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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Colabor's Fourth Quarter and Year-End 2018 Financial Results Conference Call. [Operator Instructions]Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded today, February 22, 2019.I will now turn the conference over to Lionel Ettedgui, President and Chief Executive Officer. Please go ahead, sir.
Thank you. Good morning, everyone, and welcome to Colabor Group's 2018 Fourth Quarter and Year-End Conference Call. This is Lionel Ettedgui, President and Chief Executive Officer. Earlier this morning, we issued our fourth quarter and year-end earnings 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 in the Investors section under Events and presentations.Our fourth quarter consolidated revenues were down 8.8%, both in the fourth quarter and year-to-date, resulting from the loss of volume in Ontario and from our decision to not renew nonprofitable contracts. This was mitigated by continued growth of our distribution activities in Québec. Even as we lost sales volume over the year, our gross margin in dollars of sales improved by 6%, both in the fourth quarter and year-to-date. This comes from our decision to not renew nonprofitable contracts, which improved our customer mix, growing sales of private label and value-added products and from our growing distribution activities in Québec.Our Q4 adjusted EBITDA stood at $5.9 million compared to $7.1 million last year. During the quarter, we took $700,000 inventory write-offs from our Ontario division and took a $400,000 retention provision, which resulted in $1.1 million of noncash items for the fourth quarter of 2018. By removing the effect of these noncash items, adjusted EBITDA in the quarter would have been flat.2018 was a year of transition. We implemented several initiatives to change the trend over the previous years. These initiatives included the focus on our core business, important organizational changes and managing our bottom line and cash flow. During the second half of the year, this initiative started to support higher gross margin as a percentage of sales and generate positive cash flows to reimburse debt. We're starting 2019 with a stronger team that is highly committed to changing the trend of recent years. We're also highly focused on improving our operating profitability. We will keep on expanding our Broadline activities in Québec, integrating and optimizing our business units and reducing our level of debt. Our management team is fully dedicated to deliver more value to our shareholders.Before turning the call over for questions, I will now review our results for the fourth quarter of 2018. Colabor Group consolidated sales for the fourth quarter ended December 29, 2018, were down 8.8% to $366.1 million. This results from the loss of volume in Ontario and the nonrenewal of nonprofitable contracts in the Wholesale segment, which was mitigated by improving sales from our Broadline Distribution activity in Québec. Adjusted EBITDA was lower at $5.9 million compared to $7.1 million in the fourth quarter of 2017. As explained in my initial remarks, the difference comes entirely from the $1.1 million of noncash item for Q4 2018.Colabor ended the fourth quarter of 2018 with a net loss of $1.9 million compared to net earnings of $0.5 million in the equivalent quarter of 2017. This gap is mainly explained by the charge, not related to current operation, of $2.5 million associated with changes made to the executive team and implementation of the rationalization plan. By removing the $1.1 million noncash item, that I just referred to, net earnings would have been higher than the comparable quarter of last year. All these noncash onetime nonrecurring items result from our efforts to execute the turnaround of the company and are required in the year of transition. Cash flow from operating activities was positive at about $11 million. The dollar management of working capital mitigated the effect of the lower EBITDA. We remain dedicated to reducing our level of debt. At year-end, the company total debt amounted to $106.9 million, down from $110.6 million in the equivalent quarter of 2018. Our total debt trailing adjusted EBITDA ratio now stands at 5.8x, which is down from the third quarter of 2018. By removing the debentures, this ratio stands at 3.1x.This concludes my review of our financial results. Operator, I would now like to open the call for questions.
[Operator Instructions] Your first question comes from the line of Derek Lessard from TD Securities.
It's Evan, in for Derek. So I just have a few questions for you this morning. I guess, the first one, when do you expect to update us on your strategic road map, and is it dependent on finding a new CFO? And as a follow-up to that one, could you update us on the search process for CFO?
Okay. So for the update regarding the strategic plan, I guess, that the best time for us would be at the AGM in May. So that's where we are going to introduce the whole strategy. And regarding the second question of the search of the CFO, we have very good candidates. We are still in process. So we're very confident to have the right person in place quickly. In the meantime, I am very well supported by my whole financial team.
Great. So in terms of -- looking at your assets, are there any more cost-saving opportunities that you see? And can you give us a bit more color on the $3 million in cost savings that you announced?
Okay. So cost savings we announced was related to the reorganization of the company. So we just cut down the double position we have in our organization, and we take advantage also to have a stronger team in place. So the whole savings was by cutting down the label. So it's full saving in our P&L. So we expect to see the benefit of such initiatives in Q1.
Great, that's helpful. So turning to the consumer, there have been some signs of consumer pressure late in this economic cycle. Just wondering what you're seeing in terms of the Québec and Ontario consumer? And does this change your thinking on the strategy to focus on independence rather than the change?
I think that our position is a bit different between those 2 markets. Let's say that in the Québec region, we are quite very strong regarding independent customers, and we have a solid group of customers. So I think that we still have an amazing potential, and that's what we notice in our figures regarding the growth of Broadline in Québec region, okay. So we are quite confident that we will still have this kind of growth for the following years and we have the right strategy to catch the opportunity. Regarding Ontario, our book of business is a bit different. We have very solid customers, which are more chain-oriented, and we adopt a bit of a different strategy to satisfy those customers and try to find better way and better opportunities to have win-win partnerships, and so far it's coming to be quite positive.
Okay. And in the past, you've mentioned of having improved fill rates and improved customer satisfaction. Can you give us an update on the current trends and any driving factors? And as well is there any way to further improve customer loyalty and can it be done without using price?
Okay. That's a good point. Our level of service is back on track. So now to stand this position, we can remove what we used to do regarding other servicing. So we expect some good result on that point. So the most important thing for your customers is the level of service, okay, to be sure that they receive what they have ordered without any backorder and in time, so they can be efficient, because what they're not going to sell today, they won't sell it tomorrow. Regarding the pricing, I guess, that our market is not that sensitive to pricing. We need to imply a change and that's what we're trying to implement for the last couple of months, which is -- we don't want to be seen as cutting pricing to get the loyalty of the customer. We just need to bring them solution, solution regarding the large offer of our products we have and solution regarding the quality of service we're delivering.
Okay. And last question from me. Can you talk a bit about the Executive management changes and the provisions that you have taken?
Okay. The provision taken is regarding retention for key employees. So it's going beyond the top executive management because they are brand-new, so it's not related to them. Regarding now the new management team, we're quite happy with the new key people we have put in place. They have contributed to the strategy that I will present during the next AGM. So we're stronger regarding procurement, we're stronger regarding operation and sales. And it's refreshing as we can change ourselves and be able to change our business model, which maybe is a key essential thing to succeed regarding this turnaround.
There are no further questions at this time. Mr. Ettedgui, I turn the call back over to you.
Thank you, operator, and thanks, Derek (sic) [ Evan ], for your questions. It has been 1 year since I joined Colabor. 2018 was a year where we redefined our strategy, reinforced our team and started implementing initiatives to reverse the trend of the last few years. We are now starting 2019 in a better position with a strong team dedicated to deliver more values to our shareholders.This concludes our call for the fourth quarter and fiscal year of 2018. Thank you for joining us. And I look forward to our next conference call to discuss our 2019 first quarter results in May. Have a good weekend, everyone.
Thank you. This concludes today's conference call. You may now disconnect.