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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Colabor's First Quarter 2021 Earnings Call. [Operator Instructions]Before turning the meeting over to management, I would like to remind listeners that this conference 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 the forward-looking -- excuse me, statement as detailed in the presentation supporting this conference call and available on the company's website in the Investors' section under Events and presentation at www.colabor.com. Furthermore, risks are discussed throughout the MD&A for the 13-week period ended March 31, 2021, under the heading Risks. I would like to remind everyone that this conference is being recorded today, May 4, 2021.I will now turn the conference over to Louis Frenette, President and CEO. Please go ahead, sir.
Thank you, Sylvie. Good morning, everyone, and welcome to Colabor Group's 2021 First Quarter Results Conference Call. This is Louis Frenette, President and Chief Executive Officer.Yesterday evening we released our earnings results for the 12-week period ended March 20, 2021. The press release and disclosure documents can be found on our website and at www.sedar.com. I'm joined today by Marie-France Laberge, our Corporate Controller and Interim Chief Financial Officer.Before I review our operational results, I would once again take this moment to thank our team members for their dedication and hard work during these unprecedented times. Because of everyone's contribution, we are entering 2021 in a very good position. During the entire duration of our first quarter, the province of Quebec was in lockdown and the restaurants in most regions were only allowed to offer off-premise dining. Because of our diversified customer base and mitigation measures, quickly implemented from the onset of the pandemic, we delivered improved profitability, generated good cash flow and further reduced our leverage, which stands at 1.7x debt-to-adjusted EBITDA.As discussed on the previous call, we also concluded an important milestone with the refinancing of our lending facilities in February and redeemed all outstanding convertible unsecured subordinated debenture on March 23. We expect this refinancing to reduce our annual financial expenses by approximately $1 million and provide us with the necessary available liquidity to execute our growth strategy. While the pandemic continues to weigh heavily on a segment of our market, we remain committed to executing our strategy by further improving our operations and offering, while setting the stage for the future growth in our Distribution segment.During the first quarter, we hired and trained a handful of new sales and marketing professionals who are dedicated to expanding our distribution activities. Our objective is for these investments to gradually begin paying off in 2022, as our new -- as our renewed sales force start developing new street-focused business in new territories, primarily in Western Quebec. We are also seeing the benefit of our cross-selling initiatives, which we launched earlier in 2020, with our specialty meat offering, which is Lauzon, now being sold into our Distribution segment.On the offering front, we work on the repositioning of our private label brand and concluded an exclusive partnership agreement with [indiscernible], an emerging supplier of locally sourced farm-to-table produce and food products. With this partnership, we can start introducing a more highly differentiated offering that is aligned with consumers' changing habits and growing preference towards locally grown and locally sourced food products. On the optimization front, we continue to share best practices across the organization and improve our information system and happy to see that a lot of the heavy lifting has been done.More recently, at the end of April, we announced the appointment of Pierre Blanchette as Senior Vice President and CFO. Mr. Blanchette has over 25 years of experience in the field of Corporate Finance. Most recently, as Senior Vice President, Global Treasury and Taxation at Fiera Capital. We look forward to his contribution in the pursuit of our growth and optimization plan. Mr. Blanchette will join us starting May 25. I wish to thank Marie-France Laberge, who stepped up in the role of CFO in the interim. She was instrumental in our recent refinancing and demonstrated strong leadership as we navigated through this unprecedented storm.As we stand today, the province of Quebec remains in lockdown and restaurant's dining rooms are closed. Our customer diversification and broad geographical reach within the province should position us well this summer. Hopefully, restaurants can soon resume their dining operations. Until then we're working hard to ensure that we come out of the gate strong.With this, Marie-France, I turn the call over to you for a review of our financial results.
Thank you, Louis, and good morning, everyone. I'm pleased to be here with you today to review our financial results for the first quarter of 2021. The first quarter consolidated sales from continued activities were down 23.3% to $85.6 million. Sales in the Distribution segment decreased by 29% to $57.3 million, mainly from lower volume related to the COVID-19 pandemic, which affected us during the entire quarter compared with only the 2 last weeks of Q1 of last year and from the termination of a specialty distribution contract that took effect in the middle of February 2020 and represented $8.6 million in the first quarter of last year. The decrease in volume from the pandemic and the legacy contract was mitigated by an increase in retail sales.Sales in the Wholesale segment decreased by 8.2% to $36.5 million, mainly from the effect of the pandemic and from lower intersegment sales resulting from the volume decline in Distribution segment and mitigated by growth in certain customer accounts and new retail customers. The adjusted EBITDA from continuing operations reached $3.8 million or 4.5% of sales compared with $3.7 million or 3.3% in the first quarter of last year. The improvement in margins stems from efficiency measures implemented during 2020, lower headcount and $1.2 million in subsidies. This was mitigated by the effect of lower sales volume resulting from the ongoing pandemic.The net earnings from continuing operation were negative $1 million, up from a loss of $1.9 million during the first quarter of last year. Cash flow from operating activities amounted to $5.4 million in Q1 2021, down slightly from $5.6 million in Q1 of last year on account of higher use of our working capital, which stood at $29.9 million versus $31.2 million in Q4 2020 and mitigated by higher adjusted EBITDA.As of March 2020, our net debt including the convertible debenture and net cash amounted to -- 2021, sorry, amounted to $50.5 million compared to $52.1 million at the end of fiscal 2020. Our financial leverage ratio stands at 1.7x versus 1.8x at the end of fiscal 2020. The pandemic will continue to have an impact on our sales and short-term adjusted EBITDA, however, because of the quick implementation of cost preservation measure and the support of the federal subsidy, we do not expect this situation to have a material impact on our available liquidity.I would now like to turn the call over to the operator for the Q&A period.
[Operator Instructions] And your first question will be from Kyle McPhee at Cormark Securities.
First question for me. So regarding the net impact of COVID, we know some channels like food service are hit hard, some like retail are a nice partial positive offset during COVID, but I suspect Colabor has been also picking up new business through the pandemic, stuff like new customers and channels that will stick around even after COVID is over. So can you help me quantify these new and potentially permanent sources of revenue that are kind of buried in your results, just to help us all better understand where your results could settle down after COVID?
Yes. Thanks, Kyle. Yes, we did gain some new business during the COVID and one of the restaurant business was going slower. So we gained institutions and we gained retail customers. So revenues with institutions is that we're under contract with them and it's for long term. So yes, we'll keep them after. Without giving any numbers, this is good news. And about the retail business that we gained, as I told before, we gained those stores on a filler type representation. So we're helping the retail stores that couldn't get the products from the suppliers and we were helping and then we continue to serve them through back door because they appreciate our offering. So I expect that when everything will be back to normal, 100% normal, yes, we'll lose some of these retail guys, but we'll definitely keep the good portion as they appreciate our fish, meat and Colabor business.
Got it. Okay. That's helpful. Are you able to provide an update on Colabor's push into the western side of Quebec. You briefly mentioned that in your prepared remarks. Maybe something more substantial like is your sales team already on the ground and getting traction out there at all?
Yes. We – actually, we started recruiting in February. We hired a new team of sales reps with a director -- District Sales Manager, and they are located in the Greater Montreal area. And this started selling just a few weeks ago and good news yes, we're picking up some sales, but it's too early to predict the final result. But so far, it's as planned. And this will pay back starting in 2022. So we're happy about that and we're making some noise with that.
Got it. Okay. Next question. So when thinking about the foodservice channel normalizing after COVID, I'm wondering if it should fully normalize back to where it was back in 2019 in Quebec or are there going to be any permanent losses of clients because of things like restaurants going out of business. So to this point, can you provide maybe with any color on your foodservice channel customer base and whether or not they will have all survived the pandemic?
Yes, there is many answers to that question. First, in background, we're used in this business to have restaurants that closed. Lot of restaurants close every year and reopen under another name, so yes, there can be some of the restaurants that will not reopen. But so far, most of our restaurants are ordering smaller orders that they are only up and running for takeout business. So we can expect that with the vaccine and numbers getting relatively better in Quebec that it will reopen and we should expect that when the terrace opens and then the in-dining opens, it will be back to, I don't know, close to normal. I'm not sure about the hotels. Not sure that we'll have many European travelers in Quebec this summer, but I don't think so. But the restaurants should pick up more and more as the dining opens, so it should be okay.
Okay. Just on the more immediate impact of COVID, can you provide us an update on what you're seeing so far in Q2? Is it really just more of the same as everything is still locked down or are things getting a little bit better or worse so far in Q2?
Well, if we compare with last year, it's better because last year what happened is that the restaurants shut down totally like they weren't prepared for the takeout, but they had time to practice over the year and they were -- most of the restaurants were started to have -- we can see that most of the restaurant had takeout measures in June of last year and that's when the dine-in reopened. So again, we can expect that the business will catch back, but so far in Q2, it's a bit better. Yes.
Got it. Okay. Just on your employee compensation expense line item. As a percentage of sales, I noticed it spiked up a bit versus the level that typically prevails and prevailed all of last year. So can you offer some color on why this happened, maybe you brought back some labor, but revenue didn't rebound commensurate? Any color on that would be helpful.
Yes. So we had measures when everything was shut down where we had to rightsize the organization by a 1/3 as we communicated last year. And we did with business picking up this with the takeout and the new customers. We had to rehire some people. And also, we have to be careful with the reopening. So we're preparing for the grand reopening soon. So we needed to have some people and labor is tough to get. Maybe I can add that with what we're doing with the new sales district in Greater Montreal area we're investing for the future. And yes, put more expenses, but it's under control and we are still not where we were in terms of workforce as we were in 2019.
Got it. Okay. And last question from me on your CapEx. Can you guide me to the updated budget for this year? It looks like it's tracking much lower than your prior comments, so just looking for an update there.
Marie-France?
Yes, effectively for the Q1 and maybe probably Q2, we have some delay with the COVID with some projects, but in Q3 and Q4 should be back to normal and the CapEx expense should be comparable with the past 2 years.
[Operator Instructions] And at this time, we have no further questions. I would like to turn the call back over to Mr. Frenette.
Thank you, Sylvie, and thank you, Kyle, for your questions. It has now been more than a year since the pandemic started. Because of the contribution of everyone in our team, we were able to navigate this unprecedented storm and maintain a good financial situation. This -- the improvements we have done to our business will position us well moving forward. Looking ahead, we remain committed pursuing the transformation of Colabor by focusing on our broadline distribution activities in Quebec, delivering efficiently and improving our employer brand. This concludes our call for the first quarter of 2021. We are holding our Virtual AGM today at 11, and I look forward -- sorry, at 10:30. I look forward to speaking with some of you in a short while. Thank you for joining us. Be safe and healthy.
Thank you, Mr. Frenette. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.