Reach Annual Report 2023

Plain-text annual report

R I C H E L I E U A C R E A T I V E S Y N E R G Y O F S T R E N G T H S · A N N U A L R E P O R T 2 0 2 3 A CREATIVE SYNERGY OF STRENGTHS Annual report 2023 Table of contents 1. 30 years at TSX · 6 2. North American Leader — Importer, manufacturer and world-class distributor · 7 3. A robust network of distribution and proximity service centres · 8 4. Financial solidity · 10 5. Soundness fostered by two growth drivers · 12 6. Message to shareholders · 13 11. For a select and distinctive customer experience — A value-added multiaccess service · 25 12. A diversified and complementary flow of categories — One-stop- shop · 26 13. richelieu.com — Key component of the value-added multiaccess service · 27 7. Directors and Officers · 19 14. Innovation creates value · 29 8. Our values · 20 9. Over 110,000 customers in diversified markets · 22 15. Social and environmental responsibility · 36 Management’s report · 38 10. Architects and designers — Financial statements · 57 A productive partnership · 24 Related notes · 61 3 Annual General Meeting of Shareholders to be held on Thursday, April 11, 2024. RichelieuAnnual Report 2023The combined creativity of our teams and our supplier partners supports the creativity of our customers, who are source of inspiration as well. A creative synergy of strengths. 4 RichelieuAnnual Report 20235 RichelieuAnnual Report 20231. 30 years at TSX Richard Lord New President and CEO and shareholder Listing on TSX (RCH) First distribution centre in the U.S. 1988 1993 1999 2019 2023 Centre 1 Sales $27 M Centres 7 Sales $60 M Market capitalization $0.04 G Centres 18 Sales $165 M Market capitalization $0.1 G Centres 77 Sales $1.0 G Market capitalization $1.5 G Centres 112 Sales $1.8 G Market capitalization $2.4 G 86 ACQUISITIONS Value creation 6 RichelieuAnnual Report 20232. North American Leader — Importer, manufacturer and world-class distributor Sales $1.8 G Customers +110,000 Centres Products (SKUs) Including 3 manufacturing plants 112 * 4.8 M sq.ft. +130,000 +50% private labels and exclusive products Team +3,000 ~50% employees shareholders * As at November 30, 2023 7 RichelieuAnnual Report 20233. A robust network of distribution and proximity service centres Nashville New York (2) Omaha Orlando Ozark Philadelphia Phoenix Pompano Portland ME Portland OR Reading (2) Richmond Riviera Beach Rochester Sarasota Savannah Seattle Sioux Falls Springfield IL St. Louis Syracuse Tampa Bay Thomasville 3 manufacturing plants � Les Industries Cedan inc. Longueuil (Veneers and edgebanding) Usimm Unigrav inc. Drummondville (Machining, 3D digitiza- tion, unique products) Menuiserie des Pins Ltée Notre-Dame-des-Pins (Decorative mouldings and components for the window and door industry) Coverage by representatives � 50 distribution centres in Canada � 59 distribution centres in the United States � Atlanta (2) Birmingham Boston Buffalo Burlington Carlstadt Charlotte Chicago (2) Cincinnati Columbus Dallas Dania Des Moines Detroit Eugene Fort Myers Greensboro Greenville Hartford Hialeah Hickory Houston (2) Indianapolis Jacksonville Kansas City Lewiston Lincoln Park Louisville Memphis Minneapolis Morristown Anjou Barrie Brampton Brantford Burlington Calgary (4) Concord Dartmouth (2) Delta Edmonton Kelowna Kitchener Laval (2) Longueuil (2) Mississauga Moncton Montreal (3) North York Ottawa Quebec (3) Regina Saskatoon St-Jacques St. John’s Sudbury Terrebonne Thunder Bay Toronto (5) Vancouver (5) Victoria (2) Winnipeg 8 RichelieuAnnual Report 202350 centres in Canada 3 manufacturing plants 59 centres in the United States 9 RichelieuAnnual Report 20234. Financial solidity Sales (in millions $) Net earnings per share attributable to shareholders (diluted) (in $) 1,802.8 1,787.8 1,440.4 1,041.6 1,127.8 2.99 2.51 1.98 1.50 1.16 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 Adjusted cash flows from operating activities1 (in millions $) 227.8 183.0 190.5 Equity attributable to shareholders/debt (in millions $) 666.4 551.1 498.4 904.9 817.2 121.1 98.4 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 5.7 5.8 6.4 6.0 5.3 Market capitalization $2.4 billion Appreciation in share price (RCH): 5,935% Since initial stock listing Total return on share/10 years*: 212% $39 million 1993 10 Average annual return on share/10 years*: 12% * Including dividend reinvestment 2023 1. Adjusted cash flows from operating activities is a non-IFRS measure, as indicated on page 42 of this report. RichelieuAnnual Report 2023Financial highlights Years ended November 30 (in thousands of $, except per share amounts, number of shares and data expressed as a %) Sales EBITDA1 EBITDA margin (%) Net earnings Net earnings attributable to the Shareholders of the Corporation → Basic per share ($) → Diluted per share ($) Net margin (%) 2023 $ 2022 $ 2021 $ 2020 $ 20193 $ 1,787,754 1,802,787 1,440,416 1,127,840 1,041,647 230,404 287,442 234,398 154,461 124,207 12.9 15.9 16.3 13.7 11.9 113,827 169,949 142,331 85,611 66,671 111,474 168,390 141,764 85,222 66,471 2.00 1.98 6.2 3.01 2.99 9.3 2.54 2.51 9.8 1.51 1.50 7.6 1.17 1.16 6.4 Adjusted cash flows from operating activities2 190,483 227,795 182,991 121,125 98,390 → Diluted per share ($) 3.39 4.04 3.24 2.14 1.72 Dividends paid to the Shareholders of the Corporation 33,521 29,083 19,374 11,284 14,424 → Per share ($)4 0.600 0.520 0.280 0.200 0.253 Weighted average number of shares outstanding (diluted) (in thousands) As at November 30 Total assets Working capital Current ratio Equity attributable to the Shareholders of the Corporation Average return on equity (%) Book value per share ($) Long-term debt 56,216 56,345 56,466 56,646 57,192 1,314,963 1,283,865 964,180 771,056 672,146 621,764 562,548 456,376 377,408 335,467 3.7 2.6 3.3 3.6 4.1 904,893 817,157 666,442 551,094 498,384 12.9 16.13 5,346 22.7 14.65 6,067 23.3 11.93 6,439 16.2 9.86 5,792 73,928 13.7 8.86 5,659 24,701 Cash and cash equivalents (bank overdraft) 23,710 (111,988) 58,707 1. EBITDA is a non-IFRS measure, as indicated on page 42 of this report. 2. Adjusted cash flows from operating activities and adjusted cash flows from operating activities per share are non-IFRS measures, as indicated on page 42 of this report. 3. Those figures have been restated following the adoption of IFRS 16 on December 1, 2019. 4. The amount per share presented for 2021 excludes a special dividend paid of $0.0667 per share. 11 RichelieuAnnual Report 20235. Soundness fostered by two growth drivers ➀ INNOVATIONS IN THE PRODUCT OFFERING Short- and long-term value creation ➁ BUSINESS ACQUISITIONS 86 acquisitions 41 in Canada + 45 in the United States 12 RichelieuAnnual Report 20236. Message to shareholders Richard Lord, President and Chief Executive Officer The year 2023 was one of solid operational and financial performance, marked by achievements in line with our strategic priorities and our optimization culture. ▹ 13 RichelieuAnnual Report 2023Message to shareholders Regardless of economic fluctuations and market conditions, our innovation and acquisition strategies have consistently served the Corporation very well, enabling us to create value in short and long term, and we are extending our lead in North America. 14 ▿ We are proud of the returns from our market penetration initiatives and business acquisitions, which brought this year sales to $1.8 billion, comparable to 2022 when the renovation market was strongly impacted during the pandemic. Also we are satisfied with our net earnings and solid financial position. Building on the strength of our business model, we continued to enhance the potential of our network with six new acquisitions and several centre expansion and modernization projects to seize market growth opportunities and optimize operations and service. Fiscal 2023 was a dynamic productive year focused on the customer experience, as we further diversified our offering with a number of innovations, and maximize the value we bring to our customers through our multiaccess service. Richelieu’s last thirty years as a TSX-listed Corporation have been marked by key milestones that have expanded and strengthened its financial foundation, diversified its offering, markets and talents. From an SME in 1993, supplying some 11,000 Canadian customers through seven distribution centres, achieving sales of about $60 million, Richelieu has steadily evolved to become a leader in its North American market, serving over 110,000 customers RichelieuAnnual Report 2023Our successful achievements over the past thirty years show that we have made decisions and taken actions at the right time in the interest of our four pillars of growth: employees, customers, suppliers and shareholders. Message to shareholders The AutoStore® robotic system at the Ville Saint-Laurent, Qc distribution centre optimizes overall warehouse performance and space management. through 112 centres and richelieu.com, with more than 40% of its total sales coming from the United States. World-class innovation and acquisitions of complementary businesses are our two fundamental strategic drivers from which we have never deviated. Regardless of economic fluctuations and market conditions, our innovation and acquisition strategies have consistently served the Corporation very well, enabling us to create value in the short and long term, and we are extending our lead in North America. Our financial track record reflects our culture of growth, innovation, quality of execution and adaptability to changing situations. Our suc- cessful achievements over the past thirty years show that we have made decisions and taken actions at the right time in the interest of our four pillars of growth: employees, customers, suppliers and shareholders. We did it and continue to do so thanks to our outstanding, committed and creative team. There are now over 3,000 of us working at Richelieu, and everyone makes a difference. We believe in encouraging initiative, and we make sure that everyone on our team has the best operational tools and the support they need to succeed in their respective responsibilities, so they can realize their professional potential while prioritizing customer satisfaction. We ensure that our hiring programs are competitive and inclusive at all levels of the organization. Every day we see how our customers’ needs and purchasing habits evolve and change. Our marketing, sales and service team, who represents nearly 50% of Richelieu’s employees, pay close attention to the evolving expectations of our diversified customers. What gives Richelieu’s service its distinctive added value is primarily a unique combination of advantages in our market: proximity and ▹ 15 RichelieuAnnual Report 2023Message to shareholders The control and flexibility of our supply chain, the efficiency of each of our interconnected centres throughout the network, and the performance of our richelieu.com site are top priorities in meeting our commitment to product availability, reliability and service excellence. 16 When architectural glass adds elegance, modernity and brightness to commercial spaces. ▿ personalized service, market-specific approach, expert advice, ease and reliability of purchasing operations from product selection by the customer to “just-in-time” delivery to their business—plus our incomparable diversified offering available in our “one-stop-shop” centres and online, with the added flexibility offered by richelieu.com for configuring products to specific customer needs. This advantage synergy is efficiently supported by our supply chain, which we keep properly equipped with the most appropriate technological tools for our distribution activities, including performance analysis and market targeting—while our products are sourced from several continents and delivered coast-to-coast in North America. The control and flexibility of our supply chain, the efficiency of each of our interconnected centres throughout the network, and the performance of our richelieu.com site are top priorities in meeting our commitment to product availability, reliability and service excellence. What attracts and seduces customers most of all is, without a doubt, innovation in our product offering. Every year, we take the risk of investing in innovations to inspire our customers, make their jobs easier and support them in their goals of differentiation and productivity. In 2023, we have introduced trend-setting innovations in several of our categories, including storage and lighting solutions, decorative products, eco-certified products and the very latest in design and fittings. At our manufacturing partners who are world leaders in their fields, creativity is supported by technological RichelieuAnnual Report 2023Every year, we take the risk of investing in innovations to inspire our customers, make their jobs easier and support them in their goals of differentiation and productivity. Message to shareholders advances to continually reinvent and invent cutting-edge products. We interact with them and with our customers to bring to the North American market the best the world has to offer, and what is best suited to meet the needs of our customer segments. Our vision is to be the most diversified, innovative and complete destination in products for manufacturers in the renovation, construction, wardrobe, residential and office furniture, doors and windows industries, as well as for hardware retailers and renovation superstores. This is how we have always defined Richelieu’s vocation. Complementing our innovation strategy, our three specialized manufacturing plants and the business acquisitions we realize every year also support that mission. Since 1993, we have completed 86 acquisitions in North America, expanding and enhancing our presence in key markets, while diversifying our offering and expertise to meet customer needs in an ever more comprehensive way, and to accelerate growth. In 2023, the acquisitions of Unigrav, Usimm and Quincaillerie Rabel in Quebec, followed by Trans-World Distributing in Nova Scotia, Maverick Hardware in Oregon and Westlund Distributing in Minnesota, were added to the 2022 acquisitions of Compi Distributors, HGH Hardware Supply and National Builders Hardware in the United States, and Quincaillerie Deno in Quebec. Together, these ten transactions represent additional annual sales of approximately $152 million, and all meet our criteria of complementarity and diversification of products, customer bases and expertise. While integrating these acquisitions, we made a strategic review of our distribution centres, based on market forecasts, and set up an expansion and consolidation program for several of them. Over the past two years, we have invested in these projects in order to seize growth opportunities and offer our customers optimal service. Expansion and modernization projects have been completed in the Atlanta, Nashville, Fort Myers, Pompano and Seattle regions. Our brand-new Chicago centre serving the retailers market is fully operational, as are our two new centres in the Minneapolis and Carlstadt regions. We have also implemented our expansion project in Calgary by refitting two centres into a single 250,000 sq. ft. building in December 2023. We will continue to optimize the ▹ 17 RichelieuAnnual Report 2023Message to shareholders At our manufacturing partners who are world leaders in their fields, creativity is supported by technological advances to continually reinvent and invent cutting-edge products. We interact with them and with our customers to bring to the North American market the best the world has to offer, and what is best suited to meet the needs of our customer segments. 18 ▿ operational performance and profitability of our network, keeping it strong and efficient to meet the challenges of future growth. Lastly, we continue to pay close attention to every aspect of our environmental and social responsibility. We maintain a safe and sustainable use of our resources, as well as a healthy and secure working environment for our distribution centres and head office teams. In addition, we remain committed to various projects designed to contribute to the quality of life of the communities in which we operate, and are proud to make concrete contributions to both heritage conservation and youth educational initiatives. Richelieu is firmly rooted in a strong, creative industry that keeps innovating and growing. We serve a diversified and steadily expanding customer base, and we are financially sound to pursue our investments in the future. With confidence and the support of a passionate and expert team, we will continue to advance and prosper, relying on our growth drivers of innovation, acquisitions and distinctive value-added service. ● (Signed) Richard Lord President and Chief Executive Officer RichelieuAnnual Report 2023Larry Lucyshyn Vice-President, Sales to US Retailers Éric Daignault General Manager of Divisions John Statton General Manager · Western Canada Division Yannick Godeau Legal Affairs and Corporate Secretary 7. Directors and Officers Directors Officers Sylvie Vachon1 Corporate Director Richard Lord President and Chief Executive Officer Quincaillerie Richelieu Ltd. Lucie Chabot4 Corporate Director Robert Courteau3 President CM Management Inc. Marie Lemay4 President Royal Canadian Mint Luc Martin2 Corporate Director Pierre Pomerleau5 Executive Chairman of the Board Pomerleau Inc. Marc Poulin5 Corporate Director Richard Lord President and Chief executive Officer Antoine Auclair Vice-President and Chief Financial Officer Guy Grenier Vice-President, Sales and Marketing · Industrial Alain Charron Vice-President · Logistics and Supply Chain Denis Gagnon Vice-President · Information Technology Marjolaine Plante Vice-President · Human Resources Jeff Crews Vice-President, Business Development · Retailers Market, Canada Craig Ratchford Vice-President, General Manager · United States 1. Chairwoman of the Board 2. Chairman of the Audit Committee 3. Chairman of the Human Resources and Corporate Governance Committee 4. Member of the Audit Committee 5. Member of the Human Resources and Corporate Governance Committee 19 RichelieuAnnual Report 20238. Our values Multidisciplinary skills linked by team spirit and a commitment to meeting challenges with both creativity and rigour. Supported by cooperative leadership and the most effective tools for the job, all team members are customer oriented. They share the Corporation’s values, and take on their respective responsibilities with autonomy and initiative. ● 20 RichelieuAnnual Report 2023Customer First Innovation Performance Passion, commitment, discipline, attention to detail and rigour are the driving principles that motivate every one of us for a “customer first” strategic approach. We are always on the lookout for better ways to meet our customers’ needs. Anticipating their needs allows us not only to support them in their business, but even to exceed their expectations. Our creative approach and innovative product offering keep us at the cutting edge of global trends, and allow us to offer a unique range of innovations, concepts and innovative solutions. Our creativity is also reflected in our market development strategy, as well as in the sustained efforts of each of us to remain innovative, proactive and adaptable to change and new challenges. At Richelieu, we are proud to make a significant contribution to achieving outstanding performance. Impeccable execution, ongoing training, a strong team spirit and a concern for costs and efficiency are key elements in a successful business model aimed at excellence and high performance. Intrapreneurship All employees contribute to Richelieu’s success just as if it where their own business. We encourage the empowerment and commitment of all our team members towards our organization, culture and values. Respect, integrity and ethics Respect for our employees, cus- tomers, suppliers and shareholders means we can build lasting and trusting relationships with our four pillars of growth. Collaboration, openness, transparency and honesty are keys to the smooth running of our organization. With integrity, we ensure responsible management in order to minimize risks, comply with law and ensure sound governance. 21 RichelieuAnnual Report 20239. Over 110,000 customers in diversified markets Boucher Guitars, Berthier-sur-Mer, at the heart of Appalachians. A team of passionate craftsmen and luthiers who patiently and lovingly handcraft and assemble stunning- sounding acoustic guitars. Richelieu assembly and finishing products. Our manufacturer customers Our manufacturer customers bring their expertise to a broad range of fields. Their products are all designed for residential, commercial and institutional needs, whether they are manufacturers of kitchen and bathroom cabinets, wardrobes, storage units, residential and office furniture, or doors and windows. They face the challenges common to all businesses. 22 Our commitment is to understand our customers’ supply and manufacturing challenges and needs, and to provide full satisfaction with impeccable quality and reliability of service, including a broad range of functional and decorative products to optimize project execution. ● RichelieuAnnual Report 2023Our retailer and renovation superstore customers We serve many thousands of retailers in North America, from independent retailers under a wide range of banners and buying groups, to superstores and renovation centres. We understand the challenges they are facing in today’s fast-changing retail environment. With diligent, reliable service and a diversified offering that meets the needs of the market, we help these businesses become destinations where their customers can enjoy an in-store experience that lives up to their expectations. ● 23 RichelieuAnnual Report 202310. Architects and designers — A productive partnership They advise, guide and represent their clients in choosing the most appropriate products and mate- rials for their building, renovation and fabrication projects. Architects and designers are key partners we are proud to keep informed about our innovative solutions. Our collaborations help make their residential, institutional and commercial projects a success and contribute to a win- win partnership. ● 24 RichelieuAnnual Report 202311. For a select and distinctive customer experience — A value- added multiaccess service Listening to customer Understanding and anticipating needs Multiaccess service Proximity Customized service richelieu.com Distinctive showrooms Showrooms adjacent to the distribution centres Modern Welcoming Documented Customer Continuous innovation Catalyst for worldwide innovations Market influencer Logistics expertise Interconnected distribution centres One-stop-shop centres Just-in-time deliveries Automation Sales tools for customers Complete set of brochures and technical catalogs Display systems for manu- facturers and retailers Website richelieu.com 25 RichelieuAnnual Report 202312. A diversified and complementary flow of categories Decorative Hardware Screws and Fasteners Furniture Equipment Hinges Slides One-stop-shop Opening Systems Kitchen Solutions Closet and Storage Solutions Office Solutions Sliding System Solutions Glass Hardware Window and Exterior Door Hardware Builder’s Hardware Veneer and Edgebanding Surfaces and Decorative Panels Finishing Products Lighting Solutions 26 RichelieuAnnual Report 202313. richelieu.com — Key component of the value-added multiaccess service → Comprehensive offering → Real-time information — photos, → High-performance ergonomics videos, user instructions → Trilingual — French, English, → Complete purchasing operation Spanish → Product configuration according → Interaction between employees, to specific needs customers and suppliers Informed decision- making Easier purchasing process 27 RichelieuAnnual Report 202314. Innovation creates value As a key driver of evolution and growth, innovation is shaping living and working environments. We are committed to constantly updating our offering to include the latest high-performance products, designed with careful attention. We remain true to our mission of bringing the best in quality, functionality and unique stylistic appeal to our North American markets. From some 10,000 products in six categories in 1993, we now offer over 130,000 products in a host of complementary categories, including a number of our own- brand and exclusive products. ● 29 RichelieuAnnual Report 2023Innovation creates value The latest trends in kitchen design and fittings combine functionality and elegance in a host of components, including decorative surfaces and panels, retractable storage systems and versatile lighting. 30 RichelieuAnnual Report 2023Innovation creates value A wide-ranging collection of furnishing hardware featuring finishes, materials and designs that reflect tradition and trends. Innovations and unique creations by leading designers. 31 RichelieuAnnual Report 2023Innovation creates value Architectural glass offers many attractive properties to designers of residential and commercial construction and renovation projects. Whether for exterior balustrades, railings or interior doors, the use of glass requires a range of components with proven strength and durability. These same qualities of reliability and resistance are required for all the hardware components sought by window and door manufacturers. 32 RichelieuAnnual Report 2023Innovation creates value Planning a closet or walk-in requires both a sense of order and efficiency, supported by strong knowledge of the various storage and lighting systems and the many functional and decorative hardware components that will bring elegance, cleanliness and functionality to these living spaces. 33 RichelieuAnnual Report 202315. Social and environmental responsibility Arbre-Évolution Le Boulot vers… Fondation Autisme Laurentides Richelieu is involved in a number of projects aimed at improving the ecological diversity and quality of life of the communities in which it operates. It takes part in many ways in educational initiatives aimed at the sustainable reintegration of young people into society and the job market, as well as in heritage conservation and community awareness projects. 36 RichelieuAnnual Report 2023Richelieu has always been very aware of the need for environmental and social responsibility. The Corporation has long been committed to reducing its carbon footprint by optimizing its use of packaging materials, employing sound waste management practices, establishing long- term partnerships with its main suppliers and carriers, as well as the ever-increasing use of energy-efficient equipment and the continued diversification of its wide range of certified eco- friendly products. In this regard, Richelieu is very concerned with the safe and responsible use of all its resources, including the protection of its employees, the communities and the environment. The Corporation has also set up a structure providing its employees and consultants with a safe and healthy work environment, exempt from harassment, as well as various training initiatives tailored to each of its operating centres. Richelieu strives for fair and honest competition in all of its business activities, as per its business policies. All employees are therefore required to confirm they understand and comply with the provisions of the Corporation’s code of ethics and professional conduct. Finally, Richelieu relies on an effective governance structure and team. The Board of Directors and manage- ment team make it a priority to safeguard Richelieu’s long-term reputation as a responsible Corporation, in compliance with its values and objectives. ● 37 RichelieuAnnual Report 2023Management’s Report Highlights of the year ended November 30, 2023 · 40 Internal control over financial reporting · 51 Presentation basis · 41 Forward-looking statements · 41 Non-IFRS measures · 42 General business overview as at November 30, 2023 · 42 Significant accounting policies and estimates · 51 Subsequent events · 51 New accounting policies · 51 Risk factors · 52 Main trademarks · 43 Share information · 54 Mission and strategy · 43 Outlook · 54 Network development · 43 Supplementary information · 54 Financial highlights · 44 Analysis of operating results · 45 Management’s and independant auditor’s reports · 55 Quarterly data · 46 Fourth quarter · 47 Financial position · 48 Contractual commitments · 50 Financial instruments · 50 Consolidated financial statements · 57 Notes to consolidated financial statements · 61 39 RichelieuAnnual Report 2023Management’s ReportHighlights of the year ended November 2023 Richelieu’s results reflect the strength and expertise of its team, the Corporation’s ability to stand out in its markets through its customer service performance, to seize growth opportunities by completing six acquisitions in North America, and further diversify its offering with innovative products selected from world-leading manufacturers. Maintaining its focus on operational and financial objectives, Richelieu pursued its innovation, acquisition and market development strategies with dynamism and creativity to achieve sales in line with those of 2022, which increased by 25% in a most favourable context resulting from the pandemic. Despite the return to pre-pandemic levels of certain operating expenses and the charges associated to major network expansion projects, the Corporation reported good net results and a solid financial position on November 30, 2023. Over the past two years, Richelieu has completed ten acquisitions in North America, six of which were closed in 2023, collectively representing additional sales of approximately $152 million on an annual basis, in addition to increasing its penetration in several strategic markets in Canada and the United States. Subsequent to fiscal 2023, two new acquisitions were realized: Olympic Forest Products Inc., a distributor of specialized lumber and panel products operating a distribution centre in Erin, ON, and Rapid Start, a specialty hardware distributor operating a distribution centre in Rittman, OH. These two recent transactions, fully aligned with Richelieu’s values and objectives, will add sales of approximately $18 million on an annual basis. In order to continue to seize market growth opportun- ities and optimize our operations and customer service, Richelieu has undertaken several projects over the past two years. The Corporation also completed expansion and modernization projects of its centres in Atlanta, Nashville, Fort Myers, Pompano and Seattle regions. The brand-new Chicago centre serving the retail market is fully operational, as are the two new centres in the Minneapolis, MN and Carlstadt, NJ regions. Furthermore, in December 2023, the expansion project in Calgary was completed with the refitting of two centres into a single 250,000 sq. ft. building. Soundly positioned and building on the strengths of its diversified market segments, Richelieu’s value-added service concept rooted in innovation and one-stop-shop approach, the performance of its richelieu.com website 40 and financial soundness, Richelieu will continue to drive growth through innovation and acquisitions, with the contribution of its expert and committed team. → Total sales amounted to $1.8 billion, a slight decline of 0.8%, of which 2.6% was due to internal decrease, partially offset by 1.8% growth from acquisitions. → Earnings before interest, income taxes and amortiz- ation (EBITDA)(1) came to $230.4 million, compared to $287.4 million for fiscal 2022, a decline of 19.8%. EBITDA margin stood at 12.9%, compared to 15.9% for the previous year. → Diluted net earnings per share declined by 33.8% to $1.98 from $2.99 in the previous year and net earnings attributable to shareholders amounted to $111.5 mil- lion compared to $168.4 million last year, down 33.8%. → Cash flows from operating activities totalled $270.7 million. → Working capital increased by 10.5% to $621.8 million, for a current ratio of 3.7: 1. → Average return on equity was 12.9%. → Repurchase of 20,000 common shares for $0.8 mil- lion and payment of $33.5 million in dividends to shareholders. Richelieu thus distributed $34.3 million to shareholders in 2023 while maintaining the finan- cial resources necessary for growth in 2024. Six acquisitions completed in North America in fiscal 2023 → January 1, 2023: acquisition of Unigrav and Usimm, two companies offering customized products, including a 3D scanning centre, operating in Drummondville and Montreal, QC. → January 4, 2023: acquisition of Quincaillerie Rabel, a specialty hardware distributor with a distribution centre in Terrebonne, QC. → January 6, 2023: acquisition of Trans-World Distributing, a distributor of industrial fasteners which operates a distribution centre in Dartmouth, NS. (1) EBITDA is a non-IFRS measure, as indicated on page 42 of this report. RichelieuAnnual Report 2023Management’s Report→ April 3, 2023: acquisition of Maverick Hardware, a distributor of specialty hardware products with its distribution centre in Eugene, 0R. → April 30, 2023: acquisition of Westlund Distributing, a distributor of specialty hardware products operating a distribution centre located in Monticello, MN. PRESENTATION BASIS This Management’s Discussion and Analysis (“MD&A”) relates to Richelieu Hardware Ltd.’s consolidated operating results and cash flows for the year ended November 30, 2023, in comparison with the year ended November 30, 2022, as well as the Corporation’s financial position as 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, 2023 appearing in this Annual Report. In this MD&A, “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 MD&As, 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, 2023, are available on SEDAR+ website at www.sedarplus.com and on the Corporation’s website at www.richelieu.com. The information contained in this MD&A accounts for any major event that occurred prior to January 18, 2024, on which date the audited consolidated financial statements and MD&A were approved by the Corporation’s Board of Directors. Unless otherwise indicated, the financial information presented below, including amounts shown in tables, is expressed in Canadian dollars and prepared in accordance with International Financial Reporting Standards (“IFRS”). FORWARD-LOOKING STATEMENTS Certain statements set forth in this MD&A, including statements relating to the expected adequacy of cash flows to cover contractual commitments, to maintain growth and to provide for financing and investing activities, growth outlook, Richelieu’s competitive position in its industry, or ability to weather current economic conditions, access other external financing, close 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, including on the assumption that economic conditions and exchange rates will not significantly deteriorate, that supplies will be sufficient to fulfil 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 were prepared, they could prove inaccurate. Forward-looking statements are also subject, by their very nature, to known and unknown risks and uncertainties such as those related to the industry, acquisitions, labour relations, credit, key officers, supply and product liability as well as other factors set forth in the “Risk Factors” section on page 52. Richelieu’s actual results could differ materially from those indicated in or underlying these forward-looking statements. The reader is therefore cautioned not to place undue reliance 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 as required by law. 41 RichelieuAnnual Report 2023Management’s ReportNON-IFRS MEASURES Richelieu’s offer 112 interconnected centres Richelieu uses earnings before interest, income taxes and amortization (“EBITDA”) as we believe this measure enables management to assess the Corporation’s operational performance. This measure is a widely accepted performance indicator of a corporation’s ability to service and incur debt. However, EBITDA should not be considered by an investor as an alterna- tive to operating income or net earnings attributable to shareholders of the Corporation, as an indicator of financial performance or cash flows, or as a measure of liquidity. Since EBITDA does not have a standardized meaning prescribed by IFRS, it may not be comparable to EBITDA of other companies. Richelieu also uses adjusted cash flows from operating activities and adjusted cash flows from operating activities per share. Adjusted cash flows from operating activities are based on net earnings plus amortization of property, plant and equipment and right-of-use assets and of intangible assets, deferred tax expense (or recovery), share-based compensation expense and net financial costs. These additional measures do not con- sider the net change in non-cash working capital items in order to exclude seasonality effects and are used by management in its assessments of cash flows from long-term operations. Therefore, adjusted cash flows from operating activities may not be comparable to the cash flows from operating activities of other companies. GENERAL BUSINESS OVERVIEW AS AT NOVEMBER 30, 2023 Richelieu is a leading North American importer, manufacturer and distributor of specialty hardware and related products. 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 residential and commercial renovation industry is one of the Corporation’s principal sources of growth. Over 130,000 different items More than 110,000 active customers 50 distribution centres in Canada 59 distribution centres in the United States 4,800,000 sq.ft. of storage 3 manufacturing plants Main product categories Furniture, glass and building decorative and functional hardware Sliding door systems Decorative and functional panels Lighting systems High pressure laminates Finishing and decoration products Ergonomic workstations components Kitchen and closet storage solutions Baluster and railings Floor protection products Power tools accessories Those products are targeted to an extensive customer base of kitchen and bathroom cabinet, storage and closet, home furnishing and office furniture, door and window manufacturers, residential and commercial woodworkers, as well as hardware retailers including renovation superstores. This offering is completed by the Corporation’s three manufacturing subsidiaries (Les Industries Cedan inc., Menuiserie des Pins Ltée and Usimm Unigrav inc.), which manufacture a variety of veneer sheets and edge band- ing products, a broad selection of decorative mouldings and components for the window and door industry as well as custom products, including a 3D scanning centre. The Corporation employs more than 3,000 people at its head office and throughout its network, close to half of whom work in marketing, sales and customer service. Nearly 50% of the Corporation’s employees are Richelieu shareholders. 42 RichelieuAnnual Report 2023Management’s ReportMAIN TRADEMARKS 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 intrapreneurship. To sustain its growth and remain leader in its specialty market, the Corporation continues to implement the strategy that has proved beneficial to date, with a particular focus on: → strengthening its product offering by continuously introducing, each year, new 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 team capable of providing customers with personalized service; and → pursuing its North American expansion by opening new distribution centres and through efficiently integrated, profitable acquisitions made at the right price, offering high growth potential and complemen- tarity to its product mix and expertise. Richelieu’s solid and efficient organization, highly diversified product selection and long-term relationships with leading suppliers worldwide allows the Corporation to compete effectively in a fragmented market consisting mainly of a host of regional distributors offering a limited range of products. NETWORK DEVELOPMENT During 2023 fiscal year, Richelieu concluded the following acquisitions: Date Company name Nature of operations Locations January 1st Usimm and Unigrav 2 companies offering custom products, including a 3D scanning centre Drummondville and Montreal, QC January 4 Quincaillerie Rabel Specialized hardware distributor January 6 Trans-World Distributing Distributor of industrial fasteners April 3 Maverick Hardware Specialized hardware distributor April 30 Westlund Distributing Specialized hardware distributor Terrebonne, QC Dartmouth, NS Eugene, OR Monticello, MN Sales of $23.5 million have been generated by these acquisitions. Had those acquisitions been made on December 1, 2022, management believes that sales would have totalled approximately $27.0 million. The Corporation also completed expansion and modernization projects at its centres in the Atlanta, Nashville, Fort Myers, Pompano and Seattle areas. A brand-new Chicago centre serving the retail market is fully operational, as are the two new centres in the Minneapolis, MN and Carlstadt, NJ regions. Furthermore, in December 2023, its expansion project in Calgary was completed with the refitting of two centres into a single 250,000 sq. ft. building. 43 RichelieuAnnual Report 2023Management’s ReportFinancial Highlights (in thousands of $, except per-share amounts, number of shares and data expressed as a %) Years ended November 30 2023 $ 2022 $ 2021 $ 2020 $ 20193 $ Sales EBITDA1 EBITDA margin (%) Net earnings Net earnings attributable to shareholders of the Corporation Per share - basic ($) Per share - diluted ($) Net margin (%) 1,787,754 1,802,787 1,440,416 1,127,840 1,041,647 230,404 287,442 234,398 154,461 124,207 12.9 15.9 16.3 13.7 11.9 113,827 169,949 142,331 85,611 66,671 111,474 168,390 141,764 85,222 66,471 2.00 1.98 6.2 3.01 2.99 9.3 2.54 2.51 9.8 1.51 1.50 7.6 1.17 1.16 6.4 Adjusted cash flows from operating activities2 190,483 227,795 182,991 121,125 98,390 Per share - diluted ($) 3.39 4.04 3.24 2.14 1.72 Dividends paid to Shareholders of the Corporation Per share ($)4 Weighted average number of shares outstanding (diluted) (in thousands) As at November 30 Total assets Working capital Current ratio Equity Return on average shareholders equity (%) Book value per share ($) Long-term debt Net cash and cash equivalents (net bank overdraft) 33,521 0.600 29,083 0.520 19,374 0.280 11,284 0.200 14,424 0.253 56,216 56,345 56,466 56,646 57,192 1,314,963 1,283,865 964,180 771,056 672,146 621,764 562,548 456,376 377,408 335,467 3.7 2.6 3.3 3.6 4.1 904,893 817,157 666,442 551,094 498,384 12.9 16.13 5,346 22.7 14.65 6,067 23.3 11.93 6,439 16.2 9.86 5,792 13.7 8.86 5,659 23,710 (111,988) 58,707 73,928 24,701 (1) EBITDA is a non-IFRS measure, as indicated on page 42 of this report. (2) Adjusted cash flows from operating activities and adjusted cash flows from operating activities per share are non-IFRS measures, as indicated on page 42 of this report. (3) Those figures have been restated following the adoption of IFRS 16 on December 1, 2019. (4) The amount per share presented for 2021 excludes a special dividend paid of $0.0667 per share. 44 RichelieuAnnual Report 2023Management’s ReportAnalysis of operating results for the year ended November 30, 2023, compared with the year ended November 30, 2022 CONSOLIDATED SALES The following table provides an overview of Richelieu’s sales in its two main markets for the years ended November 30, 2023 and 2022: (in millions of dollars except exchange rates) Consolidated Manufacturers Retailers Canada Manufacturers Retailers United States $US Manufacturers Retailers United States $CA Average exchange rates 2023 $ 2022 $ 1,787.8 1,802.8 1,539.6 1,552.0 248.2 250.8 1,048.1 1,074.7 855.7 192.4 547.5 506.2 41.3 739.7 1.351 876.6 198.1 562.5 521.7 40.8 728.1 1.294 ∆ % Total (0.8) (0.8) (1.0) (2.5) (2.4) (2.9) (2.7) (3.0) 1.2 1.6 Internal Acquisitions (2.6) (2.9) (1.1) (4.4) (4.7) (2.9) (4.4) (4.8) 1.2 1.8 2.1 0.1 1.9 2.3 — 1.7 1.8 — Consolidated sales reached $1.8 billion, a decrease of $15.0 million or 0.8% over last year, of which 1.8% from acquisitions and 2.6% from internal decrease. In currency comparable to that of the 2022 financial year, the decrease in consolidated sales for the year ended November 30, 2023, would have been 2.6%. (in millions of dollars, except per share data) Sales Operating expenses excluding amortization EBITDA EBITDA margin (%) Amortization of property, plant and equipment and right-of-use assets Amortization of intangible assets Net financial costs Earnings before income taxes Income taxes Net earnings Net earnings attributable to: Shareholders of the Corporation Non-controlling interests Net earnings per share attributable to shareholders of the Corporation Basic Diluted Years ended November 30 2023 $ 2022 $ 1,787.8 1,802.8 1,557.4 1,515.3 ∆ % (0.8) 2.8 230.4 287.4 (19.8) 12.9 50.1 10.9 13.3 74.2 156.2 42.4 113.8 111.5 2.4 2.00 1.98 15.9 38.0 10.6 7.1 55.8 231.7 61.7 169.9 168.4 1.6 3.01 2.99 31.7 2.1 85.9 33.0 (32.6) (31.3) (33.0) (33.8) 50.9 (33.6) (33.8) RichelieuAnnual Report 2023Management’s Report Earnings before interest, income taxes and amortization (EBITDA) totalled $230.4 million, down by $57.0 million or 19.8% over 2022. This can be explained by the increase in operating costs, including external warehousing, resulting from the temporary increase in inventories, in expenses specific to major expansion projects undertaken during the 2023 financial year and by the effect of the increase in the US foreign exchange rate compared to the CA$ currency on the translation of the operating expenses in US currency. The gross margin is also slightly down, therefore EBITDA margin stood at 12.9%, compared with 15.9% for 2022. increase of $6.1 million resulting mainly from the use of lines of credit and the increase in lease obligations. Income taxes amounted to $42.4 million, a decrease of $19.3 million over 2022. Net earnings were down 33.0%. Considering non- controlling interests, net earnings attributable to shareholders of the Corporation totalled $111.5 million, a decrease of 33.8% compared to 2022. Net earnings per share amounted to $2.00 basic and $1.98 diluted, compared with $3.01 basic and $2.99 diluted for 2022, a decrease of 33.6% and 33.8% respectively. Amortization expenses amounted to $60.9 million compared with $48.6 million for 2022, an increase of $12.3 million, a result of the increase in property, plant and equipment and right-of-use assets stemming mainly from lease renewal, recent business acquisitions and expansion and modernization projects. Net financial costs were $13.3 million compared to $7.1 million, an Comprehensive income totalled $114.7 million, reflecting a positive adjustment of $0.9 million on translation of the financial statements of the subsidiary in the United States, compared with $183.4 million for 2022, which reflected a positive adjustment of $13.5 million on translation of the financial statements of the subsidiary in the United States. QUARTERLY DATA (unaudited) (in millions of dollars. except per share data) Q1 Q2 Q3 Q4 2023 Sales EBITDA Net earnings attributable to shareholders of the Corporation Basic per share ($) Diluted per share ($) 2022 Sales EBITDA Net earnings attributable to shareholders of the Corporation Basic per share ($) Diluted per share ($) 2021 Sales EBITDA Net earnings attributable to shareholders of the Corporation Basic per share ($) Diluted per share ($) 46 403.0 472.1 459.0 453.7 49.1 22.4 0.40 0.40 Q1 61.5 30.7 0.55 0.55 Q2 61.0 29.8 0.53 0.53 Q3 58.8 28.5 0.51 0.51 Q4 384.5 487.9 472.9 457.5 53.7 30.1 0.54 0.53 Q1 77.9 47.0 0.84 0.83 Q2 79.2 46.4 0.83 0.82 Q3 76.7 44.9 0.80 0.80 Q4 297.6 371.4 373.3 398.2 38.2 21.0 0.38 0.37 61.0 37.4 0.67 0.66 63.9 38.7 0.69 0.69 71.3 44.6 0.80 0.79 RichelieuAnnual Report 2023Management’s ReportQuarterly variations in earnings — The first quarter closing at the end of February is generally the year’s weakest quarter for Richelieu in light of fewer number of business days due to the end-of-year holiday period and the wintertime slowdown in renovation and construction work. The third quarter ending August 31 also includes fewer business days due to the summer holidays, which can be reflected in the period’s financial results. The second and fourth quarters ending May 31 and November 30, respectively, generally represent the year’s most active periods. FOURTH QUARTER ENDED NOVEMBER 30, 2023 Sales The following table provides an overview of Richelieu’s sales in its two main markets for the quarters ended November 30, 2023 and 2022: Quarters ended November 30 ∆ % (in millions of dollars except exchange rates) Consolidated Manufacturers Retailers Canada Manufacturers Retailers United States $US Manufacturers Retailers United States $CA Average exchange rates 2023 $ 453.7 393.1 60.6 267.5 220.3 47.2 136.3 126.4 9.9 186.2 1.366 2022 $ 457.5 397.7 59.8 273.5 226.0 47.5 136.4 127.3 9.1 184.0 1.349 Total Internal Acquisitions (0.8) (1.2) 1.3 (2.2) (2.5) (0.6) (0.1) (0.7) 8.8 1.2 (2.2) (2.8) 1.3 (4.0) (4.7) (0.8) (0.9) (1.6) 8.8 1.4 1.6 — 1.8 2.2 0.2 0.8 0.9 — Fourth-quarter consolidated sales amounted to $453.7 million, compared with $457.5 million for the cor- responding quarter of 2022, a decrease of $3.8 million or 0.8%, of which 2.2% resulting from internal decrease, partially offset by 1.4% growth from acquisitions. At comparable exchange rates to the fourth quarter of 2022, the consolidated sales decrease would have been 1.3% for the quarter ended November 30, 2023. Earnings before interest, income taxes and amortization (EBITDA) amounted to $58.8 million compared with $76.7 million in the fourth quarter of 2022, down 23.3%. The gross margin is down compared to the previous year and the EBITDA margin stood at 13.0%, compared with 16.8% for the fourth quarter of 2022, influenced by the return to pre-pandemic levels of certain operating expenses as well as expenses specific to major expan- sion projects incurred during the quarter. Amortization expenses amounted to $16.4 million com- pared with $13.1 million for the corresponding quarter of 2022, an increase of $3.3 million. Net financial costs are down $0.6 million mainly due to the significant reduction in line of credit balances. Income taxes amounted to $10.8 million compared with $15.0 million for the fourth quarter of 2022. Net earnings were $29.4 million, down by 35.7% over the corresponding quarter of 2022. Considering non-con- trolling interests, net earnings attributable to sharehold- ers of the Corporation amounted to $28.5 million, down by 36.5% over the fourth quarter of 2022. Net earnings per share were $0.51 basic and diluted, compared with $0.80 basic and diluted for the fourth quarter of 2022. Comprehensive income amounted to $29.8 million, reflecting a positive adjustment of $0.4 million on translation of the financial statements of the subsidiary 47 RichelieuAnnual Report 2023Management’s Reportin the United States, compared with $53.2 million for the fourth quarter of 2022, which reflected a positive adjustment of $7.5 million on translation of the financial statements of the subsidiary in the United States. FINANCIAL POSITION as at November 2023 Analysis of significant cashflows Cash flows from operating activities (before net change in non-cash working capital balances) amounted to $49.3 million or $0.88 per share, compared with $62.2 million or $1.11 per share for the fourth quarter of 2022, a decrease of 20.7% resulting primarily from net earnings decrease. The net change in non-cash working capital balances represented a cash inflow of $23.3 mil- lion, reflecting the change in inventory and accounts receivable of $25.3 million, whereas the change in accounts payable and other items required cash flows of $1.9 million. Consequently, operating activities provided cash flows of $72.7 million, compared with $3.6 million for the fourth quarter of 2022. Financing activities used cash flows of $14.3 million, compared with $21.6 million for the fourth quarter of 2022. This change primarily resulted from $4.7 million of issued shares in the fourth quarter compared to $0.2 million in the corresponding quarter, and common share repurchases of $4.4 million for the fourth quarter of 2022 while no share repurchases were made in the fourth quarter of 2023. Investing activities used cash flows of $19.2 million in the fourth quarter mainly for the purchase of a building housing Usimm Unigrav inc. operations, in addition to adding storage space for the acquisition of various tangible assets related to expansion and construction projects as well as for the purchase of equipment to maintain and improve operational efficiency. (in millions of $) Cash flows provided by (used in): Operating activities Financing activities Investing activities Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents and bank overdraft Cash and cash equivalents (bank overdraft), beginning of period Cash and cash equivalents (bank overdraft), end of period Years closed on November 30 2023 $ 2022 $ 270.7 (32.9) (72.4) (70.0) (61.8) (66.8) (0.8) (1.1) 135.7 (170.7) (112.0) 58.7 23.7 (112.0) Reconciliation of cash flow from operating activities to adjusted cash flow from operating activities: (in millions of $) Years closed on November 30 2023 $ 2022 $ Cash flow from operating activities 270.7 (32.9) Net change in non-cash working capital balances (inflow) Adjusted cash flows from operating activities (80.2) 260.7 190.5 227.8 Operating activities Cash flows from operating activities (before net change in non-cash working capital balances) reached $190.5 million or $3.39 diluted per share, compared with $227.8 million or $4.04 diluted per share for 2022, a decrease of 16.4% mainly reflecting the net earnings decrease. The net change in non-cash working capital balances represented a cash inflow of $80.2 million, mainly representing changes in inventory of $97.1 million whereas accounts receivable, payable and other items used cash flows of $16.9 million. Consequently, operating activities generated a cash inflow of $270.7 million compared to a cash outflow of $32.9 million for 2022. 48 RichelieuAnnual Report 2023Management’s ReportThe 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 2024, 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 (in millions of dollars, except exchange rates) Current assets Non-current assets 2023 $ 859.5 455.5 2022 $ ∆ % 910.8 (5.6) 373.1 22.1 Total 1,315.0 1,283.9 2.4 237.7 169.1 348.2 (31.7) 115.8 46.0 Current liabilities Non-current liabilities Equity attributable to shareholders of the Corporation 10.7 22.5 2.4 904.9 817.2 Non-controlling interests 3.3 2.7 Total 1,315.0 1,283.9 Exchange rates on translation of subsidiaries in the United States Assets 1.358 1.351 Total assets amounted to $1.3 billion as at November 30, 2023, an increase of 2.4 %. Current assets were down by 5.6% or $51.3 million from November 30, 2022, mainly resulting from the decrease in inventories. Non-current assets increased by 22.1%, mainly due to the addition of right-of-use assets and property, plant and equipment related to lease renewals and expansion projects. Financing activities Financing activities used cash flows of $72.4 million, compared with $70.0 million for 2022. During the year, Richelieu repaid long-term debt of $5.3 million, paid lease obligations of $34.1 million and issued shares for $8.6 million, compared to a long-term debt repayment of $5.2 million, lease obligations payments of $25.9 million and a $6.3 million share issued in 2022. Dividends paid to shareholders of the Corporation amounted to $33.5 million compared to $29.1 million up 15.3% over 2022. The Corporation also repurchased common shares for an amount of $0.8 million compared with $12.3 million in 2022. Investing activities Investing activities used cash flows of $61.8 million, of which $19.7 million was for the six business acquisitions completed in fiscal 2023 and $42.1 million, mainly for equipment to maintain and improve operational efficiency, including additions resulting from expan- sion projects and for the purchase of a building in Drummondville. Sources of financing As at November 30, 2023, cash and cash equivalent net of bank overdraft amounted to $23.7 million, compared with net bank overdraft of $112.0 million as at November 30, 2022. The Corporation had a working capital of $621.8 million for a current ratio of 3.7: 1, compared with $562.5 million as at November 30, 2022. 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 2024. The Corporation continues to benefit from an authorized line of credit of C$150 million [2022 — C$150 million] as well as a line of credit of US$56 million [2022 — US$56 million as at November 30, 2022] renewable annually and bearing interest at prime rate and BSBY rate plus 1.05% respectively. In addition, Richelieu considers it could obtain access to other outside financing if necessary. 49 RichelieuAnnual Report 2023Management’s ReportCash position and long-term debt (in millions of dollars) Current portion of long-term debt Long-term debt Total debt 2023 $ 2.9 2.4 5.3 2022 $ 5.2 0.9 6.1 Net cash and cash equivalents (net bank overdraft) 23.7 (112.0) Shareholders’ equity and share capital Equity attributable to shareholders of the Corporation totalled $904.9 million as at November 30, 2023, compared with $817.2 million as at November 30, 2022, an increase of $87.7 million. This increase is mainly due to a rise of $75.8 million in retained earnings, which amounted to $795.0 million, and of $11.1 million in share capital and contributed surplus, while accumulated other comprehensive income increased by $0.9 million. As at November 30, 2023, the book value per share was $16.13, up by 10.1% over November 30, 2022, and the return on average shareholders’ equity was 12.9%. As at November 30, 2023, the Corporation’s share capital consisted of 56,088,365 common shares (55,784,790 shares as at November 30, 2022). In 2023, upon the exercise of stock options under the stock option plan, Richelieu issued 323,575 common shares at an average price of $26.43 (271,000 in 2022 at an average price of $23.19). The Corporation granted 306,500 stock options in fiscal 2023 (276,000 in 2022) and cancelled 41,000 (17,125 in 2022). Consequently, as at November 30, 2023, 1,620,925 stock options were outstanding (1,679,000 as at November 30, 2022). Number of shares Number of options Outstanding at beginning of period 55,784,790 Outstanding at beginning of period Issued Repurchased Other 323,575 Exercised (20,000) Granted — Cancelled Outstanding, end of period 56,088,365 Outstanding, end of period 1,679,000 (323,575) 306,500 (41,000) 1,620,925 CONTRACTUAL COMMITMENTS As at November 30, 2023 (in millions of $) Less than 1 year Between 1 and 5 years More than 5 years Total Long-term debt 2.9 2.4 — 5.3 Operating leases 37.6 109.1 63.3 210.0 Total 40.5 111.5 63.3 215.3 For 2024 and for the foreseeable future, the Corporation expects that cash flows from operating activities and other sources of financing will be sufficient to meet its ongoing contractual commitments. The expectation set forth above consists of for- ward-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 2024, and no unusual events will entail additional capital expenditures. This expectation also remains subject to disclosed “Risk Factors”. FINANCIAL INSTRUMENTS Richelieu periodically enters into foreign exchange forward contracts to fully or partially hedge the effects of foreign currency fluctuations related to foreign-currency denominated liabilities 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 connec- tion with its deferred share unit plan. 50 RichelieuAnnual Report 2023Management’s ReportIn notes 1 and 13 of the audited consolidated financial statements for the year ended November 30, 2023, the Corporation presents the information on the classifica- tion 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 con- trols over financial reporting as at November 30, 2023. 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, 2023, 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. Corporation may undertake in the future and other factors deemed relevant and reasonable. The judgments made by management 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 is the impairment of inventory, including inventory losses and obsolescence. This item requires the use of judgment and assumptions that may affect the amounts reported in the consolidated financial statements. The underlying estimates and assumptions are regularly reviewed. 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. SUBSEQUENT EVENTS Effective December 1, 2023, the Corporation acquired all issued and outstanding share capital of Olympic Forest Products Inc., a distributor of specialized lumber and panel products operating one distribution centre in Erin, ON. Effective January 1, 2024, the Corporation acquired from minority shareholders an additional 15% interest in the voting shares of Provincial Woodproducts Ltd., thereby increasing its interest to 100%. Effective January 15, 2024, the Corporation acquired the principal net assets of Rapid Start, a distributor of specialized hardware operating one distribution centre in Rittman, OH. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES NEW ACCOUNTING POLICIES In May 2021, the IASB amended IAS 12 “Income Taxes” to narrow the scope of the recognition exemption so that it does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendments apply to fiscal years beginning on or after January 1, 2023. The Corporation believes that these amendments will have no impact on its consolidated financial statements. The Corporation’s audited consolidated financial statements for the year ended November 30, 2023, 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 51 RichelieuAnnual Report 2023Management’s ReportRISK 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 con- struction 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. Foreign currency Richelieu is exposed to the risks related to currency fluctuations, primarily in regard to foreign-currency denominated purchases and sales made abroad. The Corporation’s products are regularly sourced from abroad. Thus, any increase in foreign currencies (primar- ily 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 fluctu- ations 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. Sales made abroad are mainly recorded in the United States and account for approximately 41% 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 stra- tegic 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. 52 RichelieuAnnual Report 2023Management’s ReportIT 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 cus- tomer data or system disruption could adversely affect its business and reputation. Richelieu’s business is dependent on its online sales, 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 its businesses, liability to customers, regulatory intervention or damage to its reputation. In addition, any issue of data privacy as it relates to unauthorized access to, or loss of, customers and/or employees 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. 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 safe- guard against credit losses arising from doing business with them. For each customer, the Corporation sets a specific limit that is regularly reviewed. The diversifica- tion 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 employ- ees and to control its payroll could have an impact on the Corporation’s financial performance. Close to 12% 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 close to 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. 53 RichelieuAnnual Report 2023Management’s ReportNatural disasters, terrorist acts, civil unrest, pandemics and other disruptions and dislocations, may adversely affect the Corporation Upon the occurrence of a natural disaster, or upon an incident of war, riot or civil unrest, the impacted country, province, state or region may not efficiently and quickly recover from such event, which could have a materially adverse effect on the Corporation, its customers, and/or either of their businesses or operations. Terrorist attacks, public health crises including epidemics, pandemics or outbreaks of new infectious disease or viruses, domestic and global trade disruptions, infrastructure disruptions, civil disobedience or unrest, natural disasters, national emergencies, acts of war, technological attacks and related events can result in volatility and disruption to local and global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Corporation, its customers, and/or either of their businesses or operations, which may have a material adverse effect on the Corporation’s reputation, business, financial conditions or operating results. SHARE INFORMATION AS AT JANUARY 18, 2024 Issued and outstanding common shares 56,118,765 Outstanding stock options 1,876,650 OUTLOOK Soundly positioned and building on the strengths of its diversified market segments, its value-added service concept rooted in innovation and its one-stop-shop approach, the performance of its website richelieu.com and its financial soundness, Richelieu will continue to drive growth through innovation and acquisitions, with the contribution of its expert and committed team. SUPPLEMENTARY INFORMATION Further information about Richelieu, including its latest Annual Information Form, is available on SEDAR+ website at www.sedarplus.com and on the Corporation’s website at www.richelieu.com. (Signed) Richard Lord President and Chief Executive Officer (Signed) Antoine Auclair Vice-President and Chief Financial Officer January 18, 2024 54 RichelieuAnnual Report 2023Management’s ReportConsolidated financial statements Management’s report Related to the consolidated financial statements The consolidated financial statements of Richelieu Hardware Ltd. (the “Corporation”) are the responsibility of the Corporation’s management. These consolidated financial statements have been prepared by manage- ment 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, 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 18, 2024. (Signed) Richard Lord President and Chief Executive Officer (Signed) Antoine Auclair Vice-President and Chief Financial Officer Independant auditor’s report To the shareholders of Richelieu Hardware Ltd. Opinion We have audited the consolidated financial statements of Richelieu Hardware Ltd. and its subsidiaries [the “Corporation”], which comprise the consolidated statements of financial position as at November 30, 2023 and 2022, and the consolidated statements of earnings, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Corporation as at November 30, 2023 and 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards [“IFRS”]. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate 55 opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Key audit matter Valuation of customer relationships acquired through business acquisitions During the year-ended November 30, 2023, the Corporation made business acquisitions for an aggregate consideration of $23.3 million. As part of these business acquisitions, the Corporation recognized customer relationship intangible assets with a combined fair value of $8.8 million. The purchase price allocation related to these business acquisitions is disclosed in Note 3 to the consolidated financial statements. We identified the valuation of the acquisition-date fair value of the cus- tomer relationship intangible assets acquired in the business acquisitions as a key audit matter. The fair value of customer relationship intangible assets acquired is determined in reference to valuation inputs including estimates related to forecasted cash flows, such as revenue growth and earnings before interest, taxes, depreciation, and amortization [“EBITDA”] margins, as well as customer attrition and discount rates. These valuation inputs utilized in establishing the fair value of customer relationship intangible assets acquired require significant auditor judgment as well as the involvement of valuation specialists due to the sensitivity of the fair value conclusion to these significant assumptions. How our audit addressed the key audit matter Our audit procedures performed included, among others, the following: → Inspected the share and assets’ purchase agreements to obtain an understanding of all the transactions and the key terms; → Involved our valuation specialists, on a sample basis, to assist in evaluating the valuation methodology selected by management, as well as validating the reasonableness of the discount rate used in the determination of the fair value of the customer relationships acquired; → Evaluated the reasonableness of the significant valuation assumptions included within the forecasted cash flows of the most significant acquisition of the year, such as revenue growth, and EBITDA margins, as well as customer attrition, for which we reviewed historical financial data of the targets, and benchmarked against other acquisitions previously made by the Corporation; → Performed sensitivity analyses on a sample basis, to test the sensitivity of the fair value conclusions to changes in significant assumptions such as revenue growth, customer attrition and discount rates; → Evaluated the adequacy of the business acquisitions note disclosure included in Note 3 of the accompanying consolidated financial statements in relation to this matter. RichelieuAnnual Report 2023 Consolidated financial statements Other information Management is responsible for the other information. The other informa- tion comprises: → Management’s discussion and analysis; and → The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained management’s discussion and analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, 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. In preparing the consolidated financial statements, management is responsible for assessing the Corporation’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Corporation’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: → Identify and assess the risks of material misstatement of the consoli- dated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve 56 collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. → Obtain an understanding of internal control relevant to the audit 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 Corporation’s internal control. → Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. → Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Corporation to cease to continue as a going concern. → Evaluate the overall presentation, structure and content of the consoli- dated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. → Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Corporation to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independ- ence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Francis Guimond. (Signed) Enrst & Young LLP Montreal, Canada January 18, 2024 1 CPA auditor, CA, public accountancy permit no. A118111 RichelieuAnnual Report 2023Consolidated financial statements Consolidated statements of financial position As at November 30 (in thousands of dollars) Notes 2023 $ 2022 $ ASSETS Current assets Cash and cash equivalents Accounts receivable Income taxes receivable Inventories Prepaid expenses Non-current assets Proprety, plant and equipment Intangible assets Right-of-use assets Goodwill Deferred taxes LIABILITIES AND EQUITY Current liabilities Bank overdraft Accounts payable and accrued liabilities Income taxes payable Current portion of long-term debt Current portion of lease obligations Non-current liabilities Long-term debt Lease obligations 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 46,327 21,220 219,264 222,238 12,621 — 572,351 660,242 8,905 7,071 859,468 910,771 78,053 67,808 54,832 66,603 167,124 116,204 135,089 127,457 7,421 7,998 1,314,963 1,283,865 22,617 133,208 169,785 169,913 4,373 2,940 37,989 10,749 5,208 29,145 237,704 348,223 2,406 143,336 11,169 12,191 859 95,705 10,052 9,204 406,806 464,043 72,289 9,040 61,829 8,400 794,971 719,185 28,593 27,743 904,893 817,157 3,264 2,655 908,157 819,822 1,314,963 1,283,865 4 5 10 5 9 6 8 9 7 10 7 10 9 8 8 12 See accompanying notes to the consolidated financial statements. 57 On behalf of the Board of Directors: (Signed) Richard Lord Director (Signed) Luc Martin Director RichelieuAnnual Report 2023Consolidated financial statements Consolidated statements of earnings Years ended November 30 (in thousands of dollars, except earnings per share) Sales Notes 2023 $ 2022 $ 1,787,754 1,802,787 Operating expenses excluding amortization 8, 13 1,557,350 1,515,345 Earnings before amortization, financial costs and income taxes 230,404 287,442 Amortization of property, plant and equipment and right-of-use assets Amortization of intangible assets Net financial costs Earnings before income taxes Income taxes Net earnings Net earnings attributable to: Shareholders of the Corporation Non-controlling interests Net earnings per share attributable to shareholders of the Corporation Basic Diluted See accompanying notes to the consolidated financial statements. 4, 10 5 9 8 50,070 10,857 13,280 74,207 38,010 10,636 7,144 55,790 156,197 231,652 42,370 61,703 113,827 169,949 111,474 168,390 2,353 1,559 113,827 169,949 2.00 1.98 3.01 2.99 Consolidated statements of comprehensive income Years ended November 30 (in thousands of dollars) Net earnings Other comprehensive income that will be reclassified to net earnings Notes 2023 $ 2022 $ 113,827 169,949 Exchange differences on translation of foreign operations 12 850 13,479 Comprehensive income Comprehensive income attributable to: Shareholders of the Corporation Non-controlling interests See accompanying notes to the consolidated financial statements. 58 114,677 183,428 112,324 181,869 2,353 1,559 114,677 183,428 RichelieuAnnual Report 2023Consolidated financial statements Consolidated statements of changes in equity Years ended November 30 (in thousands of dollars) Shares repurchased (361) — — — — — — — — Attributable to shareholders of the Corporation Share capital Contributed surplus Retained earnings $ 8 $ 8 $ Accumulated other comprehensive income $ 12 Total Non- controling interest Total equity $ $ $ 54,610 7,046 590,522 14,264 666,442 2,495 668,937 168,390 — 168,390 1,559 169,949 — 13,479 13,479 — 13,479 168,390 13,479 181,869 1,559 183,428 7,580 (1,296) 2,650 (11,928) — — — — — (29,083) (16) 1,300 7,219 1,354 (39,727) — — — — — — — (12,289) 6,284 2,650 — — — (12,289) 6,284 2,650 (29,083) (493) (29,576) (16) 404 388 1,300 (1,300) — (31,154) (1,389) (32,543) 61,829 8,400 719,185 27,743 817,157 2,665 819,822 111,474 — 111,474 2,353 113,827 — 850 850 — 850 111,474 850 112,324 2,353 114,677 10,482 (1,930) 2,570 (751) — — — — — (33,521) — (1,416) 10,460 640 (35,688) — — — — — — — (773) 8,552 2,570 — — — (773) 8,552 2,570 (33,521) (817) (34,338) — (2,353) (2,353) (1,416) 1,416 — (24,588) (1,754) (26,342) 72,289 9,040 794,971 28,593 904,893 3,264 908,157 — — — — — — — — — — — — — — Notes Balance as at November 30, 2021 Net earnings Other comprehensive income Comprehensive income Stock options exercised Share-based compensation expense Dividends [note 17] Other liabilities Change in fair value of other liabilities Balance as at November 30, 2022 Net earnings Other comprehensive income Comprehensive income Stock options exercised Share-based compensation expense Dividends [note 17] Other liabilities Change in fair value of other liabilities Balance as at November 30, 2023 Shares repurchased (22) See accompanying notes to the consolidated financial statements. 59 RichelieuAnnual Report 2023Consolidated financial statements Consolidated statements of cash flows Years ended November 30 (in thousands of dollars) OPERATING ACTIVITIES Net earnings Items not affecting cash and cash equivalent Amortization of property, plant and equipment and right-of-use assets Amortization of intangible assets Deferred taxes Share-based compensation expense Net financial costs Net change in non-cash working capital balances FINANCING ACTIVITIES Repayment of long-term debt Payment of lease obligations Interest paid on bank overdraft Dividends paid to shareholders of the Corporation Other dividends paid Common shares issued Common shares repurchased for cancellation INVESTING ACTIVITIES Business acquisitions Notes 2023 $ 2022 $ 113,827 169,949 50,070 10,857 38,010 10,636 (121) (594) 2,570 13,280 2,650 7,144 190,483 227,795 80,174 (260,652) 270,657 (32,857) (5,306) (5,152) (34,108) (25,908) (6,387) (3,312) (33,521) (29,083) (817) 8,552 (493) 6,284 (773) (12,289) (72,360) (69,953) (19,694) (44,255) 4, 10 5 9 8 10 17 8 8 3 Additions to property, plant and equipment and intangible assets 4, 5 (42,093) (22,578) (61,787) (66,833) (812) (1,052) 135,698 (170,695) (111,988) 58,707 23,710 (111,988) 61,488 72,829 Effect of exchange rate changes on cash and cash equivalents Net change in cash and cash equivalents (bank overdraft) Cash and cash equivalents (bank overdraft), beginning of year Cash and cash equivalents and (bank overdraft), end of year Supplementary information Income taxes paid See accompanying notes to the consolidated financial statements. 60 RichelieuAnnual Report 2023Notes to consolidated financial statements Notes to consolidated financial statements November 30, 2023 and 2022 (Amounts are in thousands of dollars, except per-share amounts or otherwise indicated) NATURE OF BUSINESS Accounts Receivable Accounts receivable are 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 equiva- lent to cost due to their short-term maturities. At each period end, the Corporation estimates the expected credit losses. These expected losses are adjusted to reflect factors that are specific to accounts receivable, general economic conditions as well as an assessment of both current and forecasted economic conditions prevailing at the reporting date. The evaluation is calculated using the simplified method. The net change in expected credit losses on accounts receivable is recognized in net earnings. Inventories Inventories, which consist primarily of finished goods, are valued at the lower of average cost and net realizable value. Net realizable 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 measured and regularly assessed during the year. Property, Plant and Equipment Property, plant and equipment are recorded at cost and amor- tized 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 Leasehold improvements Machinery and equipment Rolling stock Furniture and fixtures Computer hardware Intangible Assets 20 years Lease terms 5-10 years 5 years 3-5 years 3-5 years Intangible assets are acquired assets that lack physical substance and meet the specified criteria for recognition apart from property, plant and equipment. Intangible assets consist mainly of purchased or internally developed software, non-competition agreements, customer relationships, and trademarks. Software and customer relationships are amortized on a straight-line basis over their useful lives of 3 and 20 years, respectively, while non-competition agreements are amortized over the terms of the agreements which are currently between 2 and 5 years. Trademarks have an indefinite useful life and are therefore not amortized. Richelieu Hardware Ltd. (the “Corporation”) is incorporated under the laws of Quebec, Canada. The Corporation is an importer, manufacturer and a distributor of specialty hardware and complementary products. Its products target 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 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 Corporation’s accounting policies have been applied consistently to all fiscal years presented in these consolidated financial statements. 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 judgments made by management 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 relate to impairment of inventory, including inventory losses and obsolescence, and require the use of judgment and assumptions that may affect the amounts reported in the consolidated financial statements. The underlying estimates and assumptions are regularly reviewed. 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. 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 a term of three months or less. Cash and cash equivalents are measured at amortized cost. 61 RichelieuAnnual Report 2023Notes to consolidated financial statements 1. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Leases i) Right-of-use assets Right-of-use assets are recognized at the commencement date of the lease (i.e., the date the underlying asset is available for use) and are measured at cost, less any accumulated amortization and impairment losses, and adjusted for any remeasurement of the lease obligations. The cost of right-of-use assets includes the number of lease obligations recognized, initial direct costs incurred and lease payments made at or before the commence- ment date less any lease incentives received. Right-of-use assets are amortized on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, which is currently between 2 and 15 years. ii) Lease obligations At the commencement date of the lease, the lease obligations are measured at the present value of lease payments to be made over the lease terms using the Corporation’s incremental borrowing rate. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised and payments of penalties for terminating the lease, if applicable. Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs. 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 distribution 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. Where the carrying amount exceeds the recoverable amount, an impairment loss equal to the excess is recognized in net earnings, 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. 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. As part of goodwill impairment tests, the Corporation generally uses fair value less costs to sell to estimate the recoverable amount, which is calculated by multiplying earnings before depreciation, amortization, financial charges and taxes (“EBITDA”) of the CGU or group of CGUs by the multiple of the EBITDA from comparable companies whose activities are similar to those of the Corporation. As part of the impairment tests on intangible assets with indefinite useful lives, the Corporation also uses the fair value less costs to sell in order to estimate the recoverable amount, which is calculated according to the relief-from-royalty method. This method involves estimating the fair value of trademarks by reference to royalty levels payable for the use of comparable assets. Financial Liabilities Bank overdraft, accounts payable, accrued liabilities and long-term debt 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. Other Liabilities 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. Gains or losses resulting from revaluation at the end of each period may be recorded in net earnings or in retained earnings. The Corporation has chosen to record them in retained earnings. The Corporation has classified the measurement of this fair value as level 3, as it is based on data which is not observable in the market. Revenue Recognition Revenues are measured at the fair value of the consideration received or receivable, net of returns and discounts granted, and are recognized when control of the goods is transferred to the customer, which occurs when the Corporation satisfies its performance obligation, generally upon delivery of the goods to the customer. 62 RichelieuAnnual Report 2023Notes to consolidated financial statements 1. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Share-Based Payment The Corporation offers a stock option plan to its 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 for the 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. The Corporation recognizes stock-based compensation and other share-based payments in net earnings using the fair value method for stock options granted with a corresponding increase recorded in contributed surplus. 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 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 Corporation’s common shares and 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. 2. NEW ACCOUNTING POLICIES In May 2021, the IASB amended IAS 12 “Income Taxes” to narrow the scope of the recognition exemption so that it does not apply to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. The amendments apply to fiscal years beginning on or after January 1, 2023. The Corporation believes that these amendments will have no impact on its consolidated financial statements. 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. Foreign Currency Translation 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 average monthly exchange rate in effect during the periods. 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 does not use derivatives for speculation or trading purposes and only enter into these contracts with major financial institutions. 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. Fair Value Measurements Hierarchy Fair value measurements of financial asset and liabilities recognized at fair value in the consolidated statements of financial position or whose fair value is presented in the notes to the consolidated 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). 63 RichelieuAnnual Report 2023Notes to consolidated financial statements 3. BUSINESS ACQUISITIONS Summary of Acquisitions The preliminary purchase price allocations, at the transaction dates, is summarized as follows: Current assets acquired 10,956 21,924 2023 $ 2022 $ Property, plant and equipment and right-of-use assets [note 4, 10] Intangible assets [note 5] Goodwill [note 5] 2,974 9,236 7,467 30,633 11,351 19,778 15,013 68,066 Current liabilities assumed (2,561) (10,257) Non-current liabilities assumed (2,214) (8,777) Deferred tax liabilities (1,912) (271) Non-controlling interests (625) — Net assets acquired 23,321 48,761 Consideration Cash, net of cash acquired 19,694 44,255 Consideration payable [note 7] 3,627 4,506 23,321 48,761 Goodwill deductible for tax purposes with regard to these acquisitions amounts to $1.3 million [$13.5 million in 2022]. Preliminary purchase price allocations is subject to fair value adjustments to assets, liabilities and goodwill until the estimation process is complete. The final allocation of the purchase price should be completed as soon as management has gathered all the information available and deemed necessary to finalize the calculation, in particular for intangible assets, no later than 12 months after the acquisition date. 2023 Effective January 1, 2023, the Corporation acquired, through a newly formed subsidiary, 100% of all issued and outstanding shares of both Usimm Inc. and Unigrav Inc., two 3D scanning providers offering custom-made products for the architectural and industrial market, in partial consideration for which a participation equivalent to 25% of the share capital of said newly formed subsidiary was issued in the name of the sellers. The offices of Usimm and Unigrav are respectively located in Montreal and Drummondville, QC. Effective January 4, 2023, the Corporation acquired all issued and outstanding shares of Quincaillerie Rabel Inc., a specialty hardware distributor operating one distribution centre in Terrebonne, QC. Effective January 6, 2023, the Corporation acquired all issued and outstanding shares of Trans-World Distributing Ltd., a distributor of industrial fasteners for the industrial market operating one distribution centre in Dartmouth, NS. Effective April 3, 2023, the Corporation acquired the main net assets of Maverick Hardware, a distributor of specialized hardware operating one distribution centre in Eugene, OR. Effective April 30, 2023, the Corporation acquired the main net assets of Westlund Distributing, a distributor of specialized hardware operating one distribution centre in Monticello, MN. Sales of $23.5 million have been generated by these acquisitions since their completion. Had these acquisitions been made on December 1, 2022, management believes that sales included in the consolidated statement of earnings would have totalled approximately $27.0 million. 2022 Effective September 2, 2022, the Corporation closed a transaction pertaining to the acquisition of all issued and outstanding shares of Quincaillerie Deno, a distributor of specialized hardware products operating one distribution centre located in Anjou, QC. Effective December 31, 2021, the Corporation acquired the main net assets of Compi Distributors, a distributor of specialized hardware operating four distribution centres in St. Louis, MO, Kansas City, MO, Ozark, MO and Springfield, IL. Effective December 31, 2021, the Corporation acquired the main net assets of HGH Hardware Supply, a distributor of specialized hardware operating four distribution centres, one in Birmingham, AL, one in Nashville, TN and two in Atlanta, GA. Effective December 31, 2021, the Corporation acquired the main net assets of National Builders Hardware, a distributor of special- ized hardware operating one distribution centre in Portland, OR. 64 RichelieuAnnual Report 2023Notes to consolidated financial statements 4. PROPERTY, PLANT AND EQUIPMENT Land $ Buildings $ Leasehold improve- ments $ Machinery and equipment $ Rolling stock $ Furniture and fixtures $ Computer equipment $ Total $ 3,760 31,378 9,476 54,949 22,706 17,970 20,021 160,260 — (23,522) (7,129) (36,266) (15,535) (16,141) (15,428) (114,021) 3,760 7,856 2,347 18,683 7,171 1,829 4,593 46,239 (79) 208 2,400 8,015 6,060 1,283 2,888 20,775 — — — — 56 182 279 36 12 565 (1,044) (981) (5,110) (3,293) (929) (2,261) (13,618) — 123 393 278 52 25 871 3,681 7,020 3,945 22,163 10,495 2,271 5,257 54,832 3,681 31,296 12,227 63,906 29,156 19,671 23,023 182,960 — (24,276) (8,282) (41,743) (18,661) (17,400) (17,766) (128,128) 3,681 7,020 3,945 22,163 10,495 2,271 5,257 54,832 2,980 6,637 6,886 10,975 8,495 2,574 859 39,406 — — — — — 889 109 7 11 1,016 (984) (1,910) (6,468) (4,229) (1,190) (2,574) (17,355) — 55 49 36 9 5 154 6,661 12,673 8,976 27,608 14,906 3,671 3,558 78,053 6,661 37,897 18,765 71,622 34,704 18,976 17,735 206,360 — (25,224) (9,789) (44,014) (19,798) (15,305) (14,177) (128,307) 6,661 12,673 8,976 27,608 14,906 3,671 3,558 78,053 Cost Accumulated amortization Net carrying amount as at November 30, 2021 Acquisitions (dispositions) Business acquisitions [note 3] Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30, 2022 Cost Accumulated amortization Net carrying amount as at November 30, 2022 Acquisitions (dispositions) Business acquisitions [note 3] Amortization Effect of changes in foreign exchange rates Net carrying amount as at November 30, 2023 Cost Accumulated amortization Net carrying amount as at November 30, 2023 65 RichelieuAnnual Report 2023Notes to consolidated financial statements 5. INTANGIBLE ASSETS AND GOODWILL Non- competition agreements $ Customer relationships $ Software $ Trademarks $ Total $ Goodwill $ Cost 12,186 7,002 81,424 7,045 107,657 110,776 Accumulated amortization (9,482) (5,768) (38,497) — (53,747) — Net carrying amount as at November 30, 2021 Acquisitions Business acquisitions [note 3] 2,704 1,803 — 1,234 42,927 7,045 53,910 110,776 — 833 — 18,945 — — — 1,803 — 19,778 15,013 (10,636) — Amortization (894) (676) (9,066) Effect of changes in foreign exchange rates 4 34 1,570 140 1,748 1,668 Net carrying amount as at November 30, 2022 Cost 3,617 1,425 54,376 7,185 66,603 127,457 13,997 8,040 103,230 7,185 132,452 127,457 Accumulated amortization (10,380) (6,615) (48,854) — (65,849) — Net carrying amount as at November 30, 2022 Acquisitions Business acquisitions [note 3] 3,617 2,687 5 — 403 — 8,828 Amortization (1,047) (788) (9,022) Effect of changes in foreign exchange rates — — 124 — — — 15 2,687 9,236 (10,857) 139 — 7,467 — 165 1,425 54,376 7,185 66,603 127,457 Net carrying amount as at November 30, 2023 Cost 5,262 1,040 54,306 7,200 67,808 135,089 15,420 8,464 112,343 7,200 143,427 135,089 Accumulated amortization (10,158) (7,424) (58,037) — (75,619) — Net carrying amount as at November 30, 2023 5,262 1,040 54,306 7,200 67,808 135,089 For impairment test purposes, the carrying amounts of goodwill and intangible assets have been allocated to CGUs or groups of CGUs. The carrying amounts of goodwill for the two groups of CGUs that are significant in comparison with the total carrying amount of goodwill are $101.5 million and $31 million, while the $2.6 million balance is allocated to another CGU. The carrying amounts of intangible assets with indefinite useful lives are allocated across multiple CGUs or groups of CGUs that are not individually significant in comparison with the total carrying amount of intangible assets with indefinite useful lives. 6. BANK OVERDRAFT As at November 30, 2023 and 2022, the Corporation had lines of credit with authorized amounts of C$150 million and US$56 million, bearing interest at the bank’s prime and Bloomberg Short Term Bank Yield Index (“BSBY”) rate plus 1.05%, which were respectively 7.20% and 6.43% as at November 30, 2023 [5.95% and 5% as at November 30, 2022]. These lines of credit are renewable annually. As at November 30, 2023, an amount of $23 million, including US$17 million, was drawn on these lines of credit [as at November 30, 2022 — $133 million, including US$36 million, was drawn]. 7. LONG-TERM DEBT Non-interest bearing business acquisition considerations payable, including US$289 Current portion of long-term debt Long-term debt 2023 $ 2022 $ 5,346 2,940 2,406 6,067 5,208 859 66 RichelieuAnnual Report 2023Notes to consolidated financial statements 7. LONG-TERM DEBT (cont’d) Stock Option Plan Principal repayments are as follows: Changes in stock options are summarized as follows: 2023 $ 2,940 1,452 802 152 2022 $ 5,208 430 429 — 5,346 6,067 Less than 1 year 1-2 years 2-3 years More than 3 years 8. SHARE CAPITAL 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 the series, the characteristics of which are to be determined by the Board of Directors. Changes in common shares are summarized as follows: Number of shares (in thousands) $ Outstanding, November 30, 2021 55,842 54,610 Issued Repurchased 271 7,580 (327) (361) Outstanding, November 30, 2022 55,786 61,829 Issued Repurchased 324 10,482 (20) (22) Outstanding, November 30, 2023 56,090 72,289 During fiscal 2023, the Corporation issued 323,575 common shares [271,000 in 2022] at a weighted average exercise price of $26.43 per share [$23.19 in 2022] pursuant to the exercise of stock options under the stock option plan. The weighted average share price on the market at the date of exercise was $41.09 [$47.96 in 2022]. In addition, during fiscal 2023, the Corporation, through a normal course issuer bid, repurchased 20,000 common shares for cancellation in consideration for $773 [327,329 common shares for a consideration of $12,289 in 2022], which resulted in a premium on the redemption in the amount of $751 recognized as a reduction of retained earnings [premium of $11,928 in 2022]. 67 Number of options (in thousands) Weighted average exercise price $ Outstanding, November 30, 2021 1,691 27.14 Granted Exercised Cancelled 276 43.57 (271) 23.19 (16) 34.03 Outstanding, November 30, 2022 1,680 30.50 Granted Exercised Cancelled 307 37.39 (324) 26.43 (41) 37.63 Outstanding, November 30, 2023 1,622 32.44 The table below summarizes information regarding the stock options outstanding as at November 30, 2023: Options outstanding Exercisable options Weighted average remaining period (in years) Weighted average exercise price (in dollars) Number of options (in thousands) Weighted average exercise price (in dollars) 0.15 14.50 11 14.50 1.93 21.05 5.07 26.80 7.56 37.68 169 444 335 959 21.05 26.60 35.57 28.61 1,622 6.15 32.44 Range in exercise prices (in dollars) Number of options (in thousands) 12.71-17.25 17.26-23.50 23.51-32.00 32.01-43.57 12 170 499 941 During fiscal 2023, the Corporation granted 306,500 stock options [276,000 in 2022] with an average exercise price of $37.39 per share [$43.57 in 2022] and an average fair value of $9.18 per option [$12.37 in 2022] as determined using the Black & Scholes option pricing model using an expected dividend yield of 1.4% [1.2% in 2022], an expected volatility of 24.3% [23.1% in 2022], a risk-free interest rate of 2.75% [1.84% in 2022] and an expected life of 6.46 years [6.23 years in 2022] and 41,000 options were cancelled [17,125 in 2022]. For the year ended November 30, 2023, compensation expense related to stock options amounted to $2,570 [$2,650 in 2022] and is recognized under Operating expenses excluding amortization. Deferred Share Unit Plan The financial liability resulting from the DSU plan of $7,500 [$8,940 as at November 30, 2022] is presented under Accounts payable and accrued liabilities. As at November 30, 2023, the fair value of the equity swaps amounted to an asset of $178 and is presented under Accounts receivable [an asset of $618 as at November 30, 2022 and presented under Accounts receivable]. The Corporation classified the fair value measurement in Level 2, as it is derived from observable market data. RichelieuAnnual Report 2023Notes to consolidated financial statements 8. SHARE CAPITAL (cont’d) The compensation expense for the DSUs for the year ended November 30, 2023 amounted to $988 [$861 in 2022] and is recognized under Operating expenses excluding amortization. The effective income tax rate differs from the combined statutory rates for the following reasons: 2023 $ 2022 $ Number of DSUs 2023 2022 Combined statutory rates 26.62% 26.62% Outstanding, beginning of year 229,179 211,409 Paid Granted (77,675) — 22,909 17,770 Outstanding, end of year 174,413 229,179 Share Purchase Plan Compensation expense related to the share purchase plan amounted to $1,289 for the year ended November 30, 2023 [$1,064 in 2022] and is recognized under Operating expenses excluding amortization. Net Earnings per Share Income taxes at combined statutory rates Increase (decrease) resulting from: Impact of statutory rates differences for the subsidiaries Share-based compensation Non-deductible expenses and other Changes related to tax laws and tax rates 41,580 61,666 (289) (434) 524 565 554 (82) (10) (1) 42,370 61,703 Basic and diluted net earnings per share were calculated based on the following number of shares: (in thousands) 2023 2022 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: Weighted average number of shares outstanding - Basic Dilutive effect under stock option plan Weighted average number of shares outstanding - Diluted 55,870 55,925 346 420 56,216 56,345 The computation of diluted net earnings per share did not take into account the weighted average of 256,750 stock options [271,000 in 2022] since their exercise price, being higher than the average price of the shares for the period, would have had an anti-dilutive effect. 9. INCOME TAXES 2023 $ 2022 $ Reserves for tax purposes deductible only upon disbursement and other tax attributes 15,185 14,520 Excess of the net carrying value of property, plant and equipment over their tax value Excess of the net carrying value of intangible assets and goodwill over their tax value Right-of-use assets and lease obligations (8,811) (5,558) (13,924) (13,332) 3,802 2,316 (3,748) (2,054) The main components of the income tax expense were as follows: Net amount Current Deferred 2023 $ 2022 $ 42,491 62,297 Related to temporary differences (111) (593) Deferred tax related to changes in tax rates (10) (1) 42,370 61,703 The net deferred taxes included the following as at November 30: 2023 $ 2022 $ Deferred tax assets 7,421 7,998 Deferred tax liabilities (11,169) (10,052) (3,748) (2,054) 68 RichelieuAnnual Report 2023Notes to consolidated financial statements 9. INCOME TAXES (cont’d) Lease Obligations Changes in deferred taxes for the years ended November 30 are detailed as follows: The following table presents changes in lease obligations during fiscal 2023: Balance at the beginning of the year, net (2,054) (2,805) Carrying amount as at November 30, 2022 2023 $ 2022 $ 2023 $ 2022 $ 124,850 93,054 In net earnings 121 594 Acquisitions and dispositions 80,972 39,196 Business acquisitions [note 3] (1,912) (271) Financial costs 6,893 3,832 Other 97 428 Business acquisitions [note 3] 1,958 10,786 Balance at the end of the year, net (3,748) (2,054) Payment of lease obligations (34,108) (25,908) As at November 30, 2023, the Corporation had $101,402 of taxable temporary differences related to investments in subsidi- aries [$87,545 in 2022]. Deferred tax liabilities were not recog- nized in respect of such taxable temporary differences as the Corporation controls the decisions affecting the realization of such liabilities and does not expect these temporary differences to reverse in the foreseeable future. However, if the earnings are distributed in the form of dividends or otherwise, the Corporation may be subject to corporate income tax or withholding tax in Canada and/or abroad. 10. RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS Right-of-use Assets The main right-of-use assets held under the Corporation’s leases are warehouse and office premises. The following table presents changes in right-of-use assets during fiscal 2023: Carrying amount as at November 30, 2022 2023 $ 2022 $ 116,204 87,013 Acquisitions and dispositions 80,972 39,196 Business acquisitions [note 3] 1,958 10,786 Effect of exchange rate changes 760 3,890 Carrying amount as at November 30, 2023 181,325 124,850 11. COMMITMENTS AND CONTINGENCIES Commitments Contractual undiscounted payments under leases defined in note 10 are as follows: As at November 30, 2023 Less than one year Between 1 and 5 years More than 5 years $ 37,563 109,143 63,284 209,990 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. 12. ACCUMULATED OTHER COMPREHENSIVE INCOME Amortization (32,715) (24,392) Effect of exchange rate changes 705 3,601 The accumulated other comprehensive income, including the following items and their variances, were as follows: Carrying amount as at November 30, 2023 167,124 116,204 2023 $ 2022 $ Balance, beginning of year 27,743 14,264 Exchange differences on translation of foreign operations 850 13,479 Balance, end of year 28,593 27,743 69 RichelieuAnnual Report 2023Notes to consolidated financial statements 13. FINANCIAL INSTRUMENTS AND OTHER INFORMATION Fair Value The carrying value of long-term debt approximates its fair value because of the short maturity on balance of sale payable. The Corporation classified the fair value measurement in Level 2, as it is derived from observable market data. As at November 30, 2023, the Corporation did not hold any foreign exchange forward contracts [fair value of $193 as at November 30, 2022]. Credit Risk The Corporation sells its products to numerous customers in Canada and in the United States. Credit risk refers to the possi- bility that customers will be unable to assume their liabilities towards the Corporation. The average days outstanding of accounts receivable, as at November 30, 2023 and 2022, 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 is as follows: Balance, beginning of year Allowance for doubtful accounts 2023 $ 7,449 2,130 2022 $ 6,171 1,897 Write-offs (3,236) (1,084) As part of its business practices, the Corporation aims to preserve the purchase costs and the selling prices of its commercial activities. To protect its operations from exposure to exchange rate risks, the Corporation uses, among other things, a centralized cash flow management. The Corporation may also periodically use forward foreign exchange contracts. By implementing these measures, the Corporation seeks to protect operating results from exposure to exchange rate fluctuations. The Corporation’s business practices in terms of foreign exchange risk management does not allow speculative trades. As at November 30, 2023, a decrease (increase) 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 increased (decreased) consolidated net earnings by $592 [$2,487 as at November 30, 2022] and would have increased (decreased) other comprehensive income by $11,451 [$9,661 as at November 30, 2022]. The exchange rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure of the Corporation’s financial instru- ments as at November 30, 2023. Liquidity Risk The Corporation manages its risk of not being able to settle its financial liabilities when required by taking into account its oper- ational needs and by using different financing tools, as required. In recent years, the Corporation has financed its growth, business acquisitions, share repurchases and payout to shareholders using mainly the cash generated by the operating activities and through its lines of credit when necessary. Exchange rate variations and other 406 465 Interest Rate Risk Balance, end of year 6,749 7,449 The aging of the accounts receivable is as follows: The Corporation is exposed to interest rate risk associated with the use of its credit lines. Operating Expenses Excluding Amortization 2023 $ 2022 $ 2023 $ 2022 $ Current 156,850 157,785 Past due 1-30 days 43,312 45,370 Inventories from the distribution, imports and manufacturing activities recognized as an expense 1,309,917 1,295,533 Past due more than 30 days 25,851 26,532 Salaries and related charges 232,581 213,897 Allowance for doubtful accounts (6,749) (7,449) Other charges 219,264 222,238 14,852 5,915 1,557,350 1,515,345 An expense of $4,714 [$10,106 in 2022] for inventory obsoles- cence was included in Inventories from the distribution, imports and manufacturing activities. The balance of accounts receivable of the Corporation that are overdue for more than 60 days, but have not been provisioned, totaled $8,476 [$5,722 in 2022]. As at November 30, 2023 and 2022, 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 include, for the year ended November 30, 2023, an exchange gain of $1,724 [gain of $7,437 in 2022]. 70 RichelieuAnnual Report 2023Notes to consolidated financial statements 14. RELATED PARTY INFORMATION 16. CAPITAL MANAGEMENT Scope of Consolidation 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 shareholders’ return. 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. As at November 30, 2023, the Corporation achieved the following results regarding its capital management objectives: → Debt/equity ratio: 0.6% [0.7% as at November 30, 2022] [long-term debt/equity] → Return on average shareholders’ equity of 12.9% over the last 12 months [22.7% for the year ended November 30, 2022] The Corporation’s capital management objectives remained unchanged from the previous fiscal year. 17. DIVIDENDS PAID TO SHAREHOLDERS OF THE CORPORATION For the year ended November 30, 2023, the Corporation paid four quarterly dividends of $0.15 per common share [four quarterly dividends of $0.13 per common share in 2022] for a total amount of $33,521 [$29,083 in 2022]. On January 18, 2024, the Board of Directors approved the payment of a quarterly dividend of $0.15 per common share for the first quarter of 2024. 18. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements for the year ended November 30, 2023 (including comparative figures) were approved for issue by the Board of Directors on January 18, 2024. 19. SUBSEQUENT EVENTS Effective December 1, 2023, the Corporation acquired all issued and outstanding share capital of Olympic Forest Products Inc., a distributor of specialized lumber and panel products operating one distribution centre in Erin, ON. Effective January 1, 2024, the Corporation acquired from minority shareholders an additional 15% interest in the voting shares of Provincial Woodproducts Ltd, thereby increasing its interest to 100%. Effective January 15, 2024, the Corporation acquired the principal net assets of Rapid Start, a distributor of specialized hardware operating one distribution centre in Rittman, OH. 20. COMPARATIVE FIGURES Some figures disclosed for the year ended November 30, 2022, have been reclassified to conform to the presentation adopted for the year ended November 30, 2023. The following table lists the significant subsidiaries of the group individually and collectively as at November 30, 2023. Names Richelieu America Ltd. Richelieu Finances Ltée (1) Les Industries Cedan Inc. Distributions 20/20 Inc. Provincial Woodproducts Ltd. Menuiserie des Pins Ltée Interco division 10 Inc. Country of incorporation United States Equity interest % 100 Canada 100 Canada 100 Canada 100 Canada Canada Canada 85 85 75 Voting rights % 100 100 100 100 85 85 75 1. Richelieu Finances Ltée is the owner of 100% of Richelieu Hardware Canada Ltd. Key Management Personnel Compensation 2023 $ 2022 $ Short-term employee benefits 4,661 4,720 Other long-term benefits Share-based compensation 689 661 742 678 6,011 6,140 Accounts payable and accrued liabilities include a retirement allowance amounting to $4,800 [$4,400 as at November 30, 2022] payable to one member of the key management personnel. 15. GEOGRAPHIC INFORMATION During the year ended November 30, 2023, nearly 59% of sales had been made in Canada [60% in 2022]. The Corporation’s sales to foreign countries, almost entirely directed to the United States, amounted to C$739,695 [C$728,113 in 2022] and US$547,488 [US$562,468 in 2022]. As at November 30, 2023, out of the total amount in property, plant and equipment, $29,707 [$19,635 in 2022] was located in the United States. In addition, as at November 30, 2023, intangible assets and goodwill located in the United States amounted to C$27,330 and C$31,605, respectively [respectively C$30,037 and C$30,190 in 2022], and US$20,122 and US$23,270, respectively [respectively US$22,236 and US$22,350 in 2022]. Of the total amount of right-of-use assets, $108,477 [November 30, 2022 - $74,495] was located in the United States. 71 RichelieuAnnual Report 2023Transfer agent and registrar Computershare Trust Company of Canada Auditors Ernst & Young LLP 900 De Maisonneuve Blvd. West Suite 2300 Montreal, Quebec H3A 0A8 Head office Richelieu Hardware Ltd. 7900 Henri-Bourassa Blvd. West Montreal, Quebec H4S 1V4 Telephone: 514 336-4144 Fax: 514 832-4002 richelieu.com logo FSC Since the environment is a priority for Richelieu, this annual report is printed on Rolland Enviro Satin paper containing 100% post-consumer recycled fiber, saving 13 trees, 4 m3 of water and 859 kg CO₂. Printed in Canada 72 R I C H E L I E U A C R E A T I V E S Y N E R G Y O F S T R E N G T H S · A N N U A L R E P O R T 2 0 2 3 richelieu.com

Continue reading text version or see original annual report in PDF format above