Good morning, ladies and gentlemen, and welcome to the Colabor's fourth quarter 2022 results conference call. At this time, all lines are listen-only mode. Following the presentation, we will conduct a question and answer session open to analysts only. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, March 2, 2023. 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 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 Presentation at www.colabor.com.
Furthermore, risks are discussed throughout the most recent MD&A under the heading Risks. I would now like to turn the conference over to Louis Frenette, President and CEO of Colabor Group. Please go ahead, sir.
Thank you, Aness. This is Louis Frenette, President and Chief Executive Officer of Colabor. Last evening, we released our earnings results for the 17 and 53rd week period ended December 31, 2022. The press release and disclosure documents can be found on our website at www.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. Our fourth quarter marks the 7th consecutive quarter of revenue growth and our highest Adjusted EBITDA in over two years. Our success during the last two years is entirely attributable to the dedication and hard work of our employees at all levels of our organization, who have worked hard to implement our strategic initiatives leading to sustained growth, improved operations, higher service levels, and a stronger financial situation.
In the fourth quarter, consolidated revenues were up 28%. Gross margin was up 160 basis points to 18.3% of sales, and Adjusted EBITDA grew by 39.2% to CAD 9.9 million. We are also ending the year on a strong note. Annual consolidated revenues grew by 20.3% to CAD 574 million. Gross margins reached 18% of sales and were up 120 basis points. Adjusted EBITDA grew by 14.4% to CAD 29.1 million, and cash flow from operations grew by 3% to CAD 19.3 million.
Our strong cash flow and disciplined capital allocation approach allowed us to execute our organic growth strategy, conclude 2 acquisition at the end of the year with a lower level of net debt at CAD 47.8 million, down from CAD 48.4 million. Our balance sheet remains solid with a conservative leverage ratio of 1.6x Adjusted EBITDA, down from 1.9x at the end of the previous fiscal year. These strong financial results stem from the execution of our growth and profitability initiatives since 2020. They are also attributable to our ability to pass through food inflation to our increasingly diversified customer base within the hospitality, restaurants, and institutional channel, and to our ability to dynamically manage the rising input costs.
These key attributes provide us with a resilient business model, allowing us to manage the effect of the pandemic and face a rising inflationary environment. Before I turn the call over to Pierre, I would like to update you on the evolution of our 2020 to 2025 strategic initiatives and continued path to profitable growth. Since joining the company at the end of 2019, I've been working with our team to outline a dynamic plan that would transform our business and position Colabor as the local ingredient for the success of all catering artisan in the province. Our strategic priorities are anchored in the following four pillars: profitability, growth, people, and our brand. I refer to the accompanying presentation supporting this call on page seven. First, profitability. Our objective is to generate profitable growth.
We started improving our category management practices, optimizing our process, improving our product mix, and cross-selling whenever possible. There is still a lot of work to do, and this pillar remains a top priority across our organization. Second, growth. Our objective is to increase the market share of our distribution business in the province. Building on our strong presence in Eastern Quebec, we started investing in developing our customer base in Western Quebec. This has been a slow and prudent process which started with investment in our sales team in the spring of 2021, followed by two small but accretive acquisitions in April of 2022, including a purchasing group that will help us gain market share in the region.
Last September, we also announced a plan to move our Boucherville facility and head office to a new strategic location, not far from here in Saint- Bruno at the end of 2023. This move is intended to accelerate our growth in Western Quebec by providing the distribution capacity and footprint necessary to efficiently serve the most densely populated area in the province, which includes the greater Montreal area. With this initiative, we are growing our reach from 30% of the Quebec population to cover approximately 90% of the food service customers in the province. A growing reach means that we are increasingly attractive for restaurants chains. We signed two new supply agreement at the end of the quarter with local chains. The first is with a full service restaurant chains with 38 establishment across the province.
The second is with a group that operates more than 200 food counters in the grocery stores. We started servicing these accounts towards the end of the fourth quarter of 2022. Third, about people. Our objective is to attract, retain, and develop our talent. We started updating our HR practices and plan, concluded new labor contracts in 2022, and implemented a new health and safety and environment approach. As a result, we are starting to see employees retention rates improve, and we expect that the new Saint-Bruno facility will significantly contribute to this objective. The facility is ideally located near public transport and will offer many amenities to our employees for a more enjoyable and greener working environment. Our fourth pillar is our brand. Our objective is to renew and refresh the Colabor brand.
In 2021, we updated and relaunched our private label products, which have been very well received by customers and complement our national brand offering. We currently offer 600 private label products, most of which are sourced locally. Being able to offer local, high quality products that support a sustainable agricultural and fishery ecosystem is becoming a competitive advantage for Colabor. It is one that is increasingly attracting our focus and allowing us to differentiate ourselves from our larger international competitors. Through our agreement with Maturin , a digital marketplace, we can offer a vast selection of fresh, quality products from our local farmers. These are only a few examples of our increasing focus on improving our brand. As we stand today, we are currently halfway through our 2020-2025 strategic initiatives.
Our business is back to profitable growth, and we have the financial and managerial strength to pursue our plan. We see significant room for Colabor to grow in the province, and we have the means to achieve our goal. With two years of strong results and a strengthened balance sheet, we are well advanced in completing Colabor's turnaround. We are now more competitive and attractive for our customers and increasingly have the footprint to improve our reach and efficiencies. I'm very enthusiastic about what the future holds for Colabor. Jacques, with this, I will turn the call over to you.
Thank you, Louis, and good morning, everyone. I am pleased to be here today to discuss our key financial results for the fourth quarter of 2022. Fourth quarter consolidated sales were up 28% to CAD 193.2 million. Sales in the distribution segment increased by 28.9% to CAD 132.8 million. This results from higher volume normalizing in the restaurant channel, the additional week in the quarter, price increases reflecting in food inflation pass-through of approximately 8%, and customer list acquired in Outaouais and Laurentians. Sales in the wholesale segment increased by 16.8% to CAD 73.1 million. This results primarily from food inflation pass-through and the additional week in the last quarter of the year.
Consolidated Adjusted EBITDA from continuing operation reached CAD 9.9 million or 5.1% of sales, compared to CAD 7.1 million or 4.7% of in the fourth quarter last year. Growing sales volume and improving gross margins from an improving product and customer mix helped mitigate higher input costs and continued investment in our private label brand.
I would like to highlight that our financial expenses were 6.4% lower this year, resulting from the refinancing concluded in 2021 and from our strategy to fix a portion of our interest rates in order to mitigate the impact of rising borrowing costs. Net earnings were CAD 1.7 million or CAD 0.02 per share, compared to CAD 5.3 million or CAD 0.05 per share. Last year's net earnings were higher from income not related to current operations of CAD 4 million. Cash flow from operating activities were -CAD 0.7 million in the fourth quarter, primarily resulting from a higher working capital requirement and expenses related to increased activity and from the recently mentioned income not related to current operations. This compares to CAD 9 million of cash flows from operations generated in Q4 2021.
As Louis mentioned, we ended the year with a lower net debt of CAD 47.7 million, a financial leverage ratio of 1.6x , and CAD 42 million of available borrowing capacity on our credit facility. I would now like to turn the call over to the operator for the Q&A period.
Thank you, sir. Ladies and gentlemen, we now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone. You'll hear a tweet to brown 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 are using speaker phone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Kyle McPhee with Cormark Securities. Please go ahead.
Hi, everyone. good quarterly update. I just wanted to start by digging into the revenue performance a bit. You mentioned pricing was 8% for the distribution segment. Would it have been similar in wholesale as well?
Did you say pricing?
Hi, Kyle. It's Pierre. Thanks for the question. Yes, yes. It's a blended rate for both segments.
Got it. Okay. Just trying to quantify the impact of that extra week, can I approximate that just based on the extra number of days, or is there something abnormal about sales performance in that specific extra week?
From the growth that we had in general of 29% for the quarter, that extra week was definitely 5 days more than the last same period last year. The way we look at it, the growth we had was the part of the 29% of the growth we had, 40% was coming from our organic growth and the new chain customers that I mentioned. Inflation was 30%, 17 week in the M&A, give you an idea, was 30% of the growth.
Okay. That helps. Just regarding those two new contracts you press released that started to kick in right at the end of the quarter, can you help us quantify, you know, the annualized impact we'll see throughout 2003 just from that new business?
We're very happy that we gained those two customers, but without clearly stating what is the annualized revenues from these new chains, we can say that we started servicing them at the end of the last quarter. Therefore, you can expect higher quarterly contribution from these new customers in the coming quarters. I can't divulge the volumes.
Okay. Like, is it enough to be noticeable in your consolidated organic growth that we'll see in 2023, though, or are these two things?
Sure. Sure.
Yeah. Okay.
Yes.
Okay. Your results and your comments aren't suggesting there's any signs of demand deterioration linked to the consumer. Am I reading that right? Is that true? Is it still holding true into Q1 of this year?
Yeah. Yeah. I can't say we're feeling any new effects from what we've discussed in the previous call of potential lower consumer spending. We don't see it. Restaurants are still the challenge. They're still operating in a context of difficult labor shortage. That's the problem. That being said, we have a diversified customer mix. We're strong in institutional, as an example also, that helps balance. We continue to gain market share, okay? Our sales are increasing, we gain market share, so we don't see it necessarily. Also our, as you know, our geographical footprint is outside of the major centers for now, so it's also a definite positive. Growth is, we see growth and not that many problems.
Got it. Okay. That's helpful color. Just shifting to gross margins. Gross margin percentage outperformed again. You pointed out strategic management of customer and product mix as a tailwind. Was there anything abnormal about your gross margin performance in Q4, or is this, you know, approximately a good normalized number for you?
I got it, Pierre. Yes, it is a normal or sustainable gross margin that we expect. However, as you can probably figure out, our strategic plan is to grow and reach more major accounts which will add pressure on the gross margin, the nature of those large accounts. As the current customer makes this margin is sustainable, we target differentiate a little bit the customer mix, and that will put pressure. But we also bet on the private label to grow and help mitigate partially the effect of, you know, the larger accounts. We're working on both fronts to make sure that we generate the best gross margin we can.
Got it. Okay. Are the two new contracts you announced, examples of, you know, incremental volume coming at a slightly lower gross margin? Does that apply to those? Is that new business?
Yes. That would be the that type of accounts that put pressure. Yes.
Got it. Okay. Just shifting focus to the new facility you're building. Can you guide us at all on CapEx for 2023, including that one-off new facility build? And what should we expect for kind of a more normalized CapEx figure in 2024 and beyond?
I'll answer the later part of your question. 2024, we don't, we expect to be back to our normal maintenance CapEx normal level. 2023 or any part that would be related to the new facility, which is expected to be mainly in the second half of 2023, we are expecting CapEx of high teens, low 20s in order to put in place that very strategic facility for us. you have to remember that this is going to be a very strategic and very powerful facility for us.
Got it. Okay. When you get that range, is that's incremental to your normal maintenance CapEx or that's kind of the total we'll see?
It's incremental.
Got it. Okay. just to clarify-
We still have, you know, we still have facilities, elsewhere. We have, our, our specialized distribution, on the, on the fish and the meat. This business are going on and require maintenance.
Got it. Okay. your CapEx was a bit higher than usual in the Q4 you just reported. Was that the start of CapEx for the new facility, or is there something else going on there?
No, it's something else. It's not the new facility. It was a scheduled maintenance for other facilities. You know, we have a plant in the Rimouski, Quebec and those specialized distribution that I just mentioned.
Got it. Okay. Just on your working capital, you had a big inventory investment in Q4. Can you explain that and just guide us on how working capital should evolve throughout 2023? Like, do you need to be putting a lot more capital in working capital to support all your growth plans?
That's exactly it. It's the volume that when you compare versus 2020 to 2021, the last quarter, especially around the last period of the year, the volume this year was much stronger than last year. Last year, Omicron was coming in. If you remember January, the government closed the restaurants in January of 2022. We could feel the impact in December of 2021, versus this year where the volume or volume of sales is very, very high.
Okay. Your working capital is kinda normalizing higher and supporting that rebound and that growth. How should we think about 2023 as a whole? Like, how much capital are you gonna? Like, is working capital a neutral number, a big drag? Will you be monetizing at all? Can you guide us on that?
I don't expect. I would like to say that end of 2023 would be as significantly higher than this year, but it's that's a hard one to predict. I would say if anything, it will normalize.
Got it. Okay. Last question, just on labor costs. You settled a handful of new labor union contracts in 2022. Is there anything material left that could lead to another round of labor inflation beyond what we already know about and is kinda showing in your results now?
No. Nothing material. The two big ones were signed in 2021 and 2022. There are contracts of 4 and 5 years, nothing material. Adjustments here and there, here and there, when needed to attract people, but nothing material.
Okay. All right. Thanks for answering all my questions. That's it for me.
Hey, Kyle, it's Pierre.
Yeah.
I'd just like to complement, as I mentioned the CapEx, I meant to also mention that our current facility is sufficient to support us. We don't have any issue, or we don't have any, we won't feel any pressure in terms of funding those CapEx.
Got it. All internally funded. Okay. Thanks for that clarification.
Yep. Great. Thank you for your question, Kyle.
Thank you.
There are no further questions at this time. Mr. Frenette, back over to you.
Yes. Thank you, Aness, and thanks, Kyle, for your question. Since 2020, we have significantly improved our offering level of service and financial situation. With seven consecutive quarters of solid results, and as we through our 2020-2025 strategic initiatives, I look to the future with confidence and enthusiasm. Our diversified customer base, inflation pass-through model, and ability to manage the impact of rising input costs continues to position us well in the current macro environment. I believe Colabor has a bright future with a solid financial situation, high cash flows, and room to grow in the province. I believe that 2023 will be a pivotal year as we complete the move to our new facility, as we just discussed, and start seeing even more momentum as we grow our distribution footprint later in 2024.
As discussed in these most recent calls, our focus remain on the execution of our strategic plan, driving profitable growth, tightly managing costs, and optimally allocating capital to drive shareholder value. We remain on the lookout for acquisition and are excited by the potential that lies in the relocation to our new strategic facility in Saint-Bruno Eco Park at the end of this year. Thank you. This concludes our call for the fourth quarter and the year-end of fiscal 2020. Thanks again 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 line.