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[Foreign Language] Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Colabor's First Quarter 2018 Financial Results Conference Call. [Operator Instructions] [Foreign Language] You may begin your conference.
[Foreign Language], Amanda. Good morning, everyone, and welcome to Colabor Group's 2018 First Quarter Conference Call. This is Lionel Ettedgui, President and Chief Executive Officer.With me today is Jean-François Neault, Senior Vice President and Chief Financial Officer of Colabor. Earlier this morning, we issued our first quarter press release. It can be found along with our financial statement and MD&A on our website and on SEDAR.Please note that the presentation is also available on our website at www.colabor.com under the Investor Events and Presentation section.Since joining the company on February 6, almost 90 days today, I have spent quite a lot of time at all our divisions and met many of our employees, key customers and suppliers.There is no doubt in my mind that we have many of the necessary ingredients in hand to effectively pursue the rightsizing of our operations in Ontario and return on a path of input profitability and sustainable growth.During my first 90 days, I had the opportunity to challenge our business model. I am now in a position to review our vision and strategy and make our business plan evolve. This plan will be completed later in the year and formally communicated in due time.I will now turn the call over to John François for a review of our financial results. We will then open the call for questions. Jean-François?
Thank you, Lionel, and good morning, everyone. Colabor Group's consolidated sales for first quarter ended March 24, 2018 stood at $245.9 million, representing a decrease of 8% from the equivalent period in 2017.Sales of the Distribution segment decreased by 6.6% to $190.9 million, mainly from the Ontario division following the last of the supplier agreement for the Popeyes Louisiana Kitchen restaurant chain, as previously disclosed in our 2017 third quarter results, the effect of which were slightly mitigated by an improvement of sales, primarily in the Québec region.Sale of the Wholesale segment stood at $55 million, down 12.3% from the reduction of sales volume at the Boucherville division. Although the meat category also experienced lower sales, the decline was less significant than experienced during the equivalent quarter of last year. This is following measures put into place by new leadership and a change in the mix of products.Adjusted EBITDA was negative $1.2 million or negative 0.5% of sales compared to $0.9 million or 0.3% of sales in the first quarter of 2017. This is mainly due to the result of the loss of volume in Ontario and inefficiency in this region.Colabor concluded the first quarter of 2018 with negative net earnings of $4.5 million or negative $0.04 a share compared to net earning of negative $3.4 million or negative $0.03 a share in the equivalent quarter of 2017.This variation stems from the effect of the loss of sales volume on the operational result, which was partly mitigated by the reduction of costs not related to current operations. Our cash flow from operating activities improved at negative $0.6 million in the first quarter of 2018 compared to negative $4.5 million for the equivalent quarter of 2017.This is explained by net favorable change in working capital compared with the equivalent quarter of last year. Our clients and other receivables and inventory are now more aligned with normal seasonality for this quarter.At the end of the first quarter of 2018, our total debt, including the convertible debentures and bank overdraft, amounted to $114.9 million, down 8% from $124.9 million as at the first quarter of 2017. This reduction reflects our ability to generate free cash flow. Also, $32.7 million was drawn from our authorized credit facility of $140 million compared with $28.1 million at the end of last year, leaving us with sufficient flexibility.Our total debt-to-trailing adjusted EBITDA ratio now stands at 5.1x compared with a ratio of 4.5x at the end of fiscal 2017. Excluding the convertible debenture, our total debt-to-adjusted EBITDA ratio stood at 2.9x when compared to 2.5x at the end of the fiscal year 2017.Operator, I would now like to open the call over for questions.
[Operator Instructions] [Foreign Language]. Your first question comes from the line of Derek Lessard from TD Securities.
Lionel, it's -- I know you pointed to it in your remarks, and it's been only a few months that you've been in the role, but I was wondering, maybe just from a high level, if you could outline some of your high-level thoughts and maybe some of the opportunities that you've seen meeting with the employees, with the suppliers, and maybe where you think you need to focus on immediately.
Yes, sure, Derek. According to me, status quo is not acceptable. And from what I have seen, we have a good potential to improve our operations, and, obviously, my focus is going to be in Ontario regarding our last results.So we are currently working on redesigning our plan to make our business model evolve. And I guess, actually, you will understand that I'm not yet in a position to communicate any detail, but it will be done in due time, a bit later this year.
Okay. Maybe you just -- can we firm up a little bit on the timing when you say "later this year"? Is it closer to Q3, Q4?
Well, I guess that I will be able to speak a little bit more, obviously, for our next quarter, for sure. And I'm not a man of speech. I like to be judged on my actions. So just give me a couple of months just to be efficient, and you will see more actions coming.
Okay. Fair enough, Lionel. Let me just -- if you can remind us of the efforts that you guys are doing to mitigate the volume losses in Ontario and where you are with those?
Okay. Obviously, they are at -- Jean-François speaking here. With the loss, the recent loss of volume at Popeyes and the closure of Vaughan, as I told you earlier -- later in the -- after the fourth quarter, we're in the process of doing all the rerouting, and this is a continuous improvement process. So you have to reroute to be efficient, to better serve our customer base. So this takes time when you lose volume to find the sweet spot and the most efficient threshold.So we are into this in terms of shipping expense. And also in our warehouses, since we only have 3 DC in Ontario, what we are looking at is to do a reset of the layout, to be more efficient in picking and to reduce inefficiencies. That's the main 2 areas of focus. We have to fix operation short time. So, Lionel, have you...
Yes, I can add maybe on top of that, that's the way to right size your business model regarding loss of volume. But on the other hand, you have to understand that we're working on opportunities with new customers to bring back more volume in Ontario region.
Okay. Is some of these -- I guess, like the rerouting and improving efficiencies, is this being done through technology or any type of artificial intelligence or an app on a driver's iPhone?
Yes, sure. We have the support of very good software used in our industry. So it's not a big deal to rightsize the routine and to optimize your new routes regarding the remaining customers.
Okay. Are you able to quantify the profit improvement at Décarie? And maybe add some color to the product mix change that you guys highlighted in the MD&A.
Derek, I don't want to comment specifically by division. But we're not back yet to, like, 2016 kind of a level. Obviously, margin is doing very well at Décarie with the -- since the new leadership, but, obviously, the loss of volume we've experienced at that division kind of weighted on the dollar EBITDA. But we are profitable and very satisfied so far with the current situation and the way we are progressing into more niches and really focusing on value-added and more profitable product mix. So...
Are you able to comment on some of those niches or value-adds?
Lionel, do you want to expand on -- with poultry and veal?
Well, honestly we have opportunities in veal and in poultry. And I cannot give you more color about that, but I hope that for the next quarter, you -- -- we'll have more details on it.
Okay. You talked about the lower volumes in wholesale. Just wondering if you had any more details there on the 12% decline. That was a bit bigger than I was expecting. And do you have any mitigation efforts going on there as you do in Ontario?
I think that it's not the same issue. And to be fair, we're not talking about an issue. You know what, in our business model, sometimes it's good to decide to rightsize the volume to be more profitable. And we decided to stop having loss leaders. So with the rightsizing of activity, we bring back more profitability. And I think that we have a focus to be managed by the bottom line.
Okay. So, you're -- so, essentially, that decline is the rightsizing of the business and not a loss of a contract or what have here? It's...
It was mainly our decision and by deciding to proceed so, we have lost small customers, but nothing relevant.
Okay. Maybe if you can comment on the competitive environment for both Wholesale and Distribution, and where do you think you guys are winning?
Well, as I said, I'm just here for -- since about 90 days. So comment I could give you would be this one: I think that with my arrival, we have an opportunity to challenge the way we're going to market, the way we're looking at our business model.And as I said, status quo is not acceptable for me, and we need to review what we're doing. It's a very competitive market from what I have noticed, and we have opportunities to -- for differentiation and the different ways to go to market. And that seems that it can be a good advantage for Colabor because we have a solid team in place, and we just need to review, a bit, the division.
Okay. And maybe just one last final one for me. Obviously, there's been an -- there was an increase in operating expense in Ontario. And it's coming out of time, obviously, when there is a decrease in volumes. Can you remind me, again, when you expect to start seeing the payback from the, I guess, the extra investment?
On the Ontario side, I will say that we are in the process of rightsizing the division. So we have several onetime costs affecting our results. We are in the rightsizing of the headcount, for instance. And also we -- to be -- to maximize the routine, we take, let's say, several weeks. So that's why we have more expenses in operation, but it's -- everything is under control, and we are quite confident that we will see an improvement for the next quarter.
Okay. And maybe, Jean-François or Lionel, if you could remind me as well, when you expect to see organic growth. I know it's been pushed back. Just wondering about the timing.
Derek, as you -- just want to recall that early in the second quarter, we also lost the Montana business, okay? So don't forget about this one. That had happened April 1. So for Ontario region, I mean, organic growth would be difficult in the foreseeable future. So I'm speaking more like we have to stabilize the business.As for Québec City region -- Québec province region, we actually have -- first quarter was difficult in terms of the demand, okay? Now I want to be clear, like, even in the fresh fish and then the broad line division in province of Québec, it was a slow quarter to start with as demand from the customer's standpoint.But we're in a position in Québec that we actually add some organic growth there, probably low, maybe, 2% to 3%. That's what we're experiencing in that region. So we actually have some organic growth, as we speak, in some area, but obviously, offset. So if you terms -- in terms of total consolidated business to see organic growth, we have to lapse the loss of contracts. I would say not before maybe second or third quarter, 2019, we can look at the top line consolidated in -- to start to see maybe the line to move. And this is a part, if we gain some contracts in all of this, I have to put that as a side discussion. We don't control all of this.
There are no further questions at this time. I'll turn the call back to Mr. Ettedgui for closing remark.
Okay, thank you. As I said in my opening remarks, the first quarter of 2018 was a disappointing quarter. As we anticipated and discussed previously, the measures put in place in Ontario should take effect later than planned in 2018.To mitigate the impact, we will continue to grow our presence in value-added markets. We will also be working to identify opportunities to further improve our operational performance.This concludes my closing remarks. Have a good day, everyone. And I look forward to meeting some of you for the first time at our Annual Meeting of Shareholders shortly after this call.
[Foreign Language]. This concludes today's conference call. You may now disconnect.