Colabor Group Inc. (GCL) Earnings Call Transcript & Summary

On behalf of the Board of Directors and management of Colabor Group, I would like to welcome you to the Colabor Group's Annual Meeting of Shareholders. I am Warrant White, Chairman of the Board, and I will act as the Chairman of the meeting. The meeting will be held by webcast to maximize the presence and participation of all our shareholders wherever they may be. As in previous years, all registered shareholders and named proxy holders will have the opportunity to attend the meeting, ask questions and to vote. Nonregistered shareholders may attend the meeting as guests. I will be accompanied by Mr. Louis Frenette, our President and Chief Executive Officer; Mr. Pierre Blanchette, our Senior Vice President and Chief Financial Officer; and Mr. Pascal Rodier, our Corporate Secretary, who will act as Secretary of this meeting. Mr. Rodier will assist me in the formal process of the meeting. All other members of the Colabor Group Board and senior management are also present at this meeting. To begin, I'd like to invite Mr. Rodier to explain the proceedings of the meeting. Pascal?

Thank you, Mr. Chair. Main activities will take place in English and in French at the discretion of the presenter or those asking questions. Please note that a copy of today's presentation is available in English and French on the Lumi platform in the Documents section. Please also note that this meeting is simultaneously translated from English into French or from French into English as appropriate. Simply click on the broadcast language button at the bottom right of the broadcast screen. All voting on resolutions submitted to the meeting -- at today's meeting will take place via the online portal only, effective immediately. Registered shareholders and named proxy holders can register their votes on all agenda items under the votes tab. You can always toggle between messages, greetings and votes throughout the meeting by clicking on the appropriate tabs. The voting features will be closed once the last item to be voted on has been considered. You will have a few minutes to register your vote, after which the results will be tabulated and preliminary results disclosed. As described in the proxy circular, only registered shareholders and nonregistered shareholders who have received a control number may vote at the meeting. Please note that you do not need to vote at the meeting if you have already voted by proxy. Finally, I would like to point out that Ms. Martine Gauthier of Computershare Investor Services, Inc. has been appointed to act as the scrutineer at this meeting. Today, after establishing quorum, we will proceed with the receipt of annual financial statements for fiscal 2024, and then vote on the resolutions concerning the appointment of the auditor for the next fiscal year and the election of directors. Following the announcement of the voting results, Mr. Frenette, President and CEO of Colabor Group; and Mr. Blanchette, Senior Vice President and CFO, will make a presentation on the company's results, activities and outlook. This presentation will be followed by a period reserved for questions or comments from attendees on the topics covered during the meeting. Please note that you can ask your questions now and that you don't have to wait until the end of the meeting to send them in. To do so, click on the Messages button, enter the question and click on send. For the smooth running of the meeting, we ask that your question or comment be succinct and of general interest to all shareholders. Mr. Chairman, you have the floor.

Thank you, Pascal. The scrutineers have advised me that the quorum required for the meeting has been reached. I hereby declare the meeting duly convened and constituted for the transaction of all business. The first item on the agenda is the receipt of Colabor Group's financial statements for the year ended December 28, 2024. Colabor Group's audited consolidated financial statements and independent auditor's report for the year ended December 28, 2024, are available on Colabor Group's website or on SEDAR's website+ (sic) [ SEDAR+ ] website. As shareholders have already had the opportunity to consult the financial statements, we will dispense with reading them and the auditor's report. The next item on the agenda is the appointment of Colabor Group's auditor. The company's current auditor is PricewaterhouseCoopers. Following the recommendation of the Audit Committee and the Board of Directors of Colabor Group, it is recommended that PricewaterhouseCoopers be reappointed as auditors of Colabor Group for the current fiscal year and that the Board of Directors of the company be authorized to set their remuneration. Pascal, please proceed with the proposal.

Yes, with pleasure. I am a shareholder of Group Colabor (sic) [ Colabor Group ] Inc, and propose to appoint PricewaterhouseCoopers as auditor of Group Colabor (sic) [ Colabor Group ] Inc, and to authorize the Board of Directors to set their remuneration.

Thank you, Pascal. We now proceed to the second item requiring a shareholder vote, namely the election of directors. I would like to proceed with the election of the directors of Colabor Group. There are 7 directors to be elected, and we have 7 proposed candidates. Each of the nominees satisfies the criteria required by Colabor Group's incorporating documents to serve as a director. In addition, under agreements entered into with certain investors as described in the circular, each of Gestion Robraye and the Zucker Trust is entitled to propose a nominee for election as director, holding the minimum number of shares required to maintain their entitlement. The 7 nominees are Mr. Marc Beauchamp, current and proposed representative of Gestion Robraye. Ms. Danièle Bergeron. Ms. Laurie Gauthier, Mr. Robert Johnston, current and proposed representatives of Zucker Trust. Mr. Denis Mathieu, Mr. Francois Roy and myself, Warrant White. Pascal, please proceed with the proposal.

Yes, certainly. As a reminder, at its 2015 Annual Meeting, the company adopted an advanced notice bylaw to govern the right of registered holders to nominate directors prior to an annual meeting of the company. No proposals for the nomination of other persons as directors have been submitted to the company or received by the company pursuant to this bylaw. Therefore, the proposal is as follows: I'm a shareholder of Colabor Group Inc. and move that a resolution be passed for the election as directors of Colabor Group Inc. of each of the following 7 nominees, namely: Mr. Marc Beauchamp; Ms. Danièle Bergeron, Ms. Laurie Gauthier, Mr. Robert Johnston, Mr. Denis Mathieu, Mr. Francois Roy and Mr. Warrant White.

Thank you, Pascal. Now that the matters on which shareholders are to vote have been presented and proposed, I would ask you to complete your vote for each of the resolutions submitted. We will leave the voting features available for another 30 seconds. [Voting]

I now declare the vote closed. The scrutineers' final report will be available shortly after the meeting. On the basis of preliminary results confirmed by the scrutineers, the resolutions having each received a majority affirmative vote, I confirm that the resolution to appoint PricewaterhouseCoopers as auditor of Group Colabor (sic) [ Colabor Group ] Inc for the fiscal year and to authorize the Board of Directors to set its remuneration is adopted. The resolution for the election of each of the proposed directors is adopted, and I confirm that Mr. Marc Beauchamp; Ms. Danièle Bergeron, Ms. Laurie Gauthier, Mr. Robert Johnston, Mr. Denis Mathieu, Mr. Francois Roy and Mr. Warrant White, myself, have each been duly elected as a director of Group Colabor (sic) [ Colabor Group ] for the ensuing year. We now proceed with the presentation of Mr. Louis Frenette, CEO; and Mr. Pierre Blanchette, CFO. Gentlemen, you have the floor.

Thank you very much, and welcome to this meeting with me today, as Warrant just mentioned, is Pierre Blanchette, our CFO. And I am Louis Frenette, President and CEO. As Pascal said. Following management presentation will be narrated in French. An English version of the presentation is available on the Lumi platform and on our website in the Investors section. Please be advised that we will take questions in both English and French at the end of this presentation should you have any. We will now continue in French. The presentation will be done in French. For those of you who would like, there is an English copy of the presentation that's available on the Lumi platform and on our website in the Investors section. Please be advised that you can ask questions in English or in French at the end of the presentation during the question-and-answer period. Next slide, please. Today, we will discuss the operational financial results for fiscal 2024, the penultimate year of our 5-year transformation plan. We will also discuss future priorities and briefly review our progress in the first quarter of fiscal 2025 the results of which were published on May 1, 2025. This slide has the forward-looking statements, and I invite you to consult it. Let's turn to the next page. Our transformation strategy initiated in 2020 enabled us to remain resilient in 2024 as the restaurant industry experienced significant headwinds. Our diversified customer base and our efforts to develop the hotel foodservice institution distribution market in Western Quebec generated 2.4% growth in our distribution activities. This enabled us to mitigate the more pronounced effect of the slowdown in the food service industry on our wholesale activities. On a consolidated basis, our revenues, therefore, fell by 0.3% to $657.1 million for fiscal 2024 despite gains in market share. As a result of a prudent management of our operations, we generated cash flow growth, reduced our indebtedness and maintained a solid balance sheet. Pierre will discuss our annual financial results for 2024 and the first quarter of 2025 in greater detail. Next slide. This resilience is the result of our initiatives we implemented as of 2020 onwards, aimed at generating profitable growth, diversifying our customer base and improving our mix of products sold. Now for the products. We have continued to optimize the number of products on offer, focusing on quality and local products. Our private label offers, the majority of the products is sourced locally in Canada and Quebec, an important differentiating factor, especially since the start of the tariff war with the United States. Our range of specialty products is always of the highest quality. Lauzon is a leading meat distributor and beef specialist in Quebec. Norref is the largest distributor of seafood products, many of which are certified for responsible local fishing. On the customer front, we maintain a well-diversified customer base within the hotel, food service institution industry. In the current macroeconomic context, where the Foodservice segment remains affected by reduced consumer spending, this diversification enabled us to end the year in a good shape. Thus, direct sales to restaurants accounted for 30% of our sales in 2024. Sales to institutions, hotels, retail outlets and other channels accounted for 37% of sales, while sales to other distributors through our wholesale business accounted for 25% of sales. Next slide, please. In fiscal 2024 and 2025, we also updated and modernized our brand strategy to emphasize the human and personalized nature of our services. In this way, we aim to stand out as an indispensable ally for artisans in the food distributor sector and to promote our unique offering of local products. As many of our employees are former restaurant owners, we understand the realities of the trade. And this is an important advantage that enables us to stand out in the industry. We also held several large-scale events for our customers and supplier partners during the year. These events helped to raise our profile in the province and bring us closer to our partners. These initiatives are brilliantly managed by our marketing team, and I'd like to take this opportunity to salute their efforts. Next slide. After concentrating our efforts on relocating and starting up our distribution activities in Saint-Bruno at the end of 2023, we resumed our acquisition activities in 2024. In the first quarter of 2024, we acquired certain assets from a distributor in Eastern Quebec. These activities have been integrated into our Lévis site near Quebec City. Taken together, the 3 acquisitions we made in 2022 and early 2024 proved accretive and laid the groundwork for the proposed acquisition of Alimplus, more on that later. Let's go to the next slide. Through our investments in organic and inorganic growth, we have tripled our target market. It has grown from 30% of the province's hotel foodservice institution distribution market to almost 90%. Our new hybrid center in Saint-Bruno-de-Montarville is a cornerstone of this ambitious growth plan. We took possession of the site at the end of 2023 and 2024. We gradually began our distribution activities serving Western Quebec. The desired service levels have been achieved, and we have the capacity to grow. We also ended 2024 with a lower debt level than at the end of the previous year despite this major investment project. Next slide. More recently, on February 19, 2025, we announced an agreement to acquire the assets of Alimplus, along with a distribution contract for Mayrand stores. This transaction, subject to satisfaction of closing conditions, will accelerate our growth and profitability plan and consolidate our position as the largest Quebec distributor in the province. Let's now look to the future. The year 2025 marks the final year of our 5-year transformation plan. This plan based on 4 pillars is shown on slide here on the next slide. Since its inception, we have succeeded in generating profitable growth, improving our practices as an employer and developing our brand image, which is now well aligned with our values. To build on this momentum, our priorities for the remainder of the 2025 year will be finalize and integrate the acquisition of Alimplus, expand our organic and inorganic presence in Western Quebec, promote our local product offering, including our private label, which benefits from the local purchasing craze, generate revenues and operational efficiencies, continue to improve our product mix, and finally, leverage our position as the largest locally focused supplier to the food service industry in the province. We, therefore, enter 2025 in a strong position with additional levers to create value for our shareholders and all our stakeholders. Although the food service industry continues to experience headwinds, the growth of our distribution activities, our diversification with the industry and the added value that the acquisition of Alimplus will offer us all position -- will offer us well positioned to achieve our ambitions. In the long term, these remain to consolidate the Quebec distribution market while continuing to support and promote our local food ecosystem. Our teams are motivated and committed. We are in an excellent position to win and execute our strategic plan. Pierre, you have the floor to discuss our financial results.

Thank you, Louis. I'm pleased to be here with you to discuss some highlights of our results for fiscal 2024 and the first quarter of fiscal 2025. Consolidated sales of 2024 fell slightly by 0.3% to $657.1 million. This decline stemmed from wholesale activities, which were affected to a greater extent by the slowdown in the food service industry, mitigated by 2.4% growth in our distribution activities. Growth in the distribution sector was the result of our efforts to gain market share in our new territories, the effect of inflation estimated at 1.9% and the acquisition completed in the first quarter of 2024. Consolidated adjusted EBITDA from continuing operations decreased by $2.2 million to $ 35.4 million compared with $ 37.6 million in 2023. As a percentage of sales, the adjusted EBITDA margin fell by 5.7% of sales to 5.4% in 2023. Lower sales volumes, higher operating expenses and to a lesser extent, lower gross margins due to customer mix explain this variance. Next slide. Net earnings in 2024 were $1.6 million or $0.02 per share, down from $6 million or $0.06 per share in 2023. Higher financial expenses related to the new lease at Saint-Bruno and lower adjusted EBITDA explain this variance. Cash flow from operating activities amounted to $37.2 million in 2024, up from $28.9 million in 2023 due to lower working capital utilization and timing of supplier payments. By prioritizing prudent management of our balance sheet, we ended 2024 with a net debt of $47.8 million, down $13.7 million since the end of the previous year when debt stood at $61.5 million. Our leverage also fell to 2.4x adjusted EBITDA compared to 2.7x the previous year. Next slide. Now for a quick review of our financial results for the first quarter of fiscal 2025, which we released on May 1. Consolidated sales for the first quarter rose by 0.4% to $131.7 million. Our distribution activities were up 3% due to sales volume growth from existing and new customers as well as the acquisition of a certain Beaudry & Cadrin assets completed in Q1 2024, which partially mitigated the effect of the major contract renewal at the end of Q4 2024 and a slowdown in the foodservice sector. Wholesale business was down 3.8% due to headwinds in the food service industry. Consolidated adjusted EBITDA from continuing operations reached $2.3 million in the Q1 2025 or 1.7% of sales compared with $4.7 million or 3.7% of sales in Q1 last year, mainly due to the renewal of the major contract and weakness in the food service sector. We have implemented a number of initiatives to mitigate the impact on our profitability. Next slide, please. Net loss for the first quarter of 2025 was $4 million or $0.04 per share, up from a loss of $1.8 million or $0.02 per share in Q1 of the previous year due to the factor explained above. Cash flow from operating activities amounted to $6.2 million in the first quarter, down from $11.7 million in the first quarter of 2024, mainly due to higher working capital requirements and lower adjusted EBITDA. We end the first quarter with net debt of $47.1 million, down slightly from $47.8 million at the end of 2024 and a gearing ratio of 2.8x, up from 2.4x at the end of 2024. At the end of the first quarter, we had $36.7 million available on our bank facility. As part of the proposed acquisition of the Alimplus assets, the financial arrangements with lenders have been put in place to support the transaction. These include an increase and extension of our credit facility, an extension of the maturity of our subordinate debt and the establishment of a highly subordinated debt agreement. And as we said earlier, we will have a pro forma leverage with which we remain comfortable, always with a view to reducing it rapidly. All right. My last slide to finish off. 2024 was a busy year for Investor Relations. On May 16, we welcomed around 30 institutional investors, investment bankers and analysts to our new Saint-Bruno site for our first day investor. This event helped create some momentum, and we welcomed 2 new analysts in 2024. Mr. Frédéric Tremblay of Desjardins and Michael Glenk from Raymond James. More recently, just before the publication of our first quarter results, Don Angelo Volpe of Beacon Securities also began coverage. The arrival of these new analysts has enabled us to meet several potential institutional investors across the country, and we have held meetings in Toronto and Montreal to introduce them to the Colabor story. This concludes my section. Louis, I'll let you conclude.

Thank you, Pierre. In conclusion, given the headwinds that have affected the foodservice industry throughout 2024 and in the first quarter of 2025, we are pleased with the results we have achieved and the market share gains we have been able to make. Our team is working diligently to close the proposed Alimplus acquisition and generate organic growth. We are also confident that we can mitigate the effect of the loss of the important customer on our profitability by carefully managing our operating costs and improving the mix of products sold. During 2025, we will also be working on our next strategic plan, which we will present to you before the beginning of next year. I am proud of what everyone at Colabor has accomplished since we began our transformation in 2020. And this is just the beginning. We have many levers open to us to continue improving our business and delivering value to our shareholders and all our stakeholders. Thank you. Back to you, Mr. White.

Thank you. I'll now open the floor to questions. Pascal?

A few reminders. First, only registered shareholders and proxy holders may ask questions. You should write your question at the top of the screen in the messages box for the smooth running of the meeting. We ask that your question or comment be succinct and of general interest to all shareholders.

Thank you, Pascal. Please proceed with the questions received.

We'll give them a few seconds to send in questions. There are no questions so far, but we'll just wait another couple of seconds. No questions, Mr. White.

Very well. Given that there are no questions, I declare the meeting adjourned. On behalf of the Board of Directors and myself, I would like to congratulate the management of all employees of Colabor Group for their sustained efforts throughout 2024. Thanks to your perseverance, Colabor is well positioned to generate value for all its stakeholders. Thank you for attending Colabor Group's Annual Meeting, and we look forward to seeing you again next year. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]