Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Colabor's first 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. 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. Risks are discussed throughout the MD&A for the 13-week period ended March 31st, 2021, under the heading Risks. I would like to remind everyone that this conference is being recorded today, May 4th, 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 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 20th, 2021. The press release and disclosure documents can be found on our website and at www.sedar.com. I am 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 23rd. We expect this refinancing to reduce our annual financial expenses by approximately CAD 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 renewed sales force starts developing new street-focused business in new territories, primarily in Western Quebec. We are also seeing the benefit of our cross-selling initiative, 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 worked on the repositioning of our private label brand and concluded an exclusive partnership agreement with Maturin, an emerging supplier of locally sourced farm-to-table produce and food products. Through 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. I'm happy to say that a lot of this 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 25th. I wish to thank Marie-France Laberge, who stepped up in the role of Interim CFO. 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 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 dine-in 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 CAD 85.6 million. Sales in the distribution segment decreased by 29% to CAD 57.3 million, mainly from lower volume related to the COVID-19 pandemic, which affected us during the entire quarter compared with only the two 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 CAD 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 CAD 36.5 million, mainly from the effect of the pandemic and from lower inter-segment 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 CAD 3.8 million or 4.5% of sales, compared with CAD 3.7 million or 3.2% in the first quarter of last year. The improvement in margin stems from efficiency measures implemented during 2020, lower headcount, and CAD 1.2 million in subsidies. This was mitigated by effect of lower sales volume resulting from the ongoing pandemic. The net earnings from continuing operation were negative CAD 1 million, up from a loss of CAD 1.9 million during the first quarter of last year.
Cash flow from operating activities amounted to CAD 5.4 million in Q1 2021, down slightly from CAD 5.6 million in Q1 of last year, on account of higher use of our working capital, which stood at CAD 29.9 million versus CAD 31.2 million in Q4 2020 and mitigated by higher adjusted EBITDA. As of March 2021, our net debt including the convertible debenture and net cash amounted to CAD 50.5 million compared to CAD 52.1 million at the end of fiscal 2020. Our financial leverage ratio stand 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. Because of the quick implementation of cost preservation measure and the support of the federal subsidies, we do not expect this situation to have a material impact on our available liquidity.
I will now like to turn the call over to the operator for the Q&A period.
Thank you. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch-tone phone. You will hear a three prompt acknowledging your request. If you decide to withdraw your question, please press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset first before pressing any keys. Once again, ladies and gentlemen, if you do have any questions, which will be coming from analysts, please press star followed by one. Your first question will be from Kyle McPhee at Cormark Securities. Please go ahead.
Hi, everyone. First question from me. 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. 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's over. 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?
Thanks, Kyle. Yes, we did gain some new business during the COVID while the restaurant business was going slower. We gained institutions, and we gained retail customers. The good news with institutions is that we're under contract with them, and it's for long-term. Yes, we'll keep them after. Without giving any numbers, this is the good news. About the retail business that we gained, as I told before, we gained those stores on a filler-type representation. We're helping the retail stores that couldn't get the products from the suppliers, and we were helping. We continued to serve them through backdoor because they appreciate our offering.
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 a 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 it in your prepared remarks, but maybe something more substantial. Is your sales team already on the ground and getting traction out there at all?
Yeah. Well, actually, we started then the recruiting in February. We hired a new team of sales reps with a director, a district sales manager. They're located in the greater Montreal area, and they started selling just a few weeks ago. The news, yes, we're picking up some sales, but it's too early to predict the final result. So far it's as planned, and this will pay back starting in 2022. We're happy about that, and we're making some noise with that.
Got it. Okay. Next question. When thinking about the food service channel normalizing after COVID-19, 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? To this point, can you provide me with any color on your food service channel customer base and whether or not they will have all survived the pandemic?
Yeah. There's many answers to that question. First, in background, we're used in this business to have restaurants that close. A lot of restaurants close every year and reopen under another name. Yes, there can be some of the restaurants that will not reopen. So far, most of our restaurants are ordering smaller orders as they're only up and running for takeout business. We can expect that with the vaccine and the 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. Hotels, I'm not sure that we'll have many European travelers in Quebec this summer, but I don't think so. The restaurants should pick up more and more as the dining opens.
It should be okay.
Okay. Thank you for that color. Just on the more immediate impact of COVID-19, 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's 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. They weren't prepared for the takeout. They had time to practice over the year, and We can say that most of the restaurants had takeout measures in June of last year, and that's when the dine-in reopened. Again, we can expect that the business will catch back, but so far in Q2, it's a bit better. Yeah.
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. 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.
Yeah. We had measures when everything was shut down where we had to right-size the organization by a third, as we communicated last year. We did, with business picking up a bit with the takeout and the new customers, we had to rehire some people. 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. 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. Yes, that put more expenses, but it's under control, and we're still not where we were in terms of workforce as we were in 2019.
Got it. Okay. 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. Just looking for an update there.
Marie-France?
Yes. Effectively, for the Q1 and maybe Q2, we have some delay with the COVID-19 with some projects. In Q3 and Q4 should be back to normal. The CapEx expense should be comparable with the past two years.
Got it. Okay. Thank you for answering my questions. That's it from me.
Thank you. Once again, ladies and gentlemen, we are currently taking questions from analysts. If you do have a question, please press star followed by one. 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. 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 broad line distribution activities in Quebec, delivering efficiencies and improving our employer brand. This concludes our call for the first quarter of 2021. We are holding our virtual AGM today at 11:00 A.M.
10:30 A.M.
Sorry, at 10:30 A.M. I look forward to speaking with some of you in a short while. Thank you for joining us. Stay 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.