Hardwoods Announces Record Fourth Quarter and Year-End 2015 Results

Declares Quarterly Dividend of $0.055 per share

TRADING SYMBOL: Toronto Stock Exchange - HWD

LANGLEY, BC, March 11, 2016 /CNW/ - Hardwoods Distribution Inc. ("Hardwoods" or the "Company") today announced record financial results for the three and twelve months ended December 31, 2015. Hardwoods is one of North America's largest wholesale distributors of hardwood lumber and related sheet good products, operating a network in North America of 32 distribution centres and 1 sawmill and kiln drying operation.

Highlights (For the three and twelve months ended December 31, 2015)

  • Revenue increased 23.3% in the fourth quarter and 25.4% for the full year, compared to the same periods in 2014.

  • The Company increased gross profit by 30.9% in the fourth quarter and by 26.5% in the 12-month period, compared to the same periods in 2014.

  • Fourth quarter EBITDA climbed 46.1% to $7.7 million, and full-year EBITDA increased 36.6% to $34.8 million.

  • Fourth quarter profit increased 58.9% to $4.5 million, while full-year profit climbed 43.7% to $20.1 million.

  • The Board of Directors approved a quarterly dividend of $0.055 per share, payable on April 29, 2016 to shareholders of record as at April 19, 2016

  • Subsequent to the year end on January 7, 2016, Hardwoods appointed Rob Brown as President and Chief Executive Officer of the Company, and as a director of the board. Mr. Brown was formerly Hardwoods' Chief Operating Officer. Mr. Brown succeeds Lance Blanco who, for health reasons related to his bicycling accident in July of 2014, has assumed new duties with Hardwoods in the capacity of Senior Vice President, Corporate Development.

"2015 brought the best financial results in Hardwoods' history, as well as our sixth consecutive year of both top and bottom line growth," said Rob Brown, President and CEO.  "Our results benefited from a strengthening US dollar, continued success in executing our business strategy, and generally favorable market conditions."

Hardwoods' strategy is designed to capture growth in the recovering US market by leveraging the Company's successful import program and strengthening its presence in the commercial construction market.  In 2015, the combination of a stronger US dollar and our strategy helped drive record sales of $571.6 million, EBITDA of $34.8 million and profit of $20.1 million.

A stronger US dollar benefits the Company by: i) increasing the value of sales and profits earned in the US operations when translated into Canadian dollars for financial reporting purposes; ii) increasing the selling price of US dollar-denominated products sold to Hardwoods' Canadian customers; and iii) improving the export competitiveness of the Company's Canadian industrial customers, many of whom have the capability to sell their manufactured products in the US.

On the market front, the US housing market continued its gradual recovery in 2015, with housing starts increasing 10.4% to 1,107,000 based on information from the US Census Bureau. Canadian housing starts were flat in 2015 according to the Canada Mortgage and Housing Corporation. The US non-residential or "commercial" construction market strengthened by 8.9% year-over-year according to the American Institute of Architects, supported by improving economic conditions in a number of regional markets. Product pricing was generally weaker in 2015 with average prices for hardwood lumber declining by approximately 17% compared to 2014, while panel pricing remained generally stable year over year.

The Company reported a full-year gross profit margin of 17.4%, up from 17.3% in 2014. Hardwoods views the current margin as sustainable based on current market conditions and business mix. Expenses were well controlled across the organization and declined as a percentage of revenue. At 0.3% of sales, bad debt also remained below the long-term average of 0.5%.  Hardwoods ended the year with an EBITDA margin of 6.1%, up from 5.6% in 2014, a strong performance for the business.

"It was an excellent year for Hardwoods and going forward, our outlook remains positive," said Mr. Brown. "The US residential market continues to recover, we see significant opportunities to grow our import product and commercial market sales, and we are well positioned to grow the business organically and through acquisitions. Thanks to strong cash generation in 2015, we ended the year with a very strong balance sheet.  As at December 31, 2015, our net debt-to-EBITDA ratio was a conservative 0.8 times, our debt-to-capital ratio was just 16.8% and we had unused borrowing capacity of $60.8 million.  Hardwoods is in excellent shape financially and positioned for continued growth in 2016. We are pleased to declare another quarterly dividend of $0.055 per share."

Summary of Results



Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars) 










Year


Year


Three months


Three months


ended
December
31 2015


ended
December
31 2014


ended
December
31 2015


ended
December
31 2014

Total sales

$

571,598


$

455,694


$

141,017


$

114,324


Sales in the US (US$)

355,724


318,089


84,384


78,872


Sales in Canada

116,805


104,334


28,058


24,716

Gross profit

99,633


78,767


24,988


19,087


Gross profit %

17.4%


17.3%


17.7%


16.7%

Operating expenses

(67,422)


(55,427)


(18,039)


(14,452)

Profit from operating activities

32,211


23,340


6,949


4,635

Add: Depreciation and amortization

2,593


2,138


702


603

Earnings before interest, taxes, depreciation and









amortization ("EBITDA")

$

34,804


$

25,478


$

7,651


$

5,238


Add (deduct):










Depreciation and amortization

(2,593)


(2,138)


(702)


(603)



Net finance income (expense)

143


(381)


83


(39)



Income tax expense

(12,208)


(8,944)


(2,571)


(1,788)

Profit for the period

$

20,146


$

14,015


$

4,461


$

2,808

Basic profit per share

$

1.21


$

0.85


$

0.27


$

0.17

Diluted profit per share

$

1.20


$

0.84


$

0.27


$

0.14

Average Canadian dollar exchange rate for one US dollar

1.28


1.10


1.34


1.14

Results from Operations - Twelve Months Ended December 31, 2015

For the year ended December 31, 2015, total sales increased by 25.4% to $571.6 million, from $455.7 million in 2014. Hardwoods' US operations increased sales by US$37.6 million, or 11.8%, reflecting US $26.9 million of organic growth and US $10.7 million in incremental revenue from a full year's operation of the Hardwoods of Michigan ("HMI") business, which was acquired in April 2014.  Sales in Canada increased by $12.5 million, or 12.0% in 2015, reflecting Hardwoods' success in winning new business, as well as the positive impacts of a stronger US dollar.

Gross profit for the 2015 year increased 26.5% to $99.6 million, from $78.8 million in 2014. This gain reflects the increased sales, together with a slightly higher gross profit margin. As a percentage of sales, gross profit margin increased to 17.4%, from 17.3% in 2014.

Full-year operating expenses increased to $67.4 million from $55.4 million in 2014. The increase primarily reflects higher expense due to the impact of a stronger US dollar on translation of US operating expenses, added costs to support organic growth and incremental costs related to the acquired HMI business. As a percentage of sales, annual operating expenses improved to 11.8% of sales, down from 12.2% in 2014.

EBITDA for 2015 increased to $34.8 million, from $25.5 million in 2014.  The 36.6% gain primarily reflects higher gross profit, partially offset by increased operating expenses, net of depreciation and amortization. Profit for the year increased to $20.1 million, from $14.0 million in 2014, reflecting the $9.3 million improvement in EBITDA and a $0.5 million increase in net finance income, partially offset by a $3.3 million increase in income tax expense and a $0.5 million increase in depreciation and amortization.

Results from Operations - Three Months Ended December 31, 2015

For the three months ended December 31, 2015, total sales increased by 23.3% to $141.0 million, from $114.3 million in Q4 2014.

Hardwoods' US operations increased sales by US $5.5 million, or 7.0%, to US $84.4 million. This growth was entirely organic and reflects the Company's success in winning new business.  Sales in Canada grew by $3.3 million, or 13.5%, to $28.1 million.  The improvement in Canadian sales reflects organic growth, overall higher product prices resulting from the stronger US dollar, and other positive foreign exchange impacts.

Fourth quarter gross profit increased to $25.0 million, an increase of 30.9% from $19.1 million in Q4 2014. The year-over-year improvement reflects higher sales revenue, combined with a higher gross profit margin. As a percentage of sales, fourth quarter gross profit margin increased to 17.7%, compared to 16.7% in Q4 2014.

Operating expenses for the three-months ended December 31, 2015 were $18.0 million, compared to $14.5 million in Q4 2014.  This increase primarily reflects higher expense due to the impact of a stronger US dollar on translation of US operating expenses. It also reflects added costs incurred to support the Company's growth. As a percentage of sales, operating expenses remained essentially stable at 12.8% in the fourth quarter of 2015, compared to 12.6% in Q4 2014.

Fourth quarter EBITDA increased 46.1% to $7.7 million, from $5.2 million in Q4 2014. The EBITDA gain reflects the significant increase in gross profit, partially offset by higher operating expenses before depreciation and amortization.  Profit for the period increased 58.9% to $4.5 million, from $2.8 million in 2014. The year-over-year increase primarily reflects the higher EBITDA, partially offset by a $0.8 million increase in income tax expense.

Outlook

Job growth and income levels are gaining momentum in the US and are expected to help propel the continuing recovery in the US residential construction market through 2016 and beyond.  According to Harvard's Joint Center for Housing Studies, home improvement spending is also projected to pick up pace in 2016 as the housing market continues its gradual recovery. In addition, forecasts from the American Institute of Architects predict overall growth of 8.2% for the US non-residential building segment in 2016, with the strongest gains anticipated in the commercial sector, which includes office buildings, hotels and retail.

With approximately three quarters of its business in the US, and approximately 60% of sales driven by the residential construction market, and 20% by the commercial market, Hardwoods is well positioned to capitalize on the growth forecast for the US market.

The outlook for the Canadian market remains neutral, with 2016 housing starts expected to remain consistent with 2015 levels. Canadian commercial construction  and renovation spending is expected to remain in line with inflation.

Industry forecasts predict overall hardwood lumber prices will generally remain soft through 2016 as increased supply works its way through the market and demand from export markets remains less predictable.  Prices for hardwood plywood are expected to remain steady and prices for some composite panel products are expected to decrease modestly.

Hardwoods' focus in 2016 will be on further expanding its share of both the US residential and commercial construction markets. The Company is actively pursuing its "Leverage Imports" and "Strengthen Commercial" strategies which focus on:

  • growing sales of Hardwoods' high-quality, proprietary import lines, supported both by the company's established quality assurance team in Asia and new international sourcing initiatives designed to bring world-wide product solutions to Hardwoods' customers; and,

  • capitalizing on significant opportunities in the commercial market. In particular, Hardwoods is actively growing its supply of first-tier product supply for commercial customers and capitalizing on its import capabilities to offer commercial customers an attractive and differentiated line-up of products.

Hardwoods will also continue to pursue well-priced acquisition opportunities that support its objectives.

Hardwoods' Board of Directors will continue to review financial performance and assess dividend levels on a regular basis, however the primary focus in 2016 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 Hardwoods' 2015 Management's Discussion and Analysis (MD&A). 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 (www.hardwoods-inc.com) on or before March 11, 2016.

About Hardwoods Distribution Inc.

Hardwoods is one of North America's largest distributors of high-grade hardwood lumber, sheet goods and architectural millwork to the cabinet, moulding, millwork, furniture and specialty wood products industries. The Company currently operates a network in North America of 32 distribution centres and 1 sawmill and kiln drying operation.

Non-GAAP Measures - EBITDA

References to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization, where interest is defined as net finance costs as per the consolidated statement of comprehensive income.  In addition to profit or loss, the Company considers EBITDA and EBITDA ratios such as net debt-to-EBITDA (as presented in section 5.3 of our MD&A) 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 and EBITDA ratios such as EBITDA margin (being EBITDA as a percentage of revenue) 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 loss 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 or loss 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 nine months ended December 31, 2015.

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: We view our current margin as sustainable based on current market conditions and business mix; our outlook remains positive; the US residential market continues to recover and we see significant opportunities to grow our import product and commercial market sales; we are positioned for continued growth in 2016; job growth and income levels are gaining momentum in the US and are expected to help propel the continuing recovery in the US residential construction market through 2016 and beyond; home improvement spending is projected to pick up pace in 2016 as the housing market continues its gradual recovery; forecasts predict overall growth of 8.2% for the US non-residential building segment in 2016, with the strongest gains anticipated in the commercial sector, which includes office buildings, hotels and retail; we are well positioned to capitalize on the growth forecast for the US market; the outlook for the Canadian market remains neutral, with 2016 housing starts expected to remain consistent with 2015 levels; Canadian commercial construction  and renovation spending is expected to remain in line with inflation; forecasts predict overall hardwood lumber prices will generally remain soft through 2016 as increased supply works its way through the market and demand from export markets remains less predictable; and prices for hardwood plywood are expected to remain steady and prices for some composite panel products are expected to decrease modestly.

These forward-looking statements reflect current expectations of management regarding future events and operating performance as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to: national and local business conditions; political or economic instability in local markets; competition; consumer preferences; spending patterns and demographic trends; legislation or governmental regulation; acquisition and integration risks.

Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, management cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available.

All forward-looking information in this news release is qualified in its entirety by this cautionary statement and, except as may be required by law, Hardwoods 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.

For further information: Faiz Karmally, Chief Financial Officer, Phone: (604) 881-1982, Email: fkarmally@hardwoods-inc.com, Website: http://www.hardwoods-inc.com

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