Colabor Group Inc.

Claude Gariepy - President and CEO Michel Loignon - Vice President and CFO

Derek Lessard - TD Securities Leon Aghazarian - National Bank Financial Keith Howlett - Desjardins Capital Markets Ben Jekic - Industrial Alliance Securities Mark Neville - Scotia Bank

Good afternoon, everyone. And welcome to Colabor Group’s 2013 first conference -- first quarter conference call.

With me is Michel Loignon, Vice President and Chief Financial Officer. I will first provide general overview of the quarter, as well as an update on our action plan.

Michel will then review financial data, after which we will be pleased to answer your questions. [Foreign Language] Please note that our press release and financial statements were issued this morning via the Canada Newswire news service.

These documents are also available on our website and will be on SEDAR. With lower sales and a significant reduction in EBITDA the first quarter of 2013 produced disappointing results for Colabor.

This difficult performance cast the shadow over the proactive measures that we implemented as part of last year's action plan. Several factors are responsible for this situation.

We went through a kind of perfect storm, we had two less days in the quarter, the market conditions were very difficult in our industry across Eastern Canada as consumer discretionary purchasing power is limited by record household debt, high fuel prices and higher taxes. As a result, foodservice distributors have reduced their margins in order to preserve market share.

This situation is not going away yet. Also more normal winter conditions this year versus a mild winter last year had real negative effect on meals taken away from home in our main markets.

We have little control over these factors. However, in areas that we control we can be more efficient, we can achieve synergies and further reduce operating expenses.

Also, we can launch aggressive development plans and this will be our main priority in 2013 as we’re putting forward the following initiatives. We are conducting an exhaustive review of our operations in Eastern Québec and New Brunswick division.

Also in that division we're looking at several ways to improve the supply chain of our distribution centers to minimize inbound costs. We have also launched initiatives to stimulate sales.

In the parallel, we will take a close look at our secondary activities and exit from those that are not profitable such as we did with the tobacco business earlier this year. We also need to optimize our distribution centers network and find solutions to use our excess capacity.

We will proceed rapidly with the integration of Lauzon meat which we acquired in early March and we will transfer all meat purchases from Ontario and Eastern Québec to Lauzon meat. Finally, we will accelerate the introduction of our private label program in Ontario.

This category add a 17% growth in 2012 and another 6% growth in the first quarter only in the existing markets. All these new measures will allow us to grow the business and continue to improve operating efficiency and asset utilization.

More importantly, we will be able to leverage these initiatives as part of any future expansions. We will continue to be very proactive, status quo is not an option in the current business environment.

Ladies and gentlemen, Michel Loignon will now review our results and financial position, and I’ll come back for the closing comments after that.

Thank you, Claude. Consolidated sales totaled $293.6 million in the 82-day period ended March 23, 2013 versus $297.9 million in the 84-day period ended March 24, 2012.

This decrease of 1.5% is mainly attributable to the difficult business environment and less favorable weather this year compared to last. The acquisition of Lauzon on March 4th added sales of $10.2 million over a 20-day period.

Excluding this acquisition, as well as the reactivity of the [Skor & Carry] division saw last December and adjusting for a similar number of business days comparable sales declined 1.8%. Looking at segmented results, comparable sales into the distribution segment declined 2.7%, mainly resulting from the factors mentioned earlier.

Meanwhile, in the wholesale segment comparable sales rose 0.3%. EBITDA was $2.3 million or 0.8% of sales versus $5.5 million or 1.8% of sales a year ago.

The decrease as a percentage of sales reflect a competitive environment in the industry the effect of lower volume on the absorption of fixed costs. Historically, Q1 has produced the weakest quarterly margins.

We conclude the quarter with the net loss of $3.4 million compared with a loss of $0.7 million last year. This include costs not related to current operation of $247,000 related to the acquisition of Lauzon.

Given lower profitability, cash flow was negative $466,000 versus $3.3 million a year ago. The payout ratio for the 12-month period ended March 23, 2013 was 68%.

The ratio is defined as annual dividend divided by cash flow. As of March 23, 2013, we have drawn $100 million from our authorized credit facility of $150 million.

It is important to mention that this amount is $20.6 million lower than at the end of the first quarter of 2012, proving that we can reduce our debt even when conditions are difficult. As of March 23, 2013, our debt EBITDA ratio according to our banking syndicate calculation method was 3.15 on 1 below the maximum allowed of 3.25 on 1.

However, the total debt EBITDA ratio reached 4.66 on 1 above the limit of 4.50 on 1. I am pleased to report that our banking syndicator has agreed to waver with regards of the to accept exceeding this region.

We have to consider that our total debt, okay, comprised convertible debenture of $50 million, okay, which come in maturity in 2017 and we have a long-term debt of $15 with [sponsored that we see] in Québec and the maturity is also 2017. Meanwhile our interest coverage ratio of 4.06 on 1 was above the required minimum level of 3.5 on 1.

I’ll now turn the call back to Claude.

Thank you, Michel. It’s clear to us that the business environment will not be better in the first half of this year.

However, we can be and we will be a better and more efficient company, and we can also beat the market performance in terms of sales. The sales where we will be focus our efforts in 2013.

In 2012, we have accomplished everything that we had planned but it’s seems that it was not enough to compensate for the tough economic situation. So we have another solid action plan whose implementation is constantly progressing.

This will allow us to be efficient and to be ready when the market recovers. The industry still offers highly synergistic expansion opportunity.

Our simplified organizational structure will allow us to achieve significant efficiency gains that will facilitate the integration of future acquisitions. We have dedicated employees and a solid management team.

Our team members remain on the outlook -- on the lookout, I’m sorry, for any additional measure that will allow us to further improve the efficiency or grow the business and also generate more cash flow. At this moment, I would like to highlight that this morning we also announced that we are planning the succession for the CFO position.

As it was planned in the 2011 proxy circular, Michel have accepted a new position in special projects reporting -- still reporting to me as soon as we find a replacement for a CFO position. At this time, no, not yet all elements, I think that all elements are there to go through this difficult period and to emerge as a better and stronger company.

At this time, I will open up the call for questions.

Yeah. Thanks guys.

Given the declining earnings trends, just want to get your view on your dividend?

Okay. Michel, just said that the last 12 months dividend ratio on cash flow was 68%, okay.

Last year, at the same date, it was 86%. And remember that when I took over this position, the ratio was 94%.

So at this moment, okay, and you have to understand the fact that the dividend decision is not a CEO decision, it’s a Board decision. I have no mandate at this moment to challenge the fact that we have a $0.72 dividend.

Okay. Fair enough and…

We have the Board this morning and I -- and so what I’m saying even after the Board that we have this morning, we are not changing this policy at this moment.

I guess, I understand that you don’t have any control, but I guess, I am looking out at the industry trends and if they’re deteriorating, I am just wondering how long before it deteriorates enough to see a cut.

We believe that that deterioration, I don’t think the worst thing you can do right now is to take all the difficulties that we have in the first quarter and multiply it by four. I think it would be a real wrong way of looking at the business.

I said at starting this call that we had the perfect storm, everything that could happen but I strongly believe that it will not show like this in the next month and for many reasons. The first one I think is obviously we have an action plan going through right now, but also, we just had two weeks of nice weather in the last two weeks, that business is still recovering.

So at one point, I think that we cannot think that everything that happens in the first three months will happen again in the next nine months. I said it.

I said that the economic situation will not get fast improvement but we can beat the marketplace.

Okay. And just a follow up.

To what degree these trends suggest that you are losing market share. Is that a fair statement?

We don’t think that we lose market share at this moment. If you look at our comparable sales and you look at what’s going on in the marketplace, according to the stats that we have, we are not losing market share.

Okay. Thanks.

Hi. Thanks.

Regarding some of these initiatives that were announced, can you give us a bit more color on precisely what you mean by initiating, pardon me -- initiative to stimulate margin sales?

Last week, we launched -- firstly, since the last quarter of 2012, we are training, all of our buying and procurement department in category management. So we started the process in early October.

We hired a brilliant expert in category management. This expert is now training our procurement people.

And according to this initiative also, we have launched last week for the Eastern Québec and Maritimes division a program which -- which just put more emphasis into the most profitable suppliers and most profitable categories. We have this program in Ontario since many years.

And it gave us a real good successes out there. So we launched the same kind of program with different suppliers obviously to be targeted in the market place where we are.

And this is one-week old only but we believe that with the very good -- the incentive program, I’m sorry -- with the incentive programs that comes for the sales force, we will see quickly the more profitable products categories and suppliers sales going up. So we are -- and this is what happened when we launched this program in Ontario.

We believe that will -- it will do the same kind of jobs for the Eastern Québec division. Also we have put in place initiatives for perishable products that we sell in our Eastern Québec division and we are pushing a lot more in produce, meat and fish.

So all these categories that are more profitable right now, we have incentive programs to get more sales from these categories.

Okay. Are there any contracts that you’re currently looking at, perhaps bidding for in the coming month, in the coming year?

Yeah. In the coming months, I'm not talking about years because right now we're focusing on months.

And in 2013, there are two big contracts in Ontario. And we also are looking to bid in some in Québec that are less important but quite good businesses.

And also we believe that there is an opportunity right now in Ontario for us to compensate the lots of the big customers that we experience a month ago. And so we believe that there are good opportunities coming unfolded.

Okay. And one last one from me, it would be regarding Lauzon, what were your sales specifically for and then how many days in operations were they out for Lauzon and how the integration going there so far?

The integration is going very well. So the wholesale part of the Lauzon sales has gotten through Decarie and it’s real success we have kept the business and it’s totally integrated into the Decarie division.

The distribution side of Lauzon, okay. Right now, it’s only part of our company since five weeks but we have already generated some sales transfer from Ontario division and from Eastern Québec division.

Administration wise, we are now accessing the IT system out there to decide where it’s going to -- under which system, it’s going to go into our existing software. So I would say that right now Lauzon is still and we still believe that it was a strategic acquisition because with the great and processing demand that Lauzon operates in Montreal.

We will have the capacity to really explore this business with our existing businesses. So this is where we are at Lauzon right now.

But you need to understand also that -- the first quarter, I didn’t talk about that but it’s not minor. Remember that in the first quarter, for the first half of the first quarter, we didn’t have our key.

But as an example, casuals, power is one of our bigger customers. All these supports hard in on Ontario, in Quebec, which didn’t have hockey until end of -- not remember the existing (inaudible) at the end of January or February.

It’s been tough for us. And Lauzon for example was a supplier of 304 sports bar like this.

So it’s very important for us -- like when I said that in the first quarter, it was a perfect storm. It’s just another example of everything that we add again.

We were like really in a tough time and everything came at the same moment. And that’s the reason why I -- I'm saying to you guys, don’t take first quarter multiplied by four to forecast, what’s going to be the year?

It’s not right.

Thank you.

Yeah. So I wondered if you could speak specifically about -- well not specifically about just talk about the activities of GFS and Cisco and the province of Quebec, both seem to be quite activity in the province.

And I wondering if you feel that there may be targeting your business specifically in order to gain share there?

Keith, perhaps that you should call them and ask them. I don’t feel that -- I don’t feel that by saying that each of us being the food service distributors have our issues and experience our issues.

I don’t think they are targeting specifically, Colabor. I would say that they have done what they probably thought were right for them.

But at this moment, we have some market data that tells us that it’s tough for everybody. And it’s starts with the -- look at the restaurant chain.

Now, if you look at all the company that are working into what we call discretionary money. Look into restaurant business, the results of NTY for example which is a public company.

Look at clothing, look at the furnitures, look at Rona. Everybody that plays with excess money of Colabor in Eastern Canada are going through tough time because the level of debt.

The economy situation in the employment are taking away a lot of money that were normally spent into this kind of pleasure, going to restaurant, buying furniture, Going in south, I was just looking at the Air Canada results last week, not later than last week and it turns out that we are playing with the same kind of money. So, I think that if you look at restaurant chain and there was a note in the papers in Montréal last week, when you can eat at Saint-Hubert in Québec for $599 a meal, it's probably not because it’s doing really well.

And this is the kind of special that we see in all chains. In Ontario, we supply 14 different chains, not one, 14.

All of them were down in the first water. So, I cannot imagine that we are alone.

But the issue is that we are alone to report privately. And that’s the reason why it always looked worst when you look at our figures.

But also these restaurant chains that we serve that are of good customers are all planning very aggressive marketing plan for second quarter and for the summer time where they know that they can makeup for this bad quarter. And if winter was bad in Montreal, I can tell you something.

I have the weather in Ontario, in Toronto, in London, everyday on my screen and it was not better out there. So it’s been tough everywhere.

So we believe that it’s a tough market situation and it’s tough for my competitors as tough as it is for us.

And when it comes to a consolidation, do you sense that there are some family-owned firms that are struggling and would want to sell and are you feel like you would want to act on anything like came up in the next six months or?

Yeah. We have to make sure that we recover.

We recover a bit of sales and profitability in the next week. But obviously we will continue to look at synergistic acquisition.

For me the word synergistic means that we can take over the business and fit this business into our existing facilities. This is what I'm talking when I’m talking highly synergistic acquisition.

I told you that we have access square-footage and we are looking to fill this excess capacity by buying also the existing distributors that want to be getting out of this business. Just the point also remember that last year and back to hockey because hockey is important for restaurant business now.

And last year we had no teams into playoffs. Now, starting tonight, we are going to have Toronto, Montréal and Ottawa.

All of them are in the playoffs. There will be a lot of people at our Sports-bar customers in all three CDs where we are very present in this marketplace.

So, I don't want to be overly optimistic. But I just want to make sure that you're not just taking the perfect storm in first quarter and multiplied by four.

On the issue with the tax department, is there any update on that front?

Yeah. Keith, we made our representation to the anti-avoidance committee, okay.

And we will reply with our -- that we use when we cover the company in 2009. And we will also verify our arguments with an outside Décarie Group and we are still confident in our arguments and we will make sure that we will defend our position until the end.

And do you have a sense memo of when they will respond to your submission?

We always thought that it will be probably in fall.

Fall.

Yeah. And taking into consideration that they have to wait -- we were nine companies in the same challenge.

So they will have probably -- they will probably wait for all nine companies documents before getting into this company.

I see. Great.

And just in terms of the Eastern Quebec and New Brunswick operations. Is there -- those were integrated last year, put on the same platform.

Is there any specific issue that's concerning you on that business?

Yeah. We add and I’m saying add not have.

We have issues regarding this implementation and it's never easy to implement new system. But they are behind.

And we have invested, we have hired a consultant to help us to figure out what where the issue and to solve them. So they are behind us.

But yeah, we have some issues following this integration and human being don't take two days or two weeks to get the facility of using a new system. So now you know that the switch has been turned on November 1st.

Everybody think that it’s long time ago but November 1st. Now, we are in April, okay, May the 1st.

So it’s been only four, five, six months. And it’s quite normal that for the first month that to experience that kind of minor issues but now they are behind.

And there is no external issue. It’s just towards the internal implementation of the system.

Internal implementation meaning getting people to get use with the new system. Also, fine-tuning the databank.

Today, we went from three databanks to one and these businesses are quite complicated because they are not only selling different service, but they sell also to small retailers. They sell produced, they sell meat and database was not trying tune enough, so we have some new issues with them.

But everything was internal and has been solved.

Great. Thanks very much next.

Thank you.

Good afternoon. Couple of questions for me.

In terms of the CFO transition, can you give an update on how far are you in the process and have you found certain candidates that you are looking into more seriously?

We are in the short list step, but what is very interesting the way that we do it is that Michel stays with us, okay, in a new position, is going to be in a new position when the new one will be in. So we are not getting nervous about it.

There is no challenge there. We still can count on Michel and I would say that if things are going well, we would probably -- we are probably four to five weeks to announce something.

Okay. And in terms of -- you have mentioned several times that we should not multiply the current quarter by four.

If I'm looking at the numbers, it seems to me like if the next quarter is not going to be at least flat compared to the previous year, you are running the risk of your debt to EBITDA ratios getting less favorable and is there anything that you can say is going to specifically improve that’s going to pull the quarter up in the second quarter? I mean, is it distribution EBITDA margin or something, some indications that you have seen in the month of April that’s pointing in the positive direction?

Yeah. I would say that we have a couple of hits that happened in the first quarter that will not happen again in the second quarter.

Secondly, as I told you, we have hired a consultant to help us to solve this issues that we have in the eastern division and it is showing -- right now it’s showing very, very good improvement. So we think that this dividend will produce better results.

Also in the Ontario market, many restaurant chains that we serve at this moment have decided to be more aggressive and we see the results since two, three weeks. But you need to keep in mind that also the same time by April 1st, we lost this important customer.

So we are going to have plus and minus. But overall we believe that the gap that’s we have in the first quarter of 2013 against ‘12 will not be repeated.

I don’t need -- I cannot tell you that we are going to be perfectly in line with last year in second quarter, but we had a $3 million gap in the first quarter. No way, we are going to be $3 million gap times for….

Right. Okay.

Thank you.

Hi. I just had a follow-up question.

To sum the balance sheet, maybe these implications for the dividends potentially. In a quarter, you were in reach of the total debt governance.

So, I guess as we look at the balance sheet in isolation, you could argue that that’s actually improved. The net debt is coming down that working gap again has improved.

Just going forward, how do we sort of look at this and maybe what is the syndicate focus on and maybe some of the discussions that you are having with them to access sort of risks, any real risk with that covenant?

Mark, we are discussing presently with our banking syndicate, okay. And we are looking okay maybe on different way to finance the operations.

We have strong assets as receivable inventory in excess and than maybe we could leverage this assets then ensure those also that we are working to have a better EBITDA then this would be resolved than the more profitability that this will help. It’s true that presently it’s not the debt issue.

It’s more an EBITDA issue. Okay.

And we have to work okay on the profitability of our operation.

It’s not correct that right now, we rely only on the multiple of EBITDA with the quality of assets of short term assets that we have. We have high-quality inventories and we have high-quality receivables, which many of them our guaranteed.

So, in reality, when you look at the leverage that the banks have with us, the leverage is not that big. The issue is a momentarily EBITDA issue.

So we will work with them and we have always been in very good term with the bank syndicate. So we have positive discussion with them to see how we can leverage the quality of assets that we have during the time that we have tough time to go through.

And it can be done and so, we are right now in very positive discussions with them.

Yeah. Okay.

That’s all for me. Thanks.

Yeah. Just a get on CFO succession just wondering what the reasoning is behind it right now?

I can answer to this. Derek, it’s Michel.

Hey Michel.

Okay. I’m now 61 years old.

Okay. Then in the past year I was acting as CFO as VP development because it’s me who made all these acquisitions.

And I was also VP, investor relation. Then now I think it’s time maybe to make that we are successful.

Okay

Succession

Succession, okay, with the new CFO and I will be there. I’m not leaving this company and I’m not leaving because there is fab result of this quarter.

Okay, I decide to leave our kid and to reduce my time with the company

And then keeping mind that we it was in the proxy circular of 2011. So it’s just a matter of what happened now at the wrong moment but it happened because it’s been plandthis way.

The search, are you looking at internally or do you have an external search going as well?

External search.

Internal

External

External. Okay.

And just maybe the follow up on Mark’s question, in terms of reprieve that your lenders have given you, like how long that’s for?

How long

Yeah.

It should. We are discussing for the next month, okay, for the next quarter.

Okay. Thanks guys.

But we have a different way, okay. I’m not very nervous.

Thank you.

Yeah. Just wondering whether the significant partner that you took in recently whether you might access that partner which you assist the balance sheet temporarily or that be just in relation to subsequent acquisitions?

We have start to the important partner that guiding to our equity lately. And I would say that right now we had initial discussions with them.

But obviously they were disappointed with the results but they understand very well what’s going on. And we don’t know yet, if they’re going to be part of a new financing source of ore or not because it’s too early right now.

But we are discussing very closely more than investors in our company. We have high respect for them and we always keep them informed about what’s going on in the company and what’s going good and what’s going bad.

So at this moment, I cannot say if they will be a part of the new way of financing our debt. It’s too early

Thank you.

Thank you very much, ladies and gentlemen for this very active participation. And I look forward to updating you on our progress on the next quarterly conference call.

And hopefully it’s going to better news so have a present day and pray for more gains unit the syndicate. Thank you, guys.

Bye, bye