Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Colabor's Second Quarter 2021 Earnings Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session open to analysts only. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. We're turning the meeting over to management. I would like to remind listeners that this conference call contains forward-looking information within the meaning of applicable Canadian securities law, 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 the 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 12 and 24-week periods ended June 12th, 2021 under the heading Risks. I would like to remind everyone that this conference call is being recorded today, July 22nd, 2021. I will now turn the conference over to Louis Frenette, President and CEO. Please go ahead, sir.
Thank you, Anas, good morning, everyone, and welcome to Colabor Group's 2021 Second Quarter Conference Call. This is Louis Frenette, President and Chief Executive Officer. Last evening, we released our earnings result for the 12-week period ended June 12th, 2021. The press release and disclosure documents can be found on our website and on sedar.com. Joining me today on this call is Pierre Blanchette, who recently joined Colabor as Senior Vice President and Chief Financial Officer. Pierre has over 25 years of experience in corporate finance, and was most recently Senior Vice President, Global Treasury and Taxation at Fiera Capital Corporation. Pierre also has an extensive experience in operations, team building, M&A, deal structuring and financing, with a long-standing track record of successful integration and value creation.
He is a strong and complementary addition to our team, and we can quickly put his experience to contribution as we execute our strategic growth and optimization plan. Before I discuss our highlights for the quarter, I would like to take a moment to thank all of our team members for their dedication and hard work during these unprecedented times. As soon as the government started easing restriction at the end of May, our team members were up and running and ready to help our restaurant customer reopen their on-premise dining operation. Like many industries, we are dealing with supply chain and labor challenges. In this context, I'm even more grateful for all our team members' efforts. Now for a quick review of this quarter's results. I'm very happy with our financial and operational performance in the second quarter of 2021.
Our consolidated revenues have grown by 13.2%, primarily from the easing of restriction affecting the restaurant industry. Our adjusted EBITDA margin, excluding subsidies, have improved by almost 50% year-over-year to reach 5% of the consolidated revenues, up from 3.4% last year. Because of our ability to rightsize our business prior to the pandemic, and properly align our cost structure since the start of the health crisis, we have maintained a comfortable leverage ratio of 2x . During the last few years, Colabor made important decisions that allowed the company to successfully execute its turnaround. These decisions include selling non-core assets to reimburse debt, terminating non-profitable contracts, and improving our customer mix to raise profitability. During the pandemic, we dedicated additional efforts to diversify our channels and gain new institutional and retail clients. We improved our mix of products sold, started developing new territories, and refinanced our debt.
We also implemented significant and sustainable cost-saving measures that have allowed us to maintain a good level of profitability and solid balance sheet. We are emerging from the worst of the health crisis with an improved business model and streamlined operations. We are now in a good position to benefit from the recovery in the restaurant and hospitality industry. Although we remain cautiously optimistic, considering the industry's ongoing challenges and potential threats of new variants, our geographical diversification outside the bigger centers and our mix of institutional and retail customers allows us to mitigate some of the potential lingering risks. Looking ahead, our focus can now return to growing our distribution business, which in the longer term should set the stage for further operational leverage.
In order to do so, and as explained on this call last quarter, we have prudently invested in various growth initiatives, such as hiring sales and marketing professionals, and implemented cross-selling initiatives. We have also better aligned our offering with changes in consumer preferences and are repositioning our private label. These organic growth initiatives should start paying dividends in 2022. I'm happy to say that we are entering the second half of 2021 in a good position and ready for the recovery of the restaurant and hospitality industry. With this, Pierre, I turn the call over to you for a review of our financial results.
Thank you, Louis. Good morning, everyone. I'm pleased to have joined the Colabor team, and I'm very excited about the prospects of our business. I will now review our financial results for the second quarter of 2021. Second quarter consolidated sales from continuing operations were up 13.2% to CAD 108.1 million. Sales in the Distribution Segment increased by 21.7% to CAD 73.3 million, mainly from the gradual reopening of restaurants since the end of May and generally less restrictive environment during the second quarter of 2021 compared to last year.
Sales in the Wholesale Segment increased by 5.7% to CAD 45.5 million. Primarily from the easing of lockdown measures from the growth of certain customer accounts and small customer gains, mitigated by the partial loss of volume from a single customer. Intercompany elimination increased by CAD 2.9 million to CAD 10.7 million, resulting from higher volume of sales in both segments. Adjusted EBITDA from continuing operation reached CAD 6.7 million or 6.2% of sales, compared to CAD 7.6 million or 8% in the second quarter of last year. Excluding subsidies which were higher last year, our adjusted EBITDA grew to 5% from 3.4% in the second quarter of 2020, from higher level of sales and higher gross margins.
Net earnings from continuing operation was CAD 1.6 million and in line with last year's second quarter. Net earnings stood at CAD 1.7 million, up from a net loss of CAD 2.9 million in the second quarter of last year, resulting primarily from abandoned activities, which last year generated a loss of CAD 4.5 million. Cash flow from operating activities required CAD 2.9 million in the second quarter of 2021, while CAD 3.2 million was generated in the equivalent quarter of last year. Higher working capital was required in anticipation of the reopening of restaurant activities and of the summer season.
As at June 12th, 2021, our net debt amounted to CAD 57.2 million, compared to CAD 52.1 million at the end of fiscal 2020. All outstanding convertible debentures were redeemed at the start of the second quarter on March 23rd, 2021. Our financial ratios stand at 2x versus 1.8x at the end of fiscal 2021, resulting from higher use of the lending facility to fund the working capital requirement. The pandemic will continue to have somewhat of an effect on our results. We remain dedicated to maintaining a prudent approach to managing our cost structure and protecting our financial situation. I would now like to turn the call over to the operator for the Q&A period.
Thank you. Ladies and gentlemen, we will now begin the question and answer period for analysts only. Should you have any questions, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Kyle McPhee with Cormark Securities. Kyle, please go ahead.
Hi, guys. Thanks for the prepared remarks. I have a list of questions here. Starting on the revenue growth you delivered, great to see you shifted back to growth. That growth this quarter included gains from lapping last year's COVID dynamics. Beyond that, are there pockets of organic growth buried in the numbers beyond that COVID stuff? Growth from stuff like new clients and gains with existing clients beyond pre-COVID levels. If so, can you maybe help us understand how meaningful that growth is and whether or not it's accelerating?
Hi, Kyle. Thanks for your question. Yes, we have growth in both segments, the wholesale and distribution segments. There's gains of organic growth with new customers in both business distribution and wholesale. The results are helped with the restaurant reopening gradually. That's helping, and that covers the rest, like Pierre said, the rest of a part of business with a customer in the wholesale business. There's a mix of everything, but it's positives on distribution and wholesale.
Maybe this is hard to do, but if you were to isolate all the COVID stuff and all these new clients, how much is that organic growth? Is it still very slim? Is it maybe a few points of year-over-year growth? Any color there?
Well, we're happy with the result that we have. It's in line with our plan of gaining some business, especially on the distribution side. This is affected, though, with the restaurants, as they're not 100% reopened. They're gradually reopening. There's a mix of supplies from our suppliers, the service levels, and the supply chain is a bit affected. We're in line. At the end of the day, we're in line with our plan, and we're happy with that.
Got it. Okay. Just to follow up on these growth efforts. In recent quarters, you added some sales bodies to help that broad line business push into Western Quebec. Can you update us on how those sales bodies are performing? Also, are you adding even more bodies beyond what you already did last quarter?
Okay. Yes, it is going as planned. We are happy with the performance of the new sales bodies. To answer the second part of your question, if we will add more bodies. Well, in our plan, we have milestones, steps to make decision on when we will put more bodies. We will hire when the sales reps will have the full plate, and we will add more people. That will come in times. We are happy with the decision we made.
Got it. Okay. One last follow-up on the growth efforts. Can you offer any commentary on your initial efforts to boost the cross-selling between your specialty and broad line businesses, which I don't think historically had much overlap?
Yes, a bit the same answer as the previous answer. We just started, and we're happy with the results, and we're confirming that we'll continue to do that as we see some efficiency savings. The idea is that more salespeople sell products from other divisions. We see the progress. It's slowly growing, but it is as planned. We're satisfied, again, with that strategic decision we made to do this.
Got it. Okay. Shifting gears to the COVID reopening. What is the state of COVID restrictions in your core regions throughout Quebec? As the opening is progressing, is there anything surprising as you see businesses reopen, or is it pretty much business and all your clients getting back to the old status quo?
Yeah. What we ask to take into consideration is that the reopening is not as easy for the restaurant's owner as they are short on finding employees to work in their restaurants. The situation is that most of our business is not in Montreal downtown, it's in the region. That's helping us because they don't have office towers like you have in Montreal, as an example. The large centers are more affected. Good for us for now. We're stronger in the smaller regions. It's reopening gradually. It doesn't go from 0% or 50% to 100%. It goes from 50% to 85%. It's gradually reopening. We don't have tourists in Canada, you know that. There's a shortage of employees.
What could affect the future is, and as I said, we're not in the big centers yet, but the people returning to work at the office and the towers, we don't know when that will happen. There's probably 10%-15% of the restaurants that did not reopen. We'll see the numbers will get smaller over time, but there's lots of factors to consider.
Okay. Thanks for that color. On your gross margin, it increased again, more than I expected again. I'm wondering if there's anything unusual in the gross margin mix this quarter, or is Q2 kind of a good representation of your current mix of business and where you have your platforms right now?
Good morning, Kyle. It's Pierre. I will answer this question. Essentially, it's really the product mix that made that evolution of the gross margin. Volume, obviously, restaurants, smaller distributors, a little bit more of our private label sales. These can explain. As you know, in the past, a lot of work, a lot of heavy lifting was done to eliminate the lower revenue-generating assets. I think that explains the reason. We are still in an environment where the capacity is reduced, as Louis just explained. Low or no tourism yet. It's hard to know that, is this quarter, is this an appropriate reflection of the continuing gross profit?
Got it. Okay. On your labor supply and costs, I'm just hoping for an update there, specifically, your ability to find supply of labor as volume ramps back up. You mentioned restaurants are having trouble, but I am wondering if you have the necessary supply of labor to ramp your own business back up? I am also wondering about the cost of labor and whether or not it's starting to eat into margin, or you expect it to eat into margin?
It's kind of like all other labor-intensive businesses. There is a labor shortage. We did put in place a strong hiring program, but this is still a difficult situation that we're facing and have to deal with. We have many programs to increase and being faster at hiring. We have incentives for a referral. We have a radio campaign. We're working with agencies to find more people. We did other activities like open door day. We're also working on improving our employer's brand. We're working hard on that. Yes, like in my comments earlier, very happy with my employees that are working extremely hard. Yes, we're paying overtime, but it comes with the business and we're good. This is a key priority for the whole industry, to find more employees. A bit of color around the reopening.
The reopening is happening in the high season. Usually when back to school comes, the business comes back to a normal level, and it will be more manageable than it is now. That's for the whole industry and across Canada.
Got it. Okay. Last question from me. On your CapEx, can you offer any updated guidance on the CapEx spend for this year and maybe even next year?
For sure, Kyle. Well, as you're aware, it's a very low CapEx-intensive business. As I mentioned in my prepared remarks, we're taking a very prudent approach with the conditions that we are in now. Obviously, when we allocate capital to CapEx, we expect to get a good return on that money that we are spending. The first half of the year was very light in CapEx. We expect in the second half to deploy a little bit more. We are also monitoring the situation of the business to make sure that we don't get ahead of ourselves on investing in certain areas of the business where we will not see the benefit as soon as we deploy the cash.
Got it. Okay. You probably don't have exact numbers to give me or anything, but for next year, is there anything big and chunky, or is it kind of going to be similar or maybe only a little bit higher than this year?
Well, it's difficult for me to say. I recently joined, as you're aware, so telling you exactly where we believe next year, I don't foresee any major item, if we can leave it at that.
Okay. That's good enough for now. All right, that's all my questions. Great update, and appreciate all the answers. Thanks, guys.
Thank you.
Thank you. There are no further questions at this time. Monsieur Frenette, you may proceed.
Thank you, Anas, and thanks, Kyle, for your questions. Our good financial performance in the second quarter demonstrates the resiliency and agility of our business model. The improvements made to our business over the last two years are positioning us well moving forward, especially as the restaurant and hospitality industry recovers from the pandemic. Looking ahead, we remain committed to pursuing our strategic growth plan by focusing on our broadline distribution activities in Quebec, delivering efficiencies, improving our employer's brand, and creating shareholders value. This concludes our call for the second 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.