Good morning. My name is Amanda, and I will be your conference operator today. At this time, I'd like to welcome everyone to Colabor's first quarter 2018 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Lionel Ettedgui, President and Chef de la Direction, Colabor, you may begin your conference.
Merci, Amanda. Good morning, everyone, and welcome to Colabor Group's 2018 first quarter conference call. This is Lionel Ettedgui, President and Chief Executive Officer. With me today is Jean-François Neault, Senior Vice President and Chief Financial Officer of Colabor. Earlier this morning, we issued our first quarter 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 under the Investor Events and Presentation section. Since joining the company on February 5th, almost 90 days today, I have spent quite a lot of time at all our divisions, met many of our employees, key customers, and suppliers.
There is no doubt in my mind that we have many of the necessary ingredients in hand to effectively pursue the right sizing of our operations in Ontario and return on the path of improved profitability and sustainable growth. During my first 90 days, I had the opportunity to challenge our business model. I am now in a position to review our vision and strategy and make our business plan evolve. This plan will be completed later in the year and formally communicated through in due time. I will now turn the call over to Jean-François for a review of our financial results. We will then open the call for questions. Jean-François?
Thank you, Lionel, and good morning, everyone. Colabor Group's consolidated sales for first quarter ended March 24th, 2018, stood at CAD 245.9 million, representing a decrease of 8% from the equivalent period in 2017. Sales of the distribution segment decreased by 6.6% to CAD 190.9 million, mainly from the Ontario division following the loss of the supply agreement for the Popeyes Louisiana Kitchen restaurant chain, as previously disclosed in our 2017 third quarter results, the effect of which was slightly mitigated by an improvement of sales primarily in the Quebec region. Sales of the wholesale segment stood at CAD 55 million, down 12.3% from the reduction of sales volume at the Boucherville division. Although the meat category also experienced lower sales, the decline was less significant than experienced during the equivalent quarter of last year.
This is following measure put in place by its new leadership and change in the mix of product. Adjusted EBITDA was negative CAD 1.2 million or negative 0.5% of sale, compared to CAD 0.9 million or 0.3% of sale in the first quarter of 2017. This is mainly due to the result of the loss of volume in Ontario and inefficiency in this region. Colabor concluded the first quarter of 2018 with negative net earnings of CAD 4.5 million or negative CAD 0.004 a share compared to net earnings of negative CAD 3.4 million or negative CAD 0.03 a share in the equivalent quarter of 2017. This variation stemmed from the effect of the loss of sales volume on the operational results, which was partly mitigated by the reduction of costs not related to current operation.
Our cash flow from operating activities improved at negative CAD 0.6 million in the first quarter of 2018 compared to negative CAD 4.5 million for the equivalent quarter of 2017. This is explained by net favorable change in working capital compared with the equivalent quarter of last year. Our clients and other receivable and inventory are now more aligned with normal seasonality for this quarter. At the end of the first quarter of 2018, our total debt, including the convertible debenture and bank overdraft, amounted to CAD 114.9 million, down 8% from CAD 124.9 million as at the first quarter of 2017. This reduction reflects our ability to generate free cash flow.
CAD 32.7 million was drawn from our authorized credit facility of CAD 140 million, compared with CAD 28.1 million at the end of last year, leaving us with sufficient flexibility. Our total debt to trading adjusted EBITDA ratio now stands at 5.1 times Compared with a ratio of 4.5 times at the end of fiscal 2017. Excluding the convertible debenture, our total debt to adjusted EBITDA ratio stood at 2.9 times when compared to 2.5 times at the end of the fiscal year 2017. Operator, I would now like to open the call over for questions.
Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. If you want to ask a question, press star then number one. Thank you. Your first question comes from the line of Derek Lessard from TD Securities. Your line is open.
Yeah. Good morning, gentlemen. Lionel, I know you pointed to it in your remarks, it's only been a few months that you've been in the role. I was wondering, maybe just from a high level, if you could outline some of your high-level thoughts and maybe some of the opportunities that you've seen meeting with the employees, with the suppliers, and maybe where you think you need to focus on immediately.
Yeah, sure, Derek. According to me, status quo is not acceptable, from what I have seen, we have a good potential to improve our operation. Obviously my focus is going to be in Ontario regarding our last results. We are currently working on refining our plan to make our business model evolve. I get that you will understand that I'm not yet in a position to communicate any details, but it will be done on due time a bit later this year.
Okay. Can we firm up a little bit on the timing when you say later this year? Is it closer to Q3, Q4?
Well, I guess that I will be able to speak a little bit more, obviously, for next quarter, for sure. I'm not a man of speech. I like to be judged on my actions, just give me a couple of months just to be efficient and you will see more actions coming.
Okay. Fair enough, Lionel. Maybe just if you could remind us of the efforts that you guys are doing to mitigate the volume losses in Ontario and where you are with those.
Okay. Obviously, Derek, Jean-François Neault speaking here. With the recent loss of volume, Popeyes and the closure of Bâton Rouge, as I told you earlier, later after the Q4, we're in the process of doing all the rerouting. This is a continuous improvement process. You have to reroute to be efficient to better serve our customer base. This takes time when you lose volume, to find the sweet spot and the most efficient threshold. We are into this in terms of shipping expense. Also in our warehouses, since we have only 3 DC in Ontario, what we are looking at is to do a reset of the layout to be more efficient in picking and to reduce inefficiencies. That's the main two area of focus we have to fix operation short time.
Have you-
Yeah, I can add maybe on top of that that's the way to right-size your business model regarding a loss of volume. On the other hand, you have to understand that we're working on opportunities with new customers to bring back more volume in Ontario region.
Okay. Is some of these, I guess like the rerouting and improving efficiencies, is this being done through technology or any type of artificial intelligence or an app on a driver's iPhone?
Yeah, sure. We have the support of very good software used in our industry. It's not a big deal to right-size the routing and to optimize your new routes regarding the remaining customers.
Okay. Are you able to quantify the profit improvement at Décarie and maybe add some color to the product mix change that you guys highlighted in the MD&A?
Derek, I don't want to comment specifically by division. We're not back yet to 2016 kind of a level. Obviously, margin is doing very well at Décarie since the new leadership. Obviously the loss of volume we've experienced at that division kind of weighted on the dollar EBITDA. We are profitable and very satisfied so far with the current situation and the way we are progressing into more niches and really focusing on value-added and more profitable product mix.
Are you able to comment on some of those niches or value add?
Lionel, do you want to expand on?
Well, honestly, we have opportunities in veal and in poultry and I cannot give you more color about that, but I hope that for the next quarter you will have more details on it.
Okay. You talked about the lower volumes in wholesale. I'm just wondering if you had any more details there on the 12% decline. It was a bit bigger than I was expecting. Do you have any mitigation efforts going on there as you do in Ontario?
I think that it's not the same issue. To be fair, we're not talking about an issue. You know what? In our business model, sometimes it's good to decide to right-size the volume to be more profitable. We decided to stop having loss leaders. With the right-sizing of our activity, we bring back more profitability. I think that we have a focus to be managed by the bottom line.
Okay. Essentially that decline is the right-sizing of the business and not a loss of a contract or what have you?
It was mainly our decision, by deciding to proceed so, we have lost small customers, nothing relevant.
Okay. Maybe if you can comment on the competitive environment for both wholesale and distribution, where do you think you guys are winning?
Well, as I said, I'm just here for since about nine days. The comment I could give you would be this one. I think that with my arrival, we have an opportunity to challenge the way we're going to market, the way we're looking at our business model. As I said, status quo is not acceptable for me, and we need to review what we're doing. It's a very competitive market, from what I have noticed, and we have opportunities for differentiation and a different way to go to market. I think that it can be a good advantage for Colabor because we have a solid team in place, and we just need to review a bit the vision.
Okay. Maybe just one last final one for me. Obviously, there was an increase in operating expense in Ontario, and it's coming at a time, obviously, when there's a decrease in volumes. Can you remind me again when you expect to start seeing the payback from, I guess, the extra investment?
On the Ontario side, I will say that we are in the process of right-sizing the division. We have several one-time cost affecting our results regarding the right-sizing of the headcount, for instance.
Okay.
Also to maximize the routing would take, let's say, several weeks. That's why we have more expenses on operation, but everything is under control, and we are quite confident that we will see improvement for the next quarter.
Okay. Maybe Jean-François or Lionel, if you could remind me as well, when you expect to see organic growth. I know it's been pushed back. Just wondering about the timing.
Derek, as you just want to recall that early in the second quarter, we also lost the Montana's business, okay? Don't forget about this one. That has happened April 1st. For Ontario region, organic growth would be difficult in foreseeable future. I'm speaking more like we have to stabilize the business. As for Quebec city region, Quebec province region, first quarter was difficult in terms of the demand. Okay? I want to be clear, even in the fresh fish and in the broad line division in province of Quebec, it was a slow quarter to start with as a demand from the customer standpoint. We're in a position in Quebec that we actually have some organic growth there. Probably low, maybe 2%-3%. That's what we're experiencing in that region.
We actually have some organic growth as we speak in some area, but obviously offset. In terms of total consolidated business to see organic growth, we have to lap the loss of contract. I would say not before maybe second or third quarter 2019, we can look at the top line consolidated and to start to see maybe the line to move. This is a part, if we gain some contract and all of this, I have to put that as a side discussion. We don't control all of this.
Okay. Well, thanks very much for the color, Neault.
Okay.
There are no further questions at this time. I turn the call back to Mr. Ettedgui for his closing remarks.
Okay. Thank you. As I said in my opening remarks, the first quarter of 2018 was a disappointing quarter. As we anticipated and discussed previously, the measures put in place in Ontario should take effect later than planned in 2018. To mitigate the impact, we will continue to grow our presence in value-added markets. We will also be working to identify opportunities to further improve our operational performance. This concludes my closing remarks. Have a good day, everyone, and I look forward to meeting some of you for the first time at our annual meeting of shareholders shortly after this call.
This concludes today's conference call. You may now disconnect.