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Edited Transcript of GCL.TO earnings conference call or presentation 30-Apr-20 1:30pm GMT

Q1 2020 Colabor Group Inc Earnings Call

Boucherville May 16, 2020 (Thomson StreetEvents) -- Edited Transcript of Colabor Group Inc earnings conference call or presentation Thursday, April 30, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Louis Frenette

Colabor Group Inc. - President & CEO

* Pierre Gagné

Colabor Group Inc. - Senior VP & CFO

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Conference Call Participants

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* Adam P. Sues

Yacktman Asset Management LP - Partner & Portfolio Manager

* Derek J. Lessard

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Colabor's First Quarter of Fiscal 2020 Results Conference Call. (Operator Instructions) 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 presentations at www.colabor.com.

Furthermore, risks are discussed throughout the MD&A for the 16- and 52-week periods ended December 28, 2019, under the heading, Risks. I would like to remind everyone that this conference call is being recorded today, April 30, 2020. I will now turn the conference over to Louis Frenette, President and CEO. Please go ahead.

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Louis Frenette, Colabor Group Inc. - President & CEO [2]

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Thank you, Simone. Good morning, everyone, and welcome to Colabor Group 2020 First Quarter Results Conference Call. This is Louis Frenette, President and Chief Executive Officer. Last evening, we released our earnings press release. It can be found on -- along with the interim financial statements and the MD&A on our website or at www.sedar.com. Today, I'm joined by Pierre Gagné, our Senior Vice President and Chief Financial Officer.

A lot has changed since we last hosted this call at the end of February. Although the COVID-19 crisis started affecting our sales and operations during the last 2 weeks of the first quarter, I'm happy to say that our first quarter results were encouraging. Thankfully, the measures that we started deploying during the last 2 years contributed to strengthening our balance sheet.

Furthermore, the rightsizing of our operations, the sales of noncore assets and the measures implemented to improve our efficiency supported the growth of our operating profitability despite the lower level of sales. In the first quarter of 2020, we also stopped serving the nonprofitable recipe contract on March 2, completed the transfer of our Ottawa and London distribution center activities to Mississauga distribution center and reached an agreement for the sale of the rest of the distribution activities in Ontario.

We ended the quarter in a strong position with higher operating cash flow and $41.8 million available capacity on our credit facility. With a stronger balance sheet and the cash preservation measure that Pierre will discuss later, including the recent request made to benefit from 75% Canadian emergency wage subsidy program, we should be in a good position to weather this storm. As a provider of essential goods and service to public, we remain committed to maintaining a strong supply chain. As such, our top priorities in the context of COVID-19 pandemic remains the health and safety of our employees and customers. In order to maintain a safe working environment, we implemented rigorous health and hygiene practices and social distancing measures. Unfortunately, the ongoing pandemic has caused a significant reduction in the level of activity in the restaurant and hospitality industry. At this time, the impact is important, and it's hard to predict how future demand will unfold.

Currently, the restaurant business in Canada, in Québec is at minus 80%, around that. Thankfully, Colabor has diversified -- has a diversified customer base, which is what sets us apart from other food service distributors. We serve the whole range of customers in the hotel, restaurants and institutional markets. And with the contribution of new retail customers, our sales dropped by 50%. On the basis of continuing activities, which compares favorably to other -- or most of the other distributors who are less diversified than us, where they lose sales at the level of 70%. Since the start of the pandemic, our share of the revenue from institutional customers, such as hospital, military base, food banks and breakfast clubs of Canada, Québec's déjeuner has grown. We are also seeing stronger demand from retailers, both new and existing customers who have been scrambling to secure their supplies. In addition, many smaller distributors have had to shut down their operations and their customers are now turning to us.

In the first quarter of 2020, our growing share of revenues from the institutional and retail market have partially compensated for the lost volume coming from the restaurant and hospitality industry. In order to further grow our distribution channel and diversify our business, we also started testing a business-to-consumer market in certain locations, delivering frozen and fresh meat and seafood directly to the consumer's house. This remains a small initiative and if contusive, we will update investors on any interesting development.

The ongoing pandemic and result -- resulting rapid change experienced on product categories and channel has obviously created significant operational challenges. In order to deal with this constantly evolving situation, we reallocated resources where possible and implemented liquidity preservation measures. Unfortunately, after the end of the quarter, this resulted in a temporary layoff of approximately 1/3 of our workforce, including cutbacks of our working hours when possible and the temporary reduction in the remuneration of our executive team and Board members. These measures, together with a tight control over expenses and working capital, will help as we navigate this situation.

The industry is facing an unprecedented shift in demand from food service to retail. This has its challenges, and we're working hand-in-hand with our suppliers. We are all facing the same situation and trying to ensure a steady supply of goods by looking for alternative source and substitution for certain product category in high demand, such as flour, legumes, pasta, cleaning products.

As Québec's largest independent food distributor, we have a significant role to play in our local ecosystem. We need to work closely with all our partners, especially distributors with whom we exchange best practices to ensure that our industry comes out of this crisis in a relatively good shape.

Before I turn the call over to Pierre to review our financial results and latest mitigation measures, I would like to provide an update on the sales of the Summit division in Ontario. The transaction to sell the assets of this division in Ontario was originally announced on March 12. It has since received the nonobjection notice from the Canadian Competition Bureau. However, with the ongoing pandemic, it created additional delays in closing the transaction. We expect to close in May which is a slight delay from our April 27 target date. With this, I turn the call over to Pierre.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [3]

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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 2020, and the recent measures deployed to help mitigate the effect of the ongoing crisis. Our results for the first quarter of 2020 have progressed as planned from the continued implementation of our transformation plan. As Louis mentioned in his opening remarks, we experienced an overall improvement of our operational profitability, higher operating cash flows and reduced our leverage.

In the first quarter of 2020, consolidated sales were down by 11.8% to $111.6 million. Sales in the distribution segment decreased by 15.9% or $15.2 million. $7.7 million of the reduction comes from our specialty distribution activities resulting from the end of a distribution contract and from lower volume related to the COVID-19 pandemic during the last 2 weeks of the quarter. The other $7.5 million reduction comes from our Broadline Distribution sales in Québec, where we stopped serving nonprofitable regions in the fourth quarter of 2019 and from lower volume from our restaurant customers, resulting from the pandemic.

The reduction in broadline restaurant revenues resulting from the pandemic was partially compensated by our growing broadline sales to retailers and institutional clients. Sales in the wholesale segment decreased by 2.5%, mainly from lower intersegment sales. Adjusted EBITDA from continuing operations reached $3.7 million or 3.3% of sales compared to $2.3 million or 1.8% in the first quarter of last year. This improvement stems from the adoption of IFRS 16 on leases, which reduced rent expenses by $2.1 million and from the improvement of gross margins, which were slightly mitigated by lower sales volume from the ongoing pandemic.

When removing the effect of the adoption of IFRS 16 on our 2020 Q1 EBITDA and adjusting for the positive effect of a $400,000 provision reversal in Q1 of 2019, our adjusted EBITDA as a percentage of sales stands at 1.4%, which is equal to last year, but comparing favorably because of lower volume of sales achieved in Q1 of this years -- this year, sorry.

Net loss from continuing operations was $1.9 million, down from a net loss of $1.1 million in the corresponding quarter of 2019. This result stemmed mainly from onetime charges. The net loss was $8.3 million compared to a loss of $2.7 million last year same period. The reduction is attributable, in large part, to the increase of $4.8 million and the net loss attributable to discontinued operation, stemming primarily from $6.3 million in expenses related to the closing of the London and Ottawa distribution centers from higher depreciation expense and from onetime charges of $800,000. Cash flow from operating activities amounted to $5.6 million in Q1 2020, up from $3.8 million last year. This increase is mainly due to a lower usage of our working capital and from the effect of the adoption of IFRS 16.

As of March 21, 2020, the company's net debt, including the convertible debentures, amounted to $61 million compared to $68.2 million just 3 months ago or at the end of December 2019. Our financial leverage ratio now stands at 2.1x versus 2.5x 3 months ago. But by excluding the effect of IFRS 16, our leverage ratio would stand at 2.3x. Now if we remove the convertible debenture from the calculation, our ratio now stands at 0.4.

As you can see, financially, we are in a good position. In order to preserve cash during the pandemic, we deployed several cost-saving measures, as Louis mentioned. We've tightly managed our working capital. At quarter end, our banking facility of $42 million or $41.8 million of available borrowing capacity. In addition, we are looking into other support measures available to us, such as the federal government's Canadian Emergency Wage Subsidy and we believe that we would be eligible for this subsidy in the second quarter, thereby offsetting part of the expected decrease of sales and profitability. Under these unusual circumstances and from our current assessment of the situation, we decided to provide guidance for the second quarter of fiscal 2020. We expect sales from continuing operations to be between $80 million and $90 million. We also estimate that the adjusted EBITDA will be between $5 million and $6 million, taking into account the recent developments, IFRS 16 and the qualification for the federal wage subsidy, as I've discussed before.

Although the pandemic is expected to have an impact on our sales and short-term adjusted EBITDA, we do not expect this situation to have a material impact on our available liquidity.

Now I would like to turn the call over to the operator for the question-and-answer period. Simone?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Derek Lessard with TD Securities.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [2]

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I just wanted to talk maybe about the sale of Summit. I want to get maybe your strategic or your rationale behind that transaction? And does that mean you're now fully out of Broadline Distribution in Ontario? And I guess my follow-up to that is what are your plans for Broadline Distribution as a whole for the company?

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Louis Frenette, Colabor Group Inc. - President & CEO [3]

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Derek, it's Louis here. The answer to your question is, yes, we would be out of Ontario. And as mentioned previously, we keep the same in our strategic plan, the same focus on increasing our Broadline Distribution in Québec, in Northern Québec and we have the Central Québec, and we have opportunities to go close to Montreal also.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [4]

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Okay. Is there any -- I guess, what's the main difference then between the wholesale and the broadline? And is there any potential cannibalization between the 2 segments?

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Louis Frenette, Colabor Group Inc. - President & CEO [5]

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I missed the end of your question. Is there what?

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [6]

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Cannibalization.

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Louis Frenette, Colabor Group Inc. - President & CEO [7]

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No, the wholesale business, or in French you call (foreign language) is a -- see it as the wholesaler selling to other distributors in Québec. So we have 20 of them. And the Broadline Distribution is the operations we have in Lévis in Saint-Nicolas distributes to the end user, so the restaurants -- directly to the restaurants, hotels, hospitals. So there's a difference. So the wholesale is selling to a distributor like in Québec -- like we have in Québec or Dubé Loiselle in Granby or (inaudible) there's lots of them.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [8]

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Okay. Yes. I guess I was wondering why you wouldn't just maybe get another like -- try to bring on board another wholesaler instead of running the like -- instead of running a distribution -- pure distribution business?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [9]

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Well, I don't think there is many wholesalers in Québec that we could acquire. We're one of the largest and I think that there is potentially more possibility in the distribution part of our business over time because of our position, strategic position in Québec as a wholesaler.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [10]

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Okay. All right. That makes sense. And just maybe could you provide us with the sales and EBITDA impact of that divestiture? And like how does your -- what does your margin profile now look like in the distribution business following the sale?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [11]

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Well, that's a very good question. We haven't totally disclosed that. But if you look at the statements on the discontinued operation, on the notes to the financial statement, you had the first quarter loss, which is somewhat skewed because we've -- during the first quarter, we've integrated from 3 to 1 warehouse. But it's fair to assume that on an ongoing basis, the loss would have been in the vicinity of $3 million to $4 million on an EBITDA. And it's fair to assume that's pre-COVID, the numbers I'm giving you. So I just want to make clear of that and sales have been on a yearly basis about $150 million.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [12]

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$150 million for sales?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [13]

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Yes. Yes. Strictly on the business that -- yes, $150 million, $160 million, yes.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [14]

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Okay. Okay. I guess some questions on COVID-19. You have -- like in terms of your business mix, you have the split between restaurants versus the essential services that you continue to distribute to, like the hospitals and military bases and food banks?

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Louis Frenette, Colabor Group Inc. - President & CEO [15]

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Okay. We have -- yes, we have that. And the 60% of our pre-COVID business was in the restaurants. After COVID, it has changed quite a bit. And what I was saying is that we're lucky because we have customers -- we have a diversified customer base, such as some retailers, some new retailers that never ordered from us. We're getting them. We have institutional new customers such as Breakfast Club of Canada, the Québec food banks and many new small restaurants that are open for takeout that were served by other distributors that closed the shop during the COVID. So we also have big contracts with the hospitals in the province of Québec and (inaudible) the senior houses and the Army. So these are still running at full capacity and more. Our business is increasing. The ratio has changed I said, that why we're affected by 50% compared to some distributors that only serve restaurants. They are down, their business is down 90%, 95%. And the average is probably down 70%. And because of our mix, our favorable -- in the circumstances, our mix is better and puts us in a good competitive advantage to come out of that.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [16]

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Okay. All right. Yes. And I mean, yes, everything is -- it's relative in light of the -- of COVID-19, right? You did...

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Louis Frenette, Colabor Group Inc. - President & CEO [17]

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Yes, exactly.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [18]

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Yes. You did -- I mean you just spoke about it, about the increased retail penetration. Do you think this is an alternative avenue for you guys if we look past COVID-19? Is this another channel that has been underserved, in general, an opportunity for you guys to bulk up in?

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Louis Frenette, Colabor Group Inc. - President & CEO [19]

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Yes, there is an opportunity to -- as I mentioned, we have some new retailers that mentioned that they would like to continue this after COVID. So yes, we're expecting to have new customers. But think about the large retailers in Canada, they don't need us to survive in normal times, okay? So they have their own supply chain, suppliers, we share -- we have the same suppliers. And today, what we're doing is what we call -- we're authorized by those chains to do backdoor sales to some of the grocery stores to complete their orders or to look after what's missing in their stores and that we may have in our inventories. So the whole distribution -- the whole supply chain is affected because there are some products that are missing. But if they're missing to us, they're also missing to the other large retailers. So the answer is, yes, we'll keep some, but don't -- I'm not expecting to have the top 3 grocers to need Colabor on a regular basis, except for 2 stores here and there.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [20]

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Okay. So this is more of an emergency response?

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Louis Frenette, Colabor Group Inc. - President & CEO [21]

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And I can add that -- but there we have commitments already from some that we will continue after. So that's a good news.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [22]

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Okay. All right. Maybe -- and thanks for giving us some of the preliminary. I know it's tough to do in this environment, but it's helpful for some of the preliminary estimates on sales and EBITDA. Can you just maybe walk me through the assumptions there? And what is the implied year-over-year decline? In other words, I'm looking for what last year's, I guess, adjusted numbers would be.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [23]

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That's a good question. So last year, we had about $276 million of revenues. But when you have to factor down the loss of recipe, a lot -- the closure of -- or with plan again of the sale and the pandemic. So if you want to compare it, it would be in the vicinity of 45%, 50%. Here why I'm saying that is because I've excluded some of the business that we've decided to get rid off that were unprofitable. If you're comparing what we would call same-store sales, for example, the business with the COVID we anticipate to be in the 45 -- 45-ish percent range of decline. And in terms of EBITDA -- sorry, in terms of EBITDA now last year, we've -- we had EBITDA of about $7.6 million at what we've shown to the market. Now you would have to factor in the -- if you want the Summit business that is out, so -- which would increase it, so there, you would have something to the range of about 50% decline in terms of EBITDA. So it's a very, very brush stroke. So it's not...

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [24]

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Yes, no. And I appreciate that. So I'm looking at $135 million in revenues and 3.8-ish roughly in EBITDA?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [25]

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You're talking last year?

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [26]

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Last year, yes.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [27]

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No, we had $140 million and something like $11 million.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [28]

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No, no. I mean...

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [29]

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We were losing money out of Summit and other costs, so.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [30]

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Okay. If -- but on a comparable basis, so I would be looking at $140 million in sales roughly last year?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [31]

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Well, if you're wondering, let's say, roughly $140 million last year and EBITDA of about $9.5 million, $10 million.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [32]

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Okay. And that's -- and that would be a comparable number?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [33]

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Yes. I think so, yes.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [34]

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Okay. I'm not going to hold it to you. It's just for my own.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [35]

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Please don't because it's -- there is a lot of items that we have to move in and out. But the issue is that from what you could see is we've cut on the labor, which is not totally in line with our sales because we have a fixed portion of the business. So for us, it's -- as you know, it's in March, we've lost a little bit over 15% of our sales. And we factored in the losses for April, May and June. And you've asked me also in your question, how did we come about this projection, we've looked at when we prepare the budget, the first 3 weeks of the business, if you want post-COVID March 15, and then we factored in, as do we mention the accounts such as breakfast clubs and the other accounts that came in and the anticipated sales that we have from that.

So this is how we derived it. So -- but we cannot go further than the end of June. It would be foolish of us to do that. And the reason for that is we don't know when they're going to release the current confinement with respect to restaurants. So we didn't want to venture ourselves on providing guidance for Q3, Q4. And from what I understand, it's the first for Colabor to provide guidance, but we felt that with all the moves that was happening since last year, sales and plan -- to plan again so on and so forth that we needed to set the record a little bit more straight in terms of providing some guidance. That's what we guided.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [36]

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Yes, I appreciate the fluidity of the situation. And obviously, you guys aren't alone, plenty of companies have withdrawn guidance, much bigger than yourself. So nobody really knows where that's going, but I do appreciate the effort on that front. Maybe one last, maybe just got a couple more here. Which division do you expect to have the -- I guess, the biggest impact on sales and EBITDA because of COVID? Or is it pretty much spread equally amongst the 2?

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Louis Frenette, Colabor Group Inc. - President & CEO [37]

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Well, we have the divisions that do -- that are more focused on restaurants are fish and meat business are more affected. The wholesale is not as affected because we have distributors that sell to -- are strong on the retail side of the business. And the -- our Broadline business is affected, not to the level of the meat and fish business, but they are affected to a level that is more manageable, acceptable in these days. And the overall average, when you put everything together, we're -- as I said, we're down 50%. But the restaurant business is -- varies at minus 70% to 90% for some distributors. So that's why we started, as I mentioned, very likely a B2C business in our fish and meat business. And so that -- and that's helpful to manage the inventories and test the market also. So as I mentioned, this is a small scale, and we'll see if it has legs or not after COVID. But this was not our priority, but we -- part of the mitigation was to manage our inventories, and this is helpful.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [38]

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Okay. And the meat and fish, is that Broadline Distribution or that's Wholesale?

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Louis Frenette, Colabor Group Inc. - President & CEO [39]

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That's Broadline. They sell -- they usually sell to restaurants, casinos.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [40]

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It's more specialty Broadline that -- when we're referring to that typically.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [41]

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Okay. And the subsidy, the Canada Emergency Wage Subsidy, what is -- can you maybe just talk about that? How is it applied and what it could mean financially or as an offset?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [42]

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Yes. Good question. So essentially, if we -- in the month of March, what the government is saying is that if the business lost more than 15% of its revenue compared to -- there are 2 mechanisms. The first one is compared to the year before, the other one is compared to January, February. Once we've applied that methodology. So if you apply that, it's March against March, then you have to do April against April, May against May. If you apply against January, February, then you have to continue under the same method. You could do it on a consolidated basis or unconsolidated basis, meaning with each of your business unit.

Now all this being said is that if your sales are down, as I said, in March, 15%; in April, it's 30% over the comparative year last year and for May, May -- May this year, May last year, then if it's down by 15%, 30% or 30%, you could apply every month for 75% of the wages of the employees that you're keeping up to a level of $847 a week and it's based on what you paid to the employees during that period. So without going through all the mechanics, but at the end of the day, we're anticipating to have something in the vicinity of about $5 million for the quarter.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [43]

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Okay. And that -- but that's factored into the...

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [44]

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$5 million to $6 million EBITDA.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [45]

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Your guidance?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [46]

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Yes.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [47]

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All right. And maybe just one last one for me on -- and more housekeeping. Just maybe if you could help me understand the jump in restated EBITDA in both divisions in Q1 '19.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [48]

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Okay. So the capital lease -- so before operating lease were expensed and it was creating differences when investors or analysts were looking at the numbers. Some companies were acquiring assets. Some others were leasing it. So essentially, the IFRS 16, the implementation of that, what it does is it capitalize -- if you look on our balance sheet, we have assets and liabilities in the vicinity of $40-odd million when you look at our balance sheet, and so it's -- the way it works is it's no longer expense. So we haven't restated the year before. But what we've provided during the quarter is the impact of about $2 million that it has helped on our EBITDA line because we don't have the expense anymore. It's depreciation -- in this quarter, it's depreciation in financial expense. So if you would -- and if you look at the year before, you would see it's an expense. So you see a $2 million, roughly I'm rounding up figures. So $2 million of expense reduction. However, if you want to compare it with the year before, we haven't done it. So what we've done instead is mention what it is for this quarter. So if you want to compare it apple with apple, we could reduce our EBITDA by that $2 million, and then that would compare with last year.

So when you look at that on an EBITDA front, because we've lost some sales due to the pandemic in the last 2 weeks of the quarter, we would have done much better in terms of EBITDA because the cost reduction measures that Louis mentioned just started right away after the end of the quarter when we had a better view of what was happening. So that's unfortunate, but in our view, we had a very, very good quarter.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [49]

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Yes. So like, just to be clear on that, the number you're showing, the restated EBITDA number is comparable and like -- that's excluding COVID, is comparable to this quarter, in terms of IFRS 16.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [50]

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Well, last year, you don't have IFRS 16 in Q1. This year, you have it. I just want to make clear. So what you have to do is -- so you take the $3.7 million EBITDA, you subtract the $2 million of IFRS 16. So you're down to $1.7 million. But last year, you had a windfall of $400,000 in the EBITDA because of workman's comp adjustments. So if you want to compare it onetime -- so if you want to compare it apple with apple, that's what you would have to do.

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Operator [51]

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(Operator Instructions) Your next question comes from the line of Adam Sues with Yacktman Asset Management.

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Adam P. Sues, Yacktman Asset Management LP - Partner & Portfolio Manager [52]

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My first one is around working capital management into this decline. Do you expect a big inflow as sales fall and working capital unwinds with working capital roughly staying similar as a percentage of sales on this lower sales number?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [53]

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Yes. It should remain above the same, yes. The inventory, it will take time to -- just want to specify something here in your question is that the inventory that we have because of the abrupt, if you want, a decline in sales. So -- and as Louis mentioned, demands from retailers and so on and so forth, some of our inventory has shifted. So this should curtail over time in terms of, if you want, days outstanding in terms of inventory. But as far as inventory -- sorry, as far as receivables and accounts that will go, it should follow the sales volume. I think the inventory will decline, but I think it will decline. Just it will -- maybe it will take a little bit longer than normal because of the abrupt decline in sales.

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Adam P. Sues, Yacktman Asset Management LP - Partner & Portfolio Manager [54]

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And on the inventory front, is there just a rough kind of breakdown of how much of that inventory is shelf-stable products or napkins versus the potential for a big inventory right there because of the fresh food spoiling?

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [55]

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Yes. So what you're talking about is fresh, frozen and dry. So under dry, there shouldn't be much of an issue. The fresh, depending on the situation, I'm not talking here about vegetable and fruits because this is moving rather quickly and hasn't been an issue. When you're talking about fresh meat or fish, what you could do is you could freeze it, so -- and then keep it for a while. So this is where you may have some higher level. But I mean, it's a number, but I don't want to hear the listeners on the call to say, "Gee -- to feel that, hey, it's going to be statistically significant." It will have some, but not statistically significant. But overall, we haven't -- so far we haven't had, if you want, to destroy or to get rid of, if you want, food because of spoilage or outdated, if you want, meat or fish and so on and so forth. It hasn't -- if it happened, it's de minimis amount.

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Adam P. Sues, Yacktman Asset Management LP - Partner & Portfolio Manager [56]

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Okay. And my last question is around your debt facility and how -- kind of your big picture thoughts on how you intend to fund this business going forward? Your debt facility is up for renewal, I believe, later this year. Many companies have been really cautious in drawing down their facilities. I'm just curious how you see that renewal upcoming and long-term plans for that.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [57]

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Well, we're in discussion with banks right now. It's going well. When we have something to announce, we will be announcing it. That's as much as I could comment at this stage. But we don't need to draw on a bank line to support the business. We're not using -- at the end of the quarter, we're not using our bank facility. We're using it very, very small amount currently. So it's not even an issue. We have good relationship with our suppliers. Customers are paying us in these circumstances very well. So at this stage, I don't have a concern.

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Operator [58]

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And there are no further questions at this time. I turn the call back over to Mr. Frenette.

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Louis Frenette, Colabor Group Inc. - President & CEO [59]

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Well, thank you, Simone, and thanks, Derek and Adam, for your questions. I'm happy, as I said, with our first quarter and Pierre said about our first quarter results and the guidance we're providing for the second quarter. The mitigation measures in place and our diversified customer base, we're confident that we'll have the necessary resources and cash to weather the storm. We are keeping an eye on this situation and taking action to mitigate the effect on our activities by remaining agile and flexible.

We are grateful to be able to count on the dedication and hard work of our employees and the support from the labor union and also our financial partners, shareholders and customers and our suppliers. In these challenging times, we are also seeing an opportunity for Colabor to accelerate its path to transformation. We continue to look for opportunities to address new and growing markets and rightsize our business. We're working hard to emerge from this situation in a favorable competitive position.

I look forward to our upcoming AGM on May 26 at 10:30 a.m., which under these circumstances will be a virtual one meeting. We encourage all shareholders to vote ahead of the meeting by submitting their proxy or to do so during the virtual AGM. All important details are available on our website. So this concludes our call for the first quarter of 2020. Thank you very much for joining us and stay safe and healthy. Thank you.

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Pierre Gagné, Colabor Group Inc. - Senior VP & CFO [60]

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Thank you.

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Operator [61]

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Ladies and gentlemen, this concludes today's conference call. You may now disconnect.