Richelieu Hardware Ltd. — Interim / Quarterly Report 2024

Jul 11, 2024

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Q2
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Quarterly Report

Three and six-month periods ended May 31, 2024

MESSAGE TO SHAREHOLDERS

In the second quarter ending May 31, 2024, Richelieu continued its growth and achieved higher sales compared to the corresponding quarter of 2023. This increase resulted from the benefits of its acquisitions as well as its market penetration and value-added service strategies - an appreciable result in the current market conditions. During the quarter, the Corporation completed the acquisition of a distributor of specialty panels and decorative surfaces operating in Pennsylvania and Ohio, its third acquisition since the beginning of the fiscal year.

Second-quarter sales totalled $481.4M, up 2.0% from the corresponding period of 2023, including a 0.7% internal decrease offset by 2.7% growth through acquisition. In the manufacturers' market, Richelieu grew sales by 4.5%, with a 0.9% increase in Canada and 8.7% (US$) in the United States. Across all geographic markets, sales to retailers and renovation superstores decreased, resulting in a 14.6% decline in this market. In Canada, sales totalled $276.3M, down slightly by 1.1% from the second quarter of 2023, while in the United States, sales reached US$150.5M, up 6.1%, of which 1.9% came from internal growth and 4.2% from acquisitions.

For the first six months of the year, sales totalled $888.3M, an increase of 1.5% over the first half of 2023, including a 0.5% internal decline offset by growth through acquisition of 2.0%.

EBITDA for the second quarter amounted to $53.8M, down 12.6% compared to the corresponding quarter of 2023. The EBITDA margin was 11.2%, compared with 13.0% in the second quarter of 2023. Gross and EBITDA margins continued to be under pressure due to temporary factors, including inventories at higher than current purchasing costs, lower selling prices for certain products originating mainly from Asia, and the start-up and development of several expanded and modernized distribution centres in 2023, including the new Calgary distribution centre which began operations in December 2023. The Corporation is continuing its efforts to reduce inventories, which decreased by $22M in the second quarter. As a result, net income attributable to shareholders was $0.42 per diluted share, compared with $0.55 in the second quarter of 2023.

EBITDA for the first half was $94.2M, down 14.8%, and EBITDA margin was 10.6% from 12.6% for the comparable period of 2023. The Corporation reported net income attributable to shareholders of $0.69 per diluted share for the first half of 2024, compared with $0.95 per diluted share for the first six months of 2023.

EXPANDING THE NORTH AMERICAN NETWORK: THREE NEW ACQUISITIONS IN THE FIRST HALF AND PLANS TO CONSOLIDATE DISTRIBUTION ACTIVITIES FOR THE RETAILERS MARKET

On March 27, 2024, Richelieu closed the acquisition of the main net assets of Allegheny Plywood, a distributor of specialty panels and decorative surfaces, operating distribution centres in Pittsburgh and Allentown, Pennsylvania, as well as in Cleveland, Ohio. This acquisition is in addition to those concluded in the first quarter, namely Olympic Forest Products, a distributor of specialized lumber and panel products based in Erin, Ontario, and Rapid Start, a distributor of specialized hardware serving manufacturers from its centre in Rittman, Ohio. Together, these transactions represent sales of approximately $60M on an annual basis, and strengthen the Corporation's presence in these markets.

Completed in December 2023, the Calgary expansion project enables the Corporation to continue to support the growth of its manufacturer customers by consolidating two centres into a single 250,000 square foot warehouse, and by centralizing the distribution of all products for retailer customers in Western Canada. In the second quarter, the Corporation began optimizing distribution activities for the retailers in Ontario and Eastern Canada. These projects are ongoing and have already involved the transfer of operations from two distribution centres.

Richelieu is well positioned to seize opportunities in the renovation market, as well as the expected increase in demand for specialized products in the context of housing shortages in Canada and the United States. Over the coming periods, the team will remain fully focused to intensify market penetration, optimize synergies and pursue winning strategies based on the Corporation's core strengths: innovation, market diversification, distinctive value-added service, network strength and the ability to integrate acquisitions effectively.

NEXT DIVIDEND PAYMENT

On July 11, 2024, the Board of Directors approved the payment of a quarterly dividend of $0.15 per share. This dividend will be paid on August 8, 2024, to shareholders of record as at July 25, 2024.

RICHELIEU HARDWARE LTD Management’s discussion and analysis Second quarter ended May 31, 2024

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PRESENTATION BASIS

This Management's Discussion and Analysis (“MD&A”) relates to Richelieu Hardware Ltd.’s consolidated operating results and cash flows for the second quarter and first six months ended May 31, 2024, in comparison with the second quarter and first six months ended May 31, 2023, as well as the Corporation's financial position as at May 31, 2024, compared with that of November 30, 2023. This report should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes for the second quarter and first six months of 2024 as well as the Corporation's fiscal 2023 MD&A and audited consolidated financial statements available on the website SEDAR+ at www.sedarplus.com and on the Corporation's website at www.richelieu.com. In this MD&A, “Richelieu” or the “Corporation” refers to, as the case may be, Richelieu Hardware Ltd. and its subsidiaries and divisions, or one of its subsidiaries or divisions. Supplementary information, including certificates for the interim period ended May 31, 2024, signed by the Corporation’s President and Chief Executive Officer and the Vice-President and Chief Financial Officer, is available on SEDAR+. The information contained in this MD&A accounts for any major event that occurred prior to July 11, 2024, on which date the unaudited interim consolidated financial statements and interim 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”). The consolidated financial statements for the second quarter and first six months ended May 31, 2024, have not been audited or reviewed by the Corporation’s auditors.

NON-IFRS MEASURES

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 alternative to operating income or net earnings attributable to shareholders of the Corporation, as an indicator of 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 the 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 the amortization of property, plant and equipment, intangible assets and right-of-use assets, deferred tax expense (or recovery), share-based compensation expense and financial costs. These additional measures do not consider 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.

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 and 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 assumption that economic conditions and exchange rates will not significantly deteriorate, that operating costs will not increase significantly, that supplies will be sufficient to fulfil Richelieu’s needs, that availability of credit will remain stable during the year and that 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 set forth in the 2023 annual MD&A (see the “Risk Factors” section) available on SEDAR+ and on the Corporation's website.

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.

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Management’s Discussion & Analysis Report Q2-2024[_] 2[_]

GENERAL BUSINESS OVERVIEW AS AT MAY 31, 2024

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.

Sales by market Q2-2024

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11%
89%
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Retailers Manufacturers

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Richelieu's offer	114 interconnected centres
Over 145,000different items More than120,000active customers 5,100,000sq.ft. of storage	48DISTRIBUTION CENTRES IN CANADA 63DISTRIBUTION CENTRES IN THE UNITED STATES 3MANUFACTURING PLANTS COVERAGE BY REPRESENTATIVES

Main product categories	Main product categories
Furniture, glass and building decorative and functional hardware	Slidingdoor systems
	Decorative and functional panels
Lightingsystems	High pressure laminates
Finishingand decoration products	Baluster and railings
Ergonomic workstations components	Floor protection products
Kitchen and closet storage solutions	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 banding 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 over 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.

MAIN TRADEMARKS

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Management’s Discussion & Analysis Report Q2-2024[_] 3[_]

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 complementarity 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.

SECOND QUARTER HIGHLIGHTS AND KEY FINANCIAL DATA

• Sales of $481.4M, up 2%, including $276.3M in Canada and US$150.5M in the United States, up 6% (US$).

• EBITDA[1] of $53.8M - EBITDA margin of 11.2%.

• Net earnings attributable to shareholders of $23.4M, or $0.42 per diluted share.

• Cash flows from operating activities of $55.7M.

• Expansion : acquisition in the U.S.

• Buyback of 480,820 common shares for $18.6M.

NETWORK DEVELOPMENT

Since the start of fiscal year 2024, Richelieu concluded the following acquisitions:

Date	Company Name	Nature of operations	Locations
December 1, 2023	Olympic Forest Products	Distributor of specialized lumber and panel products	Erin, ON
January 15, 2024	Rapid Start	Distributor of specialized hardware	Rittman, OH
March 27, 2024	Allegheny Plywood	Distributor of specialty panels and decorative surfaces	Pittsburgh PA, Allentown, PA and Cleveland, OH.

These three acquisitions together will add approximately $60M in annual sales. Additionally, in December 2023, the Corporation completed the Calgary expansion project by consolidating two centres into a single 250,000 sq. ft. warehouse, which will increase its service capacity and optimize operations. Moreover, this expansion centralized distribution activities for the Western Canadian retail market, serving these customers from a single facility in Calgary. The Corporation has also begun optimizing distribution operations for the retail market in Ontario and Eastern Canada. These projects are ongoing and have already involved the transfer of operations from two distribution centres.

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1 Financial measure not IFRS compliant. Refer to non-IFRS section.

Management’s Discussion & Analysis Report Q2-2024[_] 4[_]

OPERATING AND CASH FLOW INFORMATION (unaudited)

	Quarters ended May 31 Six months ended May 31	Quarters ended May 31 Six months ended May 31
(in millions of dollars, except margins andper share data)	2024 2023 ∆ %	2024 2023 ∆ %
Sales	481.4 472.1 2.0	888.3 875.1 1.5
EBITDA1 EBITDA margin (%)	53.8 61.5 (12.6) 11.2 13.0	94.2 110.6 (14.8) 10.6 12.6
Net earnings attributable to shareholders of the Corporation • basic per share ($) • diluted per share ($)	23.4 30.7 (23.7) 0.42 0.55 (23.6) 0.42 0.55 (23.6)	38.7 53.1 (27.2) 0.69 0.95 (27.4) 0.69 0.95 (27.4)
Adjusted cash flows from operating activities1 • diluted per share ($)1	45.1 50.8 (11.3) 0.80 0.90 (11.1)	80.0 91.4 (12.5) 1.42 1.63 (12.9)
Dividends paid per share ($) Weighted average number of shares outstanding (diluted, in thousands)	0.15 0.15 — 56,329 56,227	0.30 0.30 — 56,421 56,176

DATA ON THE FINANCIAL SITUATION

(in millions of dollars, except ratios)	As at May 31, 2024	As at November 30, 2023	∆ %
Total assets	1,381.7	1,315.0	5.1
Working capital	616.0	621.8	(0.9)
Current ratio	3.3 :1	3.6 :1
Equity attributable to shareholders	912.0	904.9	0.8
Average return on shareholders' equity (%)	11.0	12.9
Book value per share ($)	16.38	16.13	1.5
Total debt	6.6	5.3	23.7
Net cash and cash equivalents (net bank overdraft)	(14.4)	23.7

CA$ / US$ EXCHANGE RATES

The following table presents the average exchange rates applicable to the second quarter and the first-half ended May 31, 2024 and 2023, as well as the closing rates on May 31, 2024 and November 30, 2023. The average rates are used to convert income and expenses of foreign establishments for the periods covered while other items in the statements of financial position and earnings of Canadian entities are translated at the exchange rates in effect at the date of transaction. The closing rates are used to convert the assets and liabilities of foreign operations and the monetary assets and liabilities in foreign currencies of Canadian operations.

Average rates for the quarters ended May 31	Average rates for the quarters ended May 31	Average rates for the six months periods ended ended May 31	Average rates for the six months periods ended ended May 31	Closing rates	Closing rates
2024	2023	2024	2023	As at May 31, 2024	As at November 30, 2023
1.363	1.356	1.355	1.353	1.364	1.358

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1 Financial measures not IFRS compliant. Refer to non-IFRS section.

Management’s Discussion & Analysis Report Q2-2024[_] 5[_]

ANALYSIS OF OPERATING RESULTS FOR THE SECOND QUARTER AND FIRST SIX MONTHS ENDED MAY 31, 2024, COMPARED WITH THE SECOND QUARTER AND FIRST SIX MONTHS ENDED MAY 31, 2023

(in millions of dollars, except per share data)	Quarter ended May 31 Six months ended May 31	Quarter ended May 31 Six months ended May 31
	2024 2023 ∆ %	2024 2023 ∆ %
Sales Operatingexpenses excludingamortization	481.4 472.1 2.0 427.6 410.6 4.2	888.3 875.1 1.5 794.1 764.5 3.9
EBITDA	53.8 61.5 (12.6)	94.2 110.6 (14.8)
Amortization of property, plant and equipment and right-of-use assets Amortization of intangible assets Net financial costs	14.5 12.1 20.1 2.7 2.7 0.1 3.1 4.0 (23.4)	28.5 23.5 21.7 5.3 5.4 (1.7) 5.6 7.9 (28.7)
	20.3 18.8 7.9	39.5 36.8 7.5
Earnings before income taxes Income taxes	33.5 42.7 (21.6) 8.9 11.5 (22.9)	54.7 73.9 (25.9) 14.6 20.1 (27.6)
Net earnings	24.6 31.2 (21.1) 40.2 53.8 (25.3)
Net earnings attributable to: Shareholders of the Corporation Non-controllinginterests	23.4 30.7 (23.7) 1.2 0.5 148.2	38.7 53.1 (27.2) 1.5 0.7 122.3
Net earnings per share attributable to shareholders of the Corporation Basic Diluted	0.42 0.55 (23.6) 0.42 0.55 (23.6)	0.69 0.95 (27.4) 0.69 0.95 (27.4)

Sales

The following table provides an overview of Richelieu's sales in its two main markets for the quarters ended May 31, 2024 and 2023 :

Quarters ended May 31 2024 2023 (in millions of dollars, except exchange rates)	∆ %
	Total Internal Acquisitions
Consolidated 481.4 472.1 Manufacturers 427.4 408.9 Retailers 54.0 63.2 Canada 276.3 279.5 Manufacturers 232.3 230.3 Retailers 44.0 49.2 United States in US$ 150.5 141.9 Manufacturers 143.1 131.6 Retailers 7.4 10.3 United States in CA$ 205.1 192.6	2.0 (0.7) 2.7
	4.5 1.4 3.1 (14.6) (14.6) —
	(1.1) (2.8) 1.7
	0.9 (1.1) 2.0 (10.6) (10.6) —
	6.1 1.9 4.2
	8.7 4.2 4.5 (28.2) (28.2) —
	6.5
Average exchange rates 1.363 1.356

For the second quarter ended May 31, 2024, consolidated sales were $481.4M, compared to $472.1M for the second quarter of 2023, an increase of $9.3M, or 2.0%, resulting from a positive contribution from the acquisitions of 2.7% and an internal decrease of 0.7%. In comparable currency to the second quarter of 2023, consolidated sales increase would have been 1.8% for the quarter ended May 31, 2024.

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Management’s Discussion & Analysis Report Q2-2024[_] 6[_]

The following table provides an overview of Richelieu's sales in its two main markets for the first half of 2024 and 2023 :

Six months ended May 31 2024 2023 (in millions of dollars)	∆ %
	Total Internal Acquisitions
Consolidated 888.3 875.1 Manufacturers 777.6 754.4 Retailers 110.7 120.7 Canada 508.3 510.4 Manufacturers 420.1 415.8 Retailers 88.2 94.6 United States in US$ 280.4 269.6 Manufacturers 263.8 250.3 Retailers 16.6 19.3 United States in CA$ 380.0 364.7	1.5 (0.5) 2.0
	3.1 0.7 2.4 (8.3) (8.3) —
	(0.4) (2.2) 1.8
	1.0 (1.2) 2.2 (6.8) (6.8) —
	4.0 1.7 2.3
	5.4 2.9 2.5 (14.0) (14.0) —
	4.2
Average exchange rates 1.355 1.353

In the first half of 2024, consolidated sales reached $888.3M, up $13.2M or 1.5% over the first half of 2023, of which 2.0% from acquisitions and 0.5% from an internal decrease. In comparable currency to the corresponding period of 2023, the increase in consolidated sales would have been 1.4%.

Breakdown of sales by major markets (in Canadian dollars)

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Q2-2024 Q2-2023
United States United States
Canada 43.0% 41.0%
Canada
57.0%
59.0%
Q2 cumulative-2024 Q2 cumulative-2023
United States United States
Canada
43.0% 42.0%
Canada
57.0%
58.0%
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Operating expenses excluding amortization

For the quarter ended May 31, 2024, operating expenses excluding amortization totalled $427.6M, representing 88.8% of sales, compared to $410.6M, or 87.0% of sales, for the same period in 2023. The increase in monetary terms reflects higher costs of goods sold in certain product categories, as well as operational expenses associated with expansion projects completed over the past year and early this year, which are currently in the start-up phase.

For the first half of the year , operating expenses excluding amortization totalled $794.1M, representing 89.4% of sales, compared to $764.5M, or 87.4% of sales, for the same period in 2023. This variation is also explained by higher costs of goods expensed as well as costs specific to projects during the start-up phase.

Earnings before income taxes, interest and amortization (EBITDA)

EBITDA for 2024 second quarter was $53.8M, down $7.7M or 12.6% from the corresponding quarter of 2023, mainly as a result of lower gross margin caused by inventories at costs higher than current purchasing costs and the drop in selling prices of certain products, plus the temporary increase in some operating expenses resulting from expansion projects. As a result, the EBITDA margin was 11.2%, compared with 13.0% for the corresponding quarter of 2023.

EBITDA for the first six months was $94.2M, down $16.4M or 14.8% from the corresponding period of 2023.

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Management’s Discussion & Analysis Report Q2-2024[_] 7[_]

Amortization and net financial costs

Amortization expense for the second quarter of 2024 amounted to $17.2M, up $2.4M over the corresponding period of 2023, as a result of the increase in property, plant and equipment and right-of-use assets stemming from expansion and modernization projects completed in 2023 and early this year. Net financial costs were $3.1M for this quarter in 2024, compared to $4.0M in 2023, a decrease of $0.9M mainly due to reduced lines of credit used primarily to finance acquisitions, expansion projects, and the temporary increase in inventories in the previous fiscal year.

For the first half of 2024, amortization expense amounted to $33.9M, up $5.0M over the corresponding period of 2023. Net financial costs were $5.6M in the first half of 2024, compared to $7.9M for the corresponding period in 2023, a decrease of $2.3M resulting from the repayment of lines of credit.

Income taxes

For the second quarter of 2024, income tax expense was $8.9M, compared to an expense of $11.5M in the same period last year, representing respectively effective tax rates of 27.0%.

For the six-month period , income tax expense was $14.6M compared to $20.1M in 2023 , representing effective tax rates of 27%.

Net earnings and comprehensive income

Second quarter net earnings were $24.6M, down 21.1% from the prior year. Including non-controlling interests, net earnings attributable to shareholders of the Corporation were $23.4M, down 23.7% from Q2 2023. Net earnings per share were $0.42, basic and diluted, compared to $0.55, basic and diluted, for Q2 2023, down 23.6%.

For the six-month period , net earnings attributable to shareholders of the Corporation were $38.7M, down 27.2% from the prior year. Net earnings per share were $0.69 on a diluted basis, compared to $0.95 on both a basic and diluted basis for the same period of 2023, down 27.4%.

Comprehensive income amounted to $26.2M, reflecting a positive adjustment of $1.6M on translation of the financial statements of the subsidiary in the United States, compared to $31.1M for the same period in 2023, which reflected a negative adjustment of $0.1M on translation of the financial statements of the subsidiary in the United States. For the first six months , comprehensive income totalled $41.4M, compared to $55.7M for the corresponding period of 2023.

Quarterly data

(in millions of dollars, except per share data)
2024	Q1 Q2 Q3 Q4
Sales EBITDA Net earnings attributable to shareholders of the Corporation • basic per share ($) • dilutedper share($)	406.9 40.4 15.2	481.4 53.8 23.4
	0.27	0.42
	0.27	0.42
2023	T1 T2 T3 T4
Sales EBITDA Net earnings attributable to shareholders of the Corporation • basic per share ($) • dilutedper share($)	403.0 49.1 22.4 0.40 0.40	472.1 61.5 30.7 0.55 0.55	459.0 61.0 29.8 0.53 0.53	453.7 58.8 28.5 0.51 0.51
2022	T1 T2 T3 T4
Sales EBITDA Net earnings attributable to shareholders of the Corporation • basic per share ($) • dilutedper share($)	384.5 53.7 30.1 0.54 0.53	487.9 77.9 47.0 0.84 0.83	472.9 79.2 46.4 0.83 0.82	457.5 76.7 44.9 0.80 0.80

Quarterly 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.

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Management’s Discussion & Analysis Report Q2-2024[_] 8[_]

Analysis of the main cash flows for the second quarter and the first half ended May 31, 2024

	Quarters ended May 31 Six months ended May 31	Quarters ended May 31 Six months ended May 31
(in millions of dollars)	2024 2023	2024 2023
Cash flows provided by (used in): Operating activities Financing activities Investing activities Effect of exchange rate changes on cash and cash equivalents	55.7 74.4 (38.6) (17.8) (20.8) (12.0) (0.6) 0.1	56.2 93.2 (57.6) (39.8) (36.2) (34.3) (0.5) (0.1)
Net change in cash and cash equivalents (bank overdraft) Cash and cash equivalents (bank overdraft), beginning of period Cash and cash equivalents (bank overdraft), end ofperiod	(4.2) 44.6 (10.2) (137.7) (14.4) (93.1)	(38.1) 18.9 23.7 (112.0) (14.4) (93.1)

Reconciliation of cash flow from operating activities to adjusted cash flow from operating activities :

(in millions of dollars)	Quarters ended May 31 Six months ended May 31	Quarters ended May 31 Six months ended May 31
	2024 2023	2024 2023
Cash flow from operating activities Net change in non-cash working capital balances (inflow)	55.7 74.4 (10.6) (23.6)	56.2 93.2 23.8 (1.8)
Adjusted cash flows from operating activities	45.1 50.8	80.0 91.4

Operating activities

Second quarter adjusted cash flow from operating activities, (before net change in non-cash working capital balances), was $45.1M or $0.80 per diluted share compared to $50.8M or $0.90 per diluted share for the second quarter of 2023. This 11.1% decrease mainly reflects the decrease in net earnings. The net change in non-cash working capital items generated a cash inflow of $10.6M, mainly reflecting decreases in inventories and accounts payable of $31.1M, while accounts receivable and other items used cash flows of $20.5M. As a result, operating activities provided a cash inflow of $55.7M, compared to a cash inflow of $74.4M in Q2 2023.

For the first six months, adjusted cash flow from operating activities, (before net change in non-cash working capital balances), was $80.0M or $1.42 per diluted share compared to $91.4M or $1.63 per diluted share for the first six months of 2023. The net change in noncash working capital items used cash flows of $23.8M, mainly reflecting the decrease in inventories which generated a cash inflow of $10.6M, while accounts receivable, accounts payable, including income tax payable, and other items used cash of $34.4M. As a result, operating activities generated a cash inflow of $56.2M, compared to a cash inflow of $93.2M in the first six months of 2023.

Financing activities

In the second quarter , financing activities required a cash outflow of $38.6M compared to $17.8M in Q2 2023. During the quarter, the Corporation paid lease obligations of $10.0M, distributed dividends to shareholders totaling $8.4M, and paid interest on bank overdrafts amounting to $0.7M, compared to lease payments of $8.6M, dividend payments of $8.4M, and interest on bank overdrafts of $2.4M in the second quarter of 2023. The Corporation also repurchased 480,820 common shares for $18.6M.

In the first half , cash flows from financing activities used cash flows of $57.6M, compared to $39.8M in the first half of 2023. The Corporation repaid long-term debt of $2.1M, paid lease obligations of $19.7M and issued shares for $1.8M, compared to a long-term debt repayment of $4.6M, lease payments of $15.6M and a $2.6M share issue in the first half of 2023. Dividends paid to shareholders of the Corporation amounted to $16.8M compared to $16.7M in the same period of 2023 while common shares repurchased amounted to $18.6M in the first half of 2024, compared to $0.8M in 2023.

Investing activities

Investment activities amounted to $20.8M, including $9.6M for business acquisitions completed during the second quarter and $11.2M primarily for investments related to the consolidation of the Calgary centre and the purchase of equipment aimed at maintaining and improving operational efficiency, compared to $12.0M during the corresponding quarter of 2023, including $4.2M for business acquisitions and $7.8M mainly for the purchase of equipment aimed at maintaining and improving operational efficiency as well as infrastructure investments for distribution centre expansion projects.

For the first half , investment activities represented a total cash outflow of $36.2M, including $17.0M for business acquisitions completed during the first half and $19.2M primarily for the purchase of equipment aimed at maintaining and improving operational efficiency, as well as for distribution centre expansion projects. In the first half of 2023, they amounted to $34.3M, including $20.0M for business acquisitions and $14.3M for acquisitions of fixed assets.

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Management’s Discussion & Analysis Report Q2-2024[_] 9[_]

Sources of financing

As at May 31, 2024, the bank overdraft, net of cash and cash equivalents, was $14.4M, compared to a net cash balance of $23.7M as at November 30, 2023. The Corporation had a working capital of $616.0M, a ratio of 3.3:1, compared to $621.8M (ratio of 3.6:1) as at November 30, 2023.

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 expected in fiscal 2024. The Corporation has access to an authorized line of credit of $85M [$150M as at November 30, 2023] as well as a line of credit of US$56M [US$56M as at November 30, 2023] renewable annually and bearing interest at the bank's prime and the BSBY rate plus 1.05%, respectively. In addition, Richelieu considers it could access other outside financing if necessary.

ANALYSIS OF FINANCIAL POSITION

	As at May 31, 2024	As at November 30, 2023	∆ %
(in millions of dollars)
Current assets	887.7	859.5	3.3
Non-current assets	494.1	455.5	8.5
Total	1,381.7	1,315.0	5.1
Current liabilities	271.6	237.7	14.3
Non-current liabilities	195.9	169.1	15.9
Equity attributable to shareholders of the Corporation	912.0	904.9	0.8
Non-controlling interests	2.2	3.3	(33.1)
Total	1,381.7	1,315.0	5.1

Assets

Total assets were $1.38B as at May 31, 2024, compared to $1.31B as at November 30, 2023, an increase of 5.1%. Current assets increased by 3.3% or $28.2M from November 30, 2023. Non-current assets increased by 8.5% mainly due to the addition of right-of-use assets.

Liabilities

Current liabilities amounted to $271.6M as at May 31, 2024, up 14.3% from $237.7M as at November 30, 2023. Non-current liabilities totalled $195.9M as at May 31, 2024, compared to $169.1M as at November 30, 2023. The increase primarily reflects a rise in lease obligations.

Shareholders’ equity

The Corporation's shareholders' equity was $912.0M as at May 31, 2024, compared to $904.9M as at November 30, 2023, an increase of $7.1M mainly due to increases of $3.3M in retained earnings and $2.6M in capital stock and contributed surplus, while accumulated other comprehensive income increased by $1.2M. As at May 31, 2024, the book value per share was $16.38, up 0.9% from November 30, 2023.

Share capital and stock options

As at May 31, 2024, the Corporation's share capital consisted of 55,677,620 common shares [56,088,365 common shares as at November 30, 2023]. For the three and six-month periods ended May 31, 2024, the weighted average number of diluted shares outstanding was 56,328,850 and 56,421,090 [56,227,220 and 56,176,050 in 2023]. In addition, 1,821,725 stock options were outstanding as at May 31, 2024 [November 30, 2023 - 1,621,925].

The following table presents the changes in outstanding share capital and stock options for the six-month period ended May 31, 2024:

Number of shares	Number of options
Outstanding, November 30, 2023 56,088,365 Issued upon exercise of options 70,075 Repurchased (480,820) Other —	Outstanding, November 30, 2023 1,621,925 Exercised (70,075) Granted 289,000 Cancelled (19,125)
Outstanding, May 31, 2024 55,677,620	Outstanding, May 31, 2024 1,821,725

FINANCIAL INSTRUMENTS

Richelieu periodically enters into forward exchange contracts to fully or partially hedge the effects of foreign currency fluctuations related to foreign-currency denominated payables or to hedge forecasted purchase transactions. The Corporation has a policy of not entering into derivatives for speculative or trading purposes and to enter into such contracts only with major financial institutions. Richelieu also uses equity swaps to reduce the effect of fluctuations in its share price on net earnings in connection with its deferred share unit plan.

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Management’s Discussion & Analysis Report Q2-2024[_] 10[_]

INTERNAL CONTROL OVER FINANCIAL REPORTING

As indicated in the 2023 annual MD&A, available on SEDAR, management has designed and evaluated internal controls over financial reporting ("ICFR") and disclosure controls and procedures ("DC&P") to provide reasonable assurance that the Corporation’s financial reporting is reliable and that its publicly disclosed financial statements are prepared in accordance with IFRS. The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have assessed, within the meaning of National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings, the design and the effectiveness of internal controls over financial reporting as at November 30, 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 quarter ended May 31, 2024, management ensured that there were no material changes in the Corporation’s procedures that were reasonably likely to have a material impact on its internal control over financial reporting. No such changes were identified.

Due to their intrinsic limits, internal controls over financial reporting only provide reasonable assurance and may not prevent or detect misstatements. In addition, projections of an assessment of effectiveness in future periods carry the risk that controls will become inappropriate as a result of changes in conditions or if the degree of conformity with standards and methods should deteriorate.

SIGNIFICANT ACCOUNTING POLICIES

The Corporation’s interim consolidated financial statements for the quarter ended May 31, 2024, have been prepared by management in accordance with IFRS.

The interim consolidated financial statements were prepared in accordance with the accounting policies that the Corporation applied when preparing its consolidated financial statements as at November 30, 2023 and for the year then ended, which require management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and appearing in the accompanying notes, which could be modified. The estimates are based on management’s knowledge of current events, on the measures the Corporation could take in the future and on other factors deemed relevant and reasonable.

Risk factors are described in the “Risk Factors” section of Richelieu’s 2023 annual report available on SEDAR+ and on the Corporation's website.

SUPPLEMENTARY INFORMATION

Further information about Richelieu, including its latest Annual Information Form, is available on SEDAR+ at www.sedarplus.com and on the Corporation's website at www.richelieu.com.

President and Chief Executive Officer

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Richard Lord

Vice-President and Chief Financial Officer

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Antoine Auclair

July 11, 2024

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Management’s Discussion & Analysis Report Q2-2024[_] 11[_]