items and their variances, were as follows:
2016
2015
$
$
Balance at the beginning of the period
19,150
6,985
Exchange differences on translation of
foreign operations
Balance at the end of the period
816
19,966
12,165
19,150
12. FINANCIAL INSTRUMENTS AND OTHER
INFORMATION
Fair value
The carrying value of long-term debt approximates their fair
value because of the short maturity on balances of sale payable.
The Corporation categorized the fair value measurement in
Level 2, as it is derived from observable market data.
As at November 30, 2016, the fair value of the foreign exchange
forward contracts amounted to an asset of $228 [liability of $114 as
at November 30, 2015] representing the amount the Corporation
would collect on settlement of these contracts at spot rates. The
Corporation categorized the fair value measurement in Level 2,
as it is derived from observable market data.
Balance, beginning of year
Allowance for doubtful accounts
Write-offs
2016
2015
$
5,854
1,337
$
5,935
689
(1,118)
(1,340)
Exchange rate variations and other
250
570
Balance, end of year
6,323
5,854
The balance of accounts receivable of the Corporation that are
overdue for more than 60 days, but which were not provided for,
totals $563 [$568 in 2015]. As at November 30, 2016 and 2015,
no customer accounted for more than 10% of the total accounts
receivable.
Market risk
The Corporation’s foreign currency exposure arises from
purchases and sales transacted mainly in US dollars and Euros.
Operating expenses included, for the year ended November 30,
2016, an exchange gain of $1,057 [gain of $1,460 in 2015].
The Corporation’s policy is to maintain the purchase prices and
selling prices of its commercial activities by mitigating its exposure
through use of derivative financial instruments. To protect its
operations from exposure to exchange rate fluctuations, foreign
exchange contracts are used. Major exchange risks are covered
by a centralized cash flow management. Exchange rate risks
are managed in accordance with the Corporation’s policy on
exchange risk management. The goal of this policy is to protect
the Corporation’s profits by reducing the exposure to exchange
rate fluctuations. The Corporation’s policy does not allow
speculative trades.
As at November 30, 2016, a decrease of 5% of the Canadian
dollar against the US dollar and the euro on translation of
monetary assets and liabilities, all other variables remaining the
same, would have had no significant impact on consolidated net
earnings [would have had no significant impact on consolidated
net earnings as at November 30, 2015] and would have increased
the consolidated comprehensive income by $6,154 [$5,642 as at
November 30, 2015]. The exchange rate sensitivity is calculated
by aggregation of the net foreign exchange rate exposure of the
Corporation’s financial instruments as at November 30, 2016.
Liquidity risk
The Corporation manages its risk of not being able to settle
its financial liabilities when required by taking into account
its operational needs and by using different financing tools, if
required. During the previous years, the Corporation has financed
its growth, its acquisitions, and its payout to shareholders by
using the cash generated by the operating activities.
48
48
notes to Consolidated finanCial statements
November 30, 2016 and 2015 (amounts are in thousands of dollars, except per-share amounts or otherwise indicated)
12. FINANCIAL INSTRUMENTS AND OTHER
15. CAPITAL MANAGEMENT
The Corporation’s objectives are:
• maintain a low debt ratio to preserve its capacity to pursue its
growth both internally and through acquisitions; and
• provide an adequate return to shareholders.
The Corporation manages and makes adjustments to its capital
structure in light of changes in economic conditions and the
risk characteristics of underlying assets. To maintain or adjust
its capital structure, the Corporation may adjust the amount of
dividends paid to shareholders, return capital to shareholders or
issue new shares. For the year ended November 30, 2016 the
Corporation achieved the following results regarding its capital
management objectives:
• Debt/equity ratio: 1.2% [1.0% in 2015] [Long-term debt/Equity]
• Return on average shareholder’s equity of 16.6% over the last
12 months [17.5% as at November 30, 2015]
The Corporation’s capital management objectives remained
unchanged from the previous fiscal year.
16. DIVIDENDS PAID TO SHAREHOLDERS OF THE
CORPORATION
For the year ended November 30, 2016, the Corporation paid a
quarterly dividend of $0.0533 per share to common shareholder
[quarterly dividend of $0.05 per share in 2015] for a total amount
of $12,374 [$11,717 in 2015]. The Board of Directors approved on
January 19, 2017 the payment of a quarterly dividend of $0.0567
per common share for the 1st quarter of 2017.
17. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements for the year ended
November 30, 2016 (including the comparative figures) were
approved for issue by the Board of Directors on January 19, 2017.
18. COMPARATIVE FIGURES
All information pertaining to shares have been retroactively
restated to reflect the effect of the 3-for-1 stock split effective on
February 29, 2016.
INFORMATION
Operating expenses excluding amortization
2016
2015
$
$
Inventories from the distribution, imports
and manufacturing activities
614,003
540,768
Salaries and related charges
117,965
105,092
Other charges
18,083
16,105
750,051
661,965
An expense of $1,959 [$2,776 in 2015] for inventory obsolescence
is included in Inventories from the distribution, imports and
manufacturing activities.
13. RELATED PARTY INFORMATION
Scope of consolidation
Names
Country of
incorporation
Richelieu America Ltd.
United States
Richelieu Finances Ltée (1)
Canada
Les industries Cedan Inc.
Distributions 20/20 Inc.
Canada
Canada
Provincial Woodproducts Ltd
Canada
Menuiserie des Pins Ltée
Canada
Equity
interest
Voting
rights
%
100
100
100
100
85
75
%
100
100
100
100
85
75
(1) Richelieu Finances Ltée is the owner of 100% of Richelieu
Hardware Canada Ltd.
Executive officers’ compensation
2016
2015
$
$
Short-term employee benefits
3,501
3,360
Other long-term benefits
Share-based compensation
557
458
560
440
4,516
4,360
Accounts payable and accrued liabilities include a retirement
allowance amounting to $2,300 payable to an executive officer.
14. GEOGRAPHIC INFORMATION
During the year ended November 30, 2016, nearly 66% of sales
had been made in Canada [69% in 2015]. The Corporation’s sales
to foreign countries, almost entirely directed to the United States,
amounted to $285,336 [$235,903 in 2015] in Canadian dollars and
to $215,028 [$186,815 in 2015] in US dollars.
As at November 30, 2016, out of the total amount in property,
plant and equipment, $3,080 [$2,730 in 2015] are located in the
United States. In addition, intangible assets located in the United
States amounted to $15,410 [$12,796 in 2015] and goodwill to
$13,159 [$9,231 in 2015] in Canadian dollars and to $11,476 [$9,581
in 2015] and to $9,799 [$6,913 in 2015] in US dollars.
transfer agent and Registrar
Computershare trust Company of Canada
auditors
ernst & Young LLP
800 René-Lévesque Blvd. West
Suite 1900
Montreal, Quebec, H3B 1X9
Head office
Richelieu Hardware Ltd.
7900 Henri-Bourassa Blvd. West
Montreal, Quebec, H4S 1V4
telephone: 514 336-4144
Fax: 514 832-4002
Printed in Canada
w w w . R i c h e l i e u . c o m
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