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Good morning, ladies and gentlemen, and welcome to the Colabor's Fourth Quarter 2021 Results. [Foreign Language] (00:00:07) Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session open to analysts only. [Operator Instructions] This call is being recorded on Monday, February 28, 2021.
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 the 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 statement as detailed in the presentation supporting this conference call and available on the company's website in the Investors section under Events and Presentations at www.colabor.com. Furthermore, risks are discussed throughout the most recent MD&A under the heading Risks.
I would now like turn the conference over to Mr. Louis Frenette, President and CEO of Colabor Group. Please go ahead, sir.
Thank you, Anas. Good morning, everyone, and welcome to Colabor Group's 2021 fourth quarter and year-end result conference call. This is Louis Frenette, President and Chief Executive Officer of Colabor. Last Friday evening, we released our earnings result for the 16- and 52-week period ended December 25, 2021. The press release and disclosure documents can be found on our website and at sedar.com.
Joining me today on this call is Pierre Blanchette, our Chief Financial Officer, who, following my initial remarks, will provide an overview of our financial results.
We ended fiscal 2021 on a strong note, a less restrictive operating environment for restaurants in the fourth quarter of 2021. Our diversification strategy within various channel of the hospitality, restaurant, institutional or HRI market as we call it, and the implementation of our strategic plan help us achieve revenue and margin improvements.
As a result, fourth quarter consolidated revenues grew for a third consecutive quarter to CAD 150 million, which represent close to 13% growth from last year equivalent quarter. And in fiscal 2021, consolidated revenues grew by 3.1% and reached CAD 476 million. We are very proud of this achievement, given the labor constraints faced by the entire supply chain, from producers, manufacturers, distributors, and all the way to the restaurants operator.
Even more so, we operate in the context of tight COVID restriction, which particularly affected the Quebec restaurant industry. Only off-premise dining was allowed during half of the year, significantly reducing demand from this customer channel. During the year and into the fourth quarter, we executed our strategic plan and continued to make significant improvements to our business.
Noteworthy improvements include the completion of the revamping of our private label. We now have over 500 products, which 70% are locally sourced, and together with an attractive selection of national brand, we now have a very attractive and differentiated product offering to meet our customers' needs.
We also introduced new compensation practices that aim to improve our competitiveness as an employer and help us attract and retain the best employees. And we continued to improve our internal process, which have provided synergies. All these initiatives are steadily contributing to our growth in the Distribution segment and more specifically with street business.
In 2021, we also significantly strengthened our balance sheet, which now provides us with more flexibility with liquidity at a lower borrowing cost. With the addition of Pierre Blanchette, who joined us as CFO, we now have more management bench strength and available lending capacity should we find opportunities at the right price to accelerate our growth strategy.
Another important achievement in the fourth quarter was our ability to dynamically manage the effect of rising input costs and a scarce labor market brought on the pandemic. As we have explained on previous calls, most of our revenues are on [ph] cost (00:05:14) basis. Therefore, food inflation is mostly a pass-through. Looking ahead, proactive management of raising input costs will remain a priority and brings to the forefront the necessity – sorry, to continue improving our operations to generate efficiencies.
Despite remaining headwind affecting a portion of our customer base and inflation shifts – inflation environment, we managed to deliver, excluding subsidies, growing adjusted EBITDA margin, from 4.3% in Q4 of last year to 4.6% in Q4 of 2021. This is also true on a full-year basis, with margins improving from 4.7% in fiscal 2020 to 4.8% in fiscal 2021.
Looking to the future with an improving product mix, wider distribution network and more efficient operation, we are well-positioned for the recovery of the restaurant and hospitality industry. In order to get there, our focus for 2022 will follow in the successful footsteps of our 2021 plan.
First, further improved profitability by continuing to nurture our private brand, by growing our value-added specialty distribution activities in fish and meat, and improving our category management. Second, develop the new territories for our Distribution activities and entertain accretive M&A opportunities. And third, raise our operational efficiency through investment and modernization of our distribution centers and finalize the integration of certain business function.
Before I turn the call over to Pierre for his review of our financial results, I want to reiterate once again how proud I am of all our team members who contributed to our success. They have allowed us to emerge in a stronger position after two years of global pandemic with a diversified business, improving profitability, and exiting – exciting growth opportunities.
Pierre, with this, I will turn the call over to you.
Thank you, Louis, and good morning, everyone. I'm pleased to be here today to discuss our key financial results for the fourth quarter of 2021. Fourth quarter consolidated sales from continuing operations were up 12.9% to CAD 150.5 million. Sales in the Distribution segment increased by 19.8% to CAD 103 million, mainly from the growth of our restaurant channel from a less restrictive operating environment in 2021 when compared to the fourth quarter of last year when restaurants dining rooms were fully closed.
Sales in this – in the Wholesale segment increased by 5.6% to CAD 62.1 million, again, primarily from the easing operating restriction affecting the restaurant industry from the growth of certain customer accounts and small customer gain, mitigated by the partial loss of volume from a single customer.
Consolidated adjusted EBITDA from continuing operation reached CAD 7.1 million or 4.7% of sales compared with CAD 7.5 million or 5.6% in the fourth quarter of last year. The effect of growing revenues was mitigated by a reduction of CAD 1.6 million in subsidies received, rising costs associated with the pandemic-induced labor shortage, and a one-week strike at our Lévis distribution center in September 2021. Also, since the start of the year, we have invested in sales and marketing to grow our Distribution market share and reposition our private brand.
As Louis highlighted in his opening remarks, adjusted EBITDA improve if we exclude subsidies received from 4.3% of sales in Q4 2020 to 4.6% in 2021. Net earnings from continuing operations were CAD 5.3 million, up CAD 0.6 million during last year's fourth quarter. The majority of this variance comes from a non-recurring element, primarily a settlement gain of a portion of 2017 tax assessment with the Ontario Ministry of Finance in relation to tobacco sales done by our Ontario division, which was sold in 2020.
Net earnings stood at CAD 5.1 million or CAD 0.05 per share, up from CAD 0.8 million or CAD 0.01 per share in the corresponding quarter last year, resulting primarily from the aforementioned non-recurring events, distribution and financial expenses. Cash flow from operating activities generated CAD 9 million in the fourth quarter of 2021 compared to CAD 13 million in the equivalent quarter of last year. Higher working capital requirements in Q4 2021 in the context of a less restrictive operating environment for restaurant during the fourth quarter of this year explain the bulk of this variance.
As at December 25, 2021, our net debt amounted to CAD 48.4 million, down from CAD 52.1 million at the start of fiscal 2021 and down from CAD 53.2 million at the end of the third quarter of 2021. Our financial leverage ratio stands at 1.9 times versus 1.8 times at the end of financial 2020 and compares favorably with 2.1 times at the end of the third quarter of 2021.
We expect that the pandemic and the associated labor shortage and supply chains disruption will continue to have somewhat of an impact on our results. For instance, restaurants were once again required to close their on-premise dining activities between December 31, 2021 and January 31, 2022. As demonstrated during the last – these last two years, we remain dedicated to maintain a prudent approach to manage our cost structure in line with demand and protect our financial situations.
I would now like to turn the call over to the operator for the Q&A questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Kyle McPhee with Cormark Securities. Please go ahead.
I'm hoping to get a little more color on some of the moving parts feeding your year-over-year revenue growth in Q4, the 12.9% lift. So, I know most of that would have been the COVID re-openings versus last year, but on other moving pieces in there first, can you give me an idea of how much of that would have been pricing gains?
Hi, Kyle. Thanks for your question. Yes, as you said, the dine-in operation were reopened in the last quarter. The – there was a lot of inflation last year. And as I explained before, the – it's a pass-through business, so the inflation was estimated at 3.5% for the fiscal 2021. And we also have some gains from action under our growth plan, but to a certain extent since we are still in the initial phase.
Got it. Okay. That's helpful color on the pricing. So that second part though your initiative to grow in Western Quebec, so is that a noticeable moving piece in your numbers or is it still pretty small as you build on the return – the return on those new sales hire?
Well, the good news is that the plan is on track. We're achieving what we had as targets and it's not very material as we speak and – but it's growing and it's – we're happy with the result. The sales team is doing a fantastic job. And we're also – as I mentioned before, we completed the revamping of our private label and sales are also meeting our expectation.
Got it. Okay. Thanks for that color. And then just one follow-up on the sales hires to grow in Western Quebec, are there going to be – is there going to be more investment and more sales head count or is it all about leveraging your current head count now?
Yes. There will be some more – the more restaurants that will gain. We'll need more sales head count over time and it's going to happen with the levels, thresholds. When we achieve certain thresholds, we add reps and the idea is to do more business in Western Quebec, so yes, we'll add more head count.
Got it. Okay. Thanks. Moving on. So just regarding the Omicron wave that led to dining closures in January in Quebec, I'm hoping you can help me get a feel for the impact on your business. So like were your dining clients still active with things like takeout and delivery in January and is there anything notable with whether or not these restaurant clients have fully opened into February?
Well, the – on December 31 of 2021 till January 31 of this year, 2022, the main dining and the restaurants were closed and they reopened on February 1. The – our customers have reopened gradually since the start of February. And we have a report from the industry that tells us that 17% of the restaurants didn't apply to – for their permit to operate. So, this tells us about the amount of restaurants that are closed that may or may not reopen eventually.
Got it. Okay. I suspect that the total sector spend, though, on casual dining would be less than that, given people open are just taking up that share. You think that's fair?
I didn't understand your – sorry.
17 restaurants have closed, but that probably doesn't equate to 17% lost demand opportunities for you, given it would just shift to other restaurants [ph] if they open, is that right (00:17:44)?
No. No. The – as an example, if the average is 17% that did not open, maybe 25% are in Montreal and less in the rest of Quebec where we operate. But the ones that closed usually are the smaller ones, so it doesn't represent a straight line 17% as we mentioned.
Yeah. Got it. That makes sense. Okay. That's helpful. During the temporary closures in December 31 to January 31, did you lighten up on head count or did you just hold on to all [ph] your staff (00:18:23) during the closure?
We hold on because it's very difficult to hire people so you have to have in mind that this is the smallest month of the year historically and we do – people take vacation in that period and so it's manage as usual. And sales are last year it was closed, this year it was half open, so we're – it's not significant, but with the sales starting February, we see that the business is coming back.
Got it. Okay. Moving on. I see in your filings that you may get a sizable payment from the Ontario Ministry of Financing. I just want to confirm I understand that properly. So, are you getting CAD 6.4 million in cash into your pocket and is that the right dollar amount, and when should the money be showing up?
Good morning, Kyle. It's Pierre. Thank you for the question. CAD 6.4 million is the claim – is the tax assessment that we received from the Ministry of Ontario back in 2017 for tobacco sales on our – from our Ontario division when we had that division. And the – as mentioned as well in the financials, it's a partial recovery that we got and – but we are not at liberty to disclose the amount, but the money was received last week. So Ministry of Ontario did that, it was good for that.
Okay. That's helpful. And then last question for me. Can you offer any color on what your CapEx will be in 2022?
So, again, we don't expect to exceed our normal CapEx. The last two years, they've been a little bit on the low side because of the pandemic situation, and the management was acting prudently to make sure we spend what we earn and not more. So we expect in 2022 to increase it slightly if the conditions are winning conditions for us to invest. But our intention is to invest for – to meet demand on our specialty divisions and also to improve efficiencies in the specialty area and the regular distribution. So I mean, we – with the hiring being more difficult, obviously, it's worth it to get some efficiency gains for the EBITDA also, but for just to have a stronger and a more efficient operation.
Got it. Okay. Thank you. That's it from me. Thanks for all the answers.
Thank you. [Operator Instructions] There are no further questions at this time. Mr. Frenette, you may proceed.
Thank you, Anas, and thanks, Kyle, for your questions. For second quarter – sorry, for second year in a row, we demonstrated the resiliency of our business model and our ability to adapt. We have successfully transformed our business, improved our customer and product mix, and have steadily gained market share within the street business channel. Our fourth quarter results also demonstrate our ability to manage the effect of an inflationary environment. We remain in very good financial health with a strong balance sheet and available liquidities to invest in growth initiative and potential accretive non-organic opportunities to accelerate growth.
Before I let you go, I would like to reiterate my gratitude to our employees who, on a daily basis, continue to impress and rise up to the challenge brought on by the pandemic and labor shortage, but also who are helping us improve our overall customer experience and operation. This concludes our call for the fourth quarter of 2021. Thank you for joining us. Stay safe and healthy.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines. Have a great day.