TRADING SYMBOL: Toronto Stock Exchange - HWD
LANGLEY, BC, March 10, 2014 /CNW/ - This press release discusses
financial results for Hardwoods Distribution Inc. ("Hardwoods" or the
"Company") for the three and twelve months ended December 31, 2013.
Hardwoods is one of North America's largest wholesale distributors of
hardwood lumber and related sheet good products, operating a network of
32 distribution centres in the US and Canada.
Highlights
(For the three and twelve months ended December 31, 2013)
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Revenue increased 22.8% in the fourth quarter and 21.3% for the full
year, compared to the same periods in 2012.
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The Company increased gross profit by 25.3% in the fourth quarter and by
25.7% in the 12-month period, compared to the same periods in 2012.
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Fourth quarter EBITDA climbed 75.2% to $4.2 million, and full-year
EBITDA increased 73.1% to $21.4 million.
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Fourth quarter profit increased 80.9% to $2.4 million, while full-year
profit climbed 111.5% to $13.1 million.
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In recognition of continuing strong financial performance, the Board of
Directors approved an increase in the quarterly dividend from 3.5 cents
per share to 4.5 cents per share. The dividend will be paid on April
30, 2014, to shareholders of record as at April 18, 2014.
"We continued to build momentum in 2013 as our market expansion
strategies combined with strong demand growth in the US market to drive
stronger financial results," said Lance Blanco, President and CEO of
Hardwoods. "At $371 million, our full-year sales performance has now
returned to the levels we were achieving at our peak in 2005 and 2006.
However, we are achieving these results at a much lower level of
housing starts."
According to the US Census Bureau, US housing starts increased to
927,000 in 2013, 19% higher than in 2012, but still less than half the
2.1 million housing starts recorded in 2005. Canadian housing starts
declined to 188,000, from 215,000 in 2012 according to Canada Mortgage
and Housing Corporation, reflecting the impact of new mortgage rules
designed to cool the residential housing market.
The Company's results were bolstered by the continued strengthening of
product prices during the year. Average hardwood lumber prices, as
measured by the Hardwood Review Kiln Dried Lumber Price Index, were up
approximately 12% compared to 2012, due to strong market demand. Sheet
good pricing also increased year-over-year, rising sharply in the first
half of the year due to the combination of strong demand and the
imposition in the US of trade duties on hardwood panel products
imported from China. Panel prices softened in the fourth quarter when
the US trade case against Chinese panel imports was summarily
dismissed.
"Our successful strategy of expanding our presence in the US, leveraging
our import program and increasing our business with commercial
customers has enabled us to capitalize on the improving conditions in
US," said Mr. Blanco. "Our May 2013 acquisition of an import lumber
business in Leland, North Carolina complemented this strategy. While we
acquired the Leland business primarily for the direct access it gives
us to international hardwood lumber producers, this well-priced
acquisition also gave us a new presence on the US East Coast, nicely
timed to the housing cycle. We generated approximately $2.9 million of
sales from our new branch in 2013, and our entire distribution network
benefited from its positive impact on our import program."
Hardwoods ended 2013 in a very strong financial position. A combination
of strong cash flow and a fourth quarter reduction in inventory and
accounts receivable enabled the Company to reduce its bank line to just
$27.9 million at year end. As at December 31, 2013, Hardwoods'
debt-to-EBITDA ratio was a conservative 1.3 times, its debt-to-capital
ratio was just 23.5%, and the Company had over $29.8 million of unused
borrowing capacity.
"We are well positioned to finance the ongoing growth we expect to
capture in 2014 and beyond," said Mr. Blanco. "Based on our current
financial position and our positive outlook, our Board of Directors has
approved an increase in our quarterly dividend from 3.5 cents per share
to 4.5 cents per share. Going forward, we will continue working to
enhance shareholder value by growing our business both organically and
through the pursuit of well-priced acquisitions that complement our
business strategy."
Summary of Results
Selected Unaudited Consolidated Financial Information (in thousands of
Canadian dollars except where noted)
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12 months ended
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12 months ended
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3 months ended
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3 months ended
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December 31
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December 31
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December 31
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December 31
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2013
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2012
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2013
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2012
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Total sales
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$
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371,215
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$
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306,087
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$
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91,069
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$
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74,133
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Sales in the US (US$)
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268,307
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218,434
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64,779
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54,227
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Sales in Canada
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94,912
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87,740
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23,056
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20,371
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Gross profit
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67,616
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53,810
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15,988
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12,758
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Gross profit %
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18.2%
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17.6%
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17.6%
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17.2%
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Operating expenses
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(47,690)
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(42,729)
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(12,168)
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(10,691)
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Profit from operating activities
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19,926
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11,081
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3,820
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2,067
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Add: Depreciation
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1,442
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1,266
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396
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340
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Earnings before interest, taxes, depreciation and amortization
("EBITDA")
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$
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21,368
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$
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12,347
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$
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4,216
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$
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2,407
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Add (deduct):
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Depreciation
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(1,442)
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(1,266)
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(396)
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(340)
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Net finance cost
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(178)
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(753)
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(75)
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26
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Income tax expense
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(6,681)
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(4,149)
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(1,370)
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(780)
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Profit for the period
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$
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13,067
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$
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6,179
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$
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2,375
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$
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1,313
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Basic profit per share
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$
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0.80
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$
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0.38
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$
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0.14
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$
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0.08
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Fully diluted profit per share
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0.79
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0.38
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0.14
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0.08
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Average Canadian dollar exchange rate for one US dollar
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1.03
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1.00
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1.05
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0.99
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Results from Operations - Three Months Ended December 31, 2013
For the three months ended December 31, 2013, Hardwoods' total sales
increased by 22.8% to $91.1 million, from $74.1 million in the fourth
quarter of 2012. The year-over-year improvement reflects a 17.7%
increase in sales due to stronger underlying sales activity and higher
product prices, together with a 5.1% increase due to the positive
impact of a weaker Canadian dollar.
Sales in the United States, as measured in US dollars, increased 19.5%
to $64.8 million, reflecting strong demand and product pricing in the
US. Sales in Canada, as measured in Canadian dollars, increased 13.2%
to $23.1 million, primarily due to higher product prices.
Fourth quarter gross profit increased to $16.0 million, up 25.3% from
$12.8 million during the same period last year. The improvement in
gross profit reflects higher sales revenue, together with an increase
in gross profit margin. As a percentage of sales, fourth quarter gross
profit increased to 17.6% from 17.2% in the fourth quarter of 2012.
Gross profit margin at 17.6% in the fourth quarter of 2013 was below
Hardwood's target rate of 18%, reflecting a drop in market prices for
hardwood panel products in November after the trade case against
Chinese import panels was dismissed, which lowered margins as Hardwoods
sold higher-priced inventory into the market. This negative impact on
gross margin was partially offset by a refund of duties paid on a
portion of our import purchases made from China in 2013.
Operating expenses for the fourth quarter were $12.2 million, compared
to $10.7 million in the fourth quarter of 2012, reflecting higher costs
to support the increase in sales and the negative impact of a weaker
Canadian dollar on US operating expenses. As a percentage of sales,
fourth quarter operating expenses were 13.4% of sales, down from 14.4%
in the same period in 2012.
Fourth quarter EBITDA increased 75.2% to $4.2 million from $2.4 million
during the same period in 2012. This significant increase reflects
higher gross profit, partially offset by increased operating expenses
before depreciation.
Profit for the period also improved, increasing to $2.4 million from
$1.3 million in 2012. The year-over-year improvement primarily reflects
higher EBITDA, partially offset by a $0.6 million increase in income
tax expense, a $0.1 million increase in depreciation and a $0.1 million
increase in net finance cost.
Results from Operations - 12 Months Ended December 31, 2013
For the 12 months ended December 31, 2013, Hardwoods' total sales
increased by 21.3% to $371.2 million, from $306.1 million in 2012. The
year-over-year increase includes an 18.7% increase due to stronger
underlying sales activity and higher product prices, together with a
2.6% increase due to the positive impact of a weaker Canadian dollar.
The sales growth came primarily from Hardwoods' US operations where
sales activity increased by US $49.9 million. Incremental revenue from
the Leland business acquired in May 2013 accounted for US$2.8 million
of this growth, with organic growth accounting for the remaining
US$47.1 million. Sales in Canada, as measured in Canadian dollars,
increased by 8.2% year-over-year.
Full-year gross profit increased 25.7% to $67.6 million, from $53.8
million in 2012. This gain reflects higher sales revenue together with
a higher gross profit margin. As a percentage of sales, gross profit
increased to 18.2% from 17.6% in 2012, primarily due to
stronger-than-normal margins in the second quarter as Hardwoods sold
lower-cost inventory into a rising price market. Over the longer term,
the Company views 18% as a sustainable gross margin target for its
business.
Annual operating expenses were $47.7 million in 2013, compared to $42.7
million in 2012, reflecting incremental operating costs to support
higher sales, the impact of a weaker Canadian dollar on US operating
costs and added expenses from the Leland operation. As a percentage of
sales, 2013 operating expenses decreased to 12.8% of sales, from 14.0%
in 2012.
EBITDA for the 12 months increased 73.1% to $21.4 million, from $12.4
million in 2012. The strong EBITDA result reflects higher gross
profits, partially offset by higher operating expense before
depreciation.
Profit for the period increased 111.5% to $13.1 million, from $6.2
million in 2012. This reflects the $9.0 million increase in EBITDA and
the $0.6 million decrease in net finance cost, partially offset by a
$2.5 million increase in income tax expense and $0.2 million increase
in depreciation.
Outlook
Forecasters continue to predict a multi-year strengthening trend for the
US residential construction market. With approximately 75% of its
business in the US and approximately 60% of its products going into the
residential construction market, Hardwoods is well positioned to
capitalize on the continuing market recovery.
The outlook for the US repair and remodeling market is also positive
with growth of over 10% forecast into 2014 by Harvard's Joint Center
for Housing Studies. Indicators for commercial construction are for
steady mid-single digit growth in 2014. The positive outlook for the US
market is strengthened by the recent dismissal of the US trade case
against imported hardwood plywood panels produced in China.
"With trade duties eliminated and the expectation of ongoing strength in
pricing for key products, we anticipate 2014 will be a strong year for
our US operations," said Mr. Blanco.
The outlook for the Canadian market remains neutral, with 2014 housing
starts expected to remain unchanged from 2013 levels. Growth in the
Canadian renovation and commercial construction markets is expected to
be in line with inflation.
The fourth quarter of 2013 saw the value of the Canadian dollar begin to
retreat relative to the US dollar, benefitting Hardwoods by 1)
increasing the value of sales and profits earned in Hardwoods' US
operations when translated into Canadian dollars for financial
reporting purposes; 2) increasing the selling price in Canada of US
dollar denominated products sold to our Canadian customers; and 3)
improving the export-competitiveness of Hardwoods' Canadian industrial
customers, many of whom have the capability to sell their manufactured
products into the US. While the overall impact on 2013 results was not
significant, a sustained reduction in the value of the Canadian dollar
would prove to be a positive trend for Hardwood's business going
forward.
Hardwoods' goal in 2014 continues to be to capture the growth potential
in the US market, both in terms of sales volume and product pricing.
With a consistent gross margin percentage and the ability to pass price
increases through to customers, the Company's business model enables
growth in volume and pricing to have a significant positive impact on
its earnings and cash flow.
Following a major review of its business strategy, Hardwoods' strategic
priorities in 2014 will be to:
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Leverage Imports: Grow sales of its high-quality proprietary import
lines, supported by its established quality assurance team located in
Asia, while also expanding international sourcing capabilities to bring
world-wide product solutions to Hardwoods customers.
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Strengthen Commercial: Capitalize on the significant opportunities in
the commercial market. In particular, Hardwoods intends to grow its
supply of first-tier product supply for commercial customers and
capitalize on its import capabilities to offer both domestic and
off-shore product solutions to the commercial sector.
Hardwoods' Board of Directors will continue to review the Company's
financial performance and assess distribution levels on a regular
basis. However in terms of cash utilization the Company's primary
focus in 2014 will remain on retaining the cash necessary to finance
the significant market growth opportunity in the US and to keep the
Company's balance sheet strong to support strategic acquisitions.
A more detailed discussion of the Company's financial performance can be
found in its Management's Discussion and Analysis (MD&A) for the three
and twelve months ended December 31, 2013. The MD&A will be posted,
along with the Company's annual audited financial statements on SEDAR (www.sedar.com) and on the Company's website http://www.hardwoods-inc.com.
Non-GAAP Measures - EBITDA
References to "EBITDA" are to earnings before interest, income taxes,
depreciation and amortization, where interest is defined as net finance
costs as per the consolidated statement of comprehensive income. In
addition to profit, the Company considers EBITDA to be a useful
supplemental measure of a company's ability to meet debt service and
capital expenditure requirements, and the Company interprets trends in
EBITDA as an indicator of relative operating performance.
EBITDA is not an earnings measure recognized by IFRS and does not have a
standardized meaning prescribed by IFRS. Investors are cautioned that
EBITDA should not replace profit or cash flows (as determined in
accordance with IFRS) as an indicator of Hardwoods' performance. The
Company's method of calculating EBITDA may differ from the methods used
by other issuers. Therefore, the Company's EBITDA may not be comparable
to similar measures presented by other issuers. For a reconciliation
between EBITDA and profit as determined in accordance with IFRS, please
refer to the discussion of Results of Operations described in section
3.0 of Management's Discussion and Analysis (MD&A) for the three and
twelve months ended December 31, 2013 available at www.sedar.com and the Summary of Results section of this news release.
Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This news release includes forward-looking statements. These involve
known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements or industry results to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
These forward-looking statements are identified by the use of terms and
phrases such as "anticipate", "believe", "estimate", "expect", "may",
"plan", "will", and similar terms and phrases, including references to
assumptions. Such statements may involve, but are not limited to: that
with forecasters predicting a multi-year strengthening trend for the US
residential construction market, and with approximately 75% of
Hardwood's business in the US and approximately 60% of its products
going into the residential construction market, Hardwoods belief that
it is well positioned to capitalize on the continuing market recovery;
the Company's view that the outlook for the US repair and remodeling
market is also positive with growth of over 10% forecast into 2014 by
Harvard's Joint Center for Housing Studies; that indicators for
commercial construction are for steady mid-single digit growth in 2014;
that the positive outlook for the US market is strengthened by the
recent dismissal of the US trade case against imported hardwood plywood
panels produced in China; that with trade duties eliminated and the
expectation of ongoing strength in pricing for key products, the
Company anticipates 2014 will be a strong year for its US operations;
that the outlook for the Canadian market remains neutral, with 2014
housing starts expected to remain unchanged from 2013 levels; that
growth in the Canadian renovation and commercial construction markets
is expected to be in line with inflation; that while the overall impact
on 2013 results was not significant, a sustained reduction in the value
of the Canadian dollar would prove to be a positive trend for
Hardwood's business going forward; that Hardwoods' goal in 2014
continues to be to capture the growth potential in the US market, both
in terms of sales volume and product pricing; that with a consistent
gross margin percentage and the ability to pass price increases through
to customers, the Company's business model enables growth in volume and
pricing to have a significant positive impact on its earnings and cash
flow; that following a major review of its business strategy,
Hardwoods' strategic priorities in 2014 will be to leverage its import
business and strengthen its commercial business; and that Hardwoods'
Board of Directors will continue to review the Company's financial
performance and assess distribution levels on a regular basis, however
in terms of cash utilization the Company's primary focus in 2014 will
remain on retaining the cash necessary to finance the significant
market growth opportunity in the US and to keep the Company's balance
sheet strong to support strategic acquisitions.
These forward-looking statements reflect current expectations of
management regarding future events and operating performance as of the
date of this news release. Forward-looking statements involve
significant risks and uncertainties, should not be read as guarantees
of future performance or results, and will not necessarily be accurate
indications of whether or not such results will be achieved. A number
of factors could cause actual results to differ materially from the
results discussed in the forward-looking statements, including, but not
limited to: national and local business conditions; political or
economic instability in local markets; competition; consumer
preferences; spending patterns and demographic trends; legislation or
governmental regulation (including trade outcomes that impact upon our
business); acquisition and integration risks.
Although the forward-looking statements contained in this news release
are based upon what management believes to be reasonable assumptions,
management cannot assure investors that actual results will be
consistent with these forward-looking statements. The forward-looking
statements reflect management's current beliefs and are based on
information currently available.
All forward-looking information in this news release is qualified in its
entirety by this cautionary statement and, except as may be required by
law, the Company undertakes no obligation to revise or update any
forward looking information as a result of new information, future
events or otherwise after the date hereof.
SOURCE Hardwoods Distribution Inc.