Colabor Group Inc.

Good morning ladies and gentlemen and welcome to the Colorburst Q4 2022 results conference call. At this time, all lines are listen-only mode. Following the presentation, we will conduct a Q&A session open to analysts only. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, March 2, 2023. Before turning the meeting over to management, I would like to remind listeners that this conference call contains forward-looking information within the meaning of applicable Canadian securities laws and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I refer the audience to their forward-looking statement as detailed in the presentation supporting this conference call and available on the company's website in the best-seller sections under events and presentation at www.collabor.com. Furthermore, risks are discussed throughout the most recent MD&A under the heading Risks. I would now like to turn the conference over to Louis Frenette, President and CEO of Colabor Group. Please go ahead, sir.

Thank you, Aless. This is Louis Frenette, President and Chief Executive Officer of Colabor. Last evening, we released our earnings results for the 17th and 53rd week period ended December 31st. 2022. The press release and disclosure documents can be found on our website at www.cdar.com. Joining me today on this call is Pierre Blanchet, our Chief Financial Officer, who, following my initial remarks, will provide an overview of our financial results. Our fourth quarter marks the seventh consecutive quarter of revenue growth and our highest adjusted EBITDA in over two years. Our success during the last two years is entirely attributable to the dedication and hard work of our employees at all levels of our organization who have worked hard to implement our strategic initiatives leading to sustained growth, improved operations, higher service levels, and a stronger financial situation. In the fourth quarter, consolidated revenues were up 28%. Gross margin was up 160 basis points to 18.3% of sales, and adjusted EBITDA grew by 39.2% to 9.9 million. We are also ending the year on a strong note. Annual consolidated revenues grew by 20.3% to $574 million. Gross margins reached 18% of sales and were up 120 basis points. Adjusted EBITDA grew by 14.4 to 29.1 million. And cash flow from operations grew by 3% to 19.3 million. Our strong cash flow and disciplined capital allocation approach allowed us to execute our organic growth strategy to include two acquisitions at the end of the year with a lower level of net debt at $47.8 million down from $48.4 million. Our balance sheet remains solid with a conservative leverage ratio of 1.6 times adjusted EBITDA of the adjusted EBITDA, down from 1.9 at the end of the previous fiscal year. These strong financial results stem from the execution of our growth and profitability initiatives since 2020. They are also attributable to our ability to pass through food inflation, to our increasingly diversified customer base within the hospitality, restaurants, and institutional channel, and to our ability to dynamically manage the rising input costs. These key attributes provide us with a resilient business model, allowing us to manage the effect of the pandemic and face a rising inflationary environment. Before I turn the call over to Pierre, I would like to update you on the evolution of our 2020 to 2025 strategic initiatives and continued path to profitable growth. Since joining the company at the end of 2019, I've been working with our team to outline a dynamic plan that would transform our business and position Carabao as the local ingredient for the success of all catering artisan in the province. Our strategic priorities are anchored in the following four pillars, profitability, growth, people, and our brand. I refer to the accompanying presentation supporting this call on page seven. First, profitability. Our objective is to generate profitable growth. We started improving our category management practices optimizing our process, improving our product mix, and cross-selling whenever possible. There is still a lot of work to do, and this pillar remains a top priority across our organization. Second, growth. Our objective is to increase the market share of our distribution business in the province. Building on our strong presence in Eastern Quebec, we started investing in developing our customer base in Western Quebec. This has been a slow and prudent process, which started with investment in our sales team in the spring of 2021, followed by two small but accretive acquisitions in April of 2022, including a purchasing group that will help us gain market share in the region. Last September, we also announced a plan to move our Boucherville facility and head office to a new strategic location not far from here in Saint-Buguenaud at the end of 2023. This move is intended to accelerate our growth in western Quebec by providing the distribution capacity and footprint necessary to efficiently serve the most densely populated area in the province, which includes the greater Montreal area. With this initiative, we are growing our reach from 30% of the Quebec population to cover approximately 90% of the food service customers in the province. A growing reach means that we are increasingly attractive for restaurants chains. As a result, we signed two new supply agreements at the end of the quarter with local chains. The first is with a full-service restaurant chain with 38 establishments across the province. The second is with a group that operates more than 200 food counters in the grocery stores. We started servicing these accounts towards the end of the fourth quarter of 2022. Third, about people. Our objective is to attract, retain, and develop our talent. We started updating our HR practices and plan, concluded new labor contracts in 2022, and implemented a new health and safety and environment approach. As a result, we are starting to see employees' retention rate improve, and we expect that the new Saint-Bernard facility will significantly contribute to this objective. The facility is ideally located near public transport and will offer many amenities to our employees for a more enjoyable and greener working environment. Our fourth pillar is our brand. Our objective is to renew and refresh the Carabao brand. In 2021, we updated and relaunched our private label products, which have been very well received by customers and complement our national brand offering. We currently offer 600 private label products, most of which are sourced locally. Being able to offer local high quality products that support a sustainable agricultural and fishery ecosystem is becoming a competitive advantage for Calabar. It is one that is increasingly attracting our focus and allowing us to differentiate ourselves from our larger international competitors. Through our agreement with Maxerin, a digital marketplace, we can offer a vast selection of fresh quality products from our local farmers. These are only a few examples of our increasing focus on improving our brand. As we stand today, we are currently halfway through our 2020-2025 strategic initiatives. Our business is back to profitable growth, and we have the financial and managerial strength to pursue our plan. We see significant room for Carabao to grow in the province, and we have the means to achieve our goal. With two years of strong results and a strengthened balance sheet, we are well advanced in completing Carabao's turnaround. We are now more competitive and attractive for our customers and increasingly have the footprint to improve our reach and efficiencies. I'm very enthusiastic about what the future holds for Carabao. With this, I will turn the call over to you.

Thank you, Louis, and good morning, everyone. I am pleased to be here today to discuss our key financial results for the fourth quarter of 2022. Fourth quarter consolidated sales were up 28% to 193.2 million. Sales in the distribution segment increased by 28.9% to 132.8 million. This results from higher volume normalizing in the restaurant channel The additional week in the quarter, price increases reflecting food inflation pass-through of approximately 8% and customer list acquired in Yotawe and Laurentians. Sales in the wholesale segment increased by 16.8% to $73.1 million. This results primarily from food inflation pass-through and the additional week in the last quarter of the year. Consolidated adjusted EBITDA from continuing operation reached 9.9 million or 5.1% of sales compared to 7.1 million or 4.7% in the fourth quarter last year. Growing sales volume and improving gross margins from an improving product and customer mix helped mitigate higher input costs and continued investment in our private label brand. In addition, I would like to highlight that our financial expenses were 6.4% lower this year, resulting from the refinancing concluded in 2021 and from our strategy to fix a portion of our interest rates in order to mitigate the impact of rising borrowing costs. Net earnings were 1.7 million or two cents per share compared to $5.3 million or $0.05 for shares. Last year's net earnings were higher from income not related to current operations of $4 million. Cash flow from operating activities were negative $0.7 million in the fourth quarter, primarily resulting from a higher working capital requirement and expenses related to increased activity and from the recently mentioned income not related to current operations. This compares to $9 million of cash flows from operations generated in Q4 2021. As Louis mentioned, we ended the year with a lower net debt of $47.7 million, a financial leverage ratio of 1.6 times, and $42 million of available borrowing capacity on our credit facility. I would now like to turn the call over to the operator for the Q&A period.