Colabor Group Inc.

Claude Gariépy - President and Chief Executive Officer Jean-Francois Neault - Vice President and Chief Financial Officer

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

Good afternoon, everyone. And welcome to Colabor Group's 2013 third quarter conference call.

With me is Jean-Francois Neault, Vice President and Chief Financial Officer. I will first provide a general overview of the quarter as well as an update on our action plan and recent corporate events.

Then Jean-Francois will review financial data after which we will be pleased to answer your questions. [Foreign Language] Note that our press release and financial statements were issued earlier this morning via the Canada NewsWire News Service.

These documents are also available on our website and will be on SEDAR. Colabor's third quarter results will continue to show the benefits of initiatives implemented to optimize operating efficiency and asset utilization as well as to achieve synergies from our past acquisitions.

EBITDA was up sequentially by more than 5% from the second quarter, reaching $10.2 million or 3% of sales versus $9.7 million or 2.8% of sales in the second quarter. As the second and third quarters of our fiscal years are normally quite similar a sequential comparison gives an accurate picture of the progress accomplished.

More importantly, we are in a continued improvement process as we proactively execute our action plan. During the third quarter, we proceeded with the following initiatives.

As part of the review of operation of the Eastern Quebec and New Brunswick division, we permanently closed the Edmundston distribution center where activities were transferred to our Rimouski DC. We also stopped some activities in Saguenay, where we only kept a [crossed-out] platform to optimize shipping logistics in that region.

We estimate that these two facility closures could yield recurring savings of $2 million on an annual basis, beginning as soon as the fourth quarter of this year. This division also is now under the leadership of Claude Saillant.

Claude brings three decades of experience in operations and general management, is a specialist in turnaround and strategic management as well as in integration of the businesses. We are very happy that he joined the Colabor team and his natural leadership will benefit the division and the entire group.

We also hired three senior managers in finance, sales and operations role to support Claude in bringing this division to the level of our expectations. Moreover, we finalized the integration of the Lauzon wholesale customers within the Viandes Décarie division.

This brings greater efficiencies and synergies within this meat product operation. Within the same building, this division had a 75% sales increase versus last year in the same quarter.

In parallel we continued also to review agreements with suppliers regarding procurement, cost and revenues and we are progressing according to plan on that front. Finally we completed the investments and the process to obtain the HACCP federal certification at Norref and the official award of the certification is eminent.

This achievement is very important as it will enable Colabor to offer its wide range of fresh fish products in Ontario, beginning with the Ottawa region. It also increases possibilities to win new contracts while further securing the existing agreements.

With these initiatives Colabor become a leaner and more efficient organization. This way we will be ready when market conditions improve, so that organic sales growth would directly and rapidly lead to additional profitability gains.

I will ask now Jean-François to review the results and our financial position.

Thank you, Claude. Good morning, everyone.

Consolidated sales totaled $343.6 million in the third quarter of 2013 versus $350.3 million a year earlier. This 1.9% decrease is mainly due to the loss of a supply agreement in Ontario effective April 1, 2013.

It also reflects our decision to significantly reduce the distribution of tobacco products, which were unprofitable at the beginning of 2013 and to a lesser extent the disposal of the SKOR Culinary Concepts division in December 2012. On the other hand, the acquisition of Lauzon on March 4, 2013, added sales of $23.4 million during the quarter.

Comparable sales, which exclude all aforementioned items decreased slightly by 1.1%. EBITDA was $10.2 million or 3% of sales versus $11 million or 3.1% of sales a year ago.

The decrease in monetary terms is essentially due to the end of the supply agreement in Ontario. As Claude mentioned, EBITDA for the third quarter was sequentially higher, both in absolute dollars and as a percentage of sales than in the second quarter.

I remind you that our fourth quarter spans a 16-week period resulting in a higher EBITDA expressed in dollars. During the third quarter of 2013, we recorded costs not related to current operation of $8.1 million, including a non-cash $7.1 million provision related to the long-term leases of the two closed warehouses.

The remaining $1 million accounted for restructuring charges, including severance payments. As a result of these charges, Colabor concluded the quarter with a net loss of $3.9 million as opposed to the net earning of $3 million last year, net of costs not related to current operation of $1.1 million.

Cash flow defined as after tax cash flow from operating activities, before net change in working capital less capital expenditure and interest paid was $7.1 million versus $7.6 million a year earlier. After deducting dividend payments, we generated a free-cash flow of $5.5 million, up 60% from $3.4 million a year ago.

This increase in free-cash flow provides Colabor with greater flexibility to execute its business plan and to further reduce short-term debt. As at September 7, 2013, we had drawn $96.1 million from our authorized credit facility.

This amount is up $85.4 million at the end of the second quarter, essentially due to the timing of variation of certain working capital items, mainly accounts payable. More importantly, it is down $22 million from the same time last year as we continue to successfully deleverage the company.

We are also continuing our initiative to further improve our financial flexibility, which as well includes implementing sustainable working capital reduction initiatives. Finally, our Board of Director declared a quarterly dividend of $0.06 per share payable on November 15 to shareholders of record at the close of business on October 31st.

I now turn the call back to Claude.

Thank you, Jean-Francois. As the economy remains challenging, especially here in Quebec with many job losses we are determined to be proactive in areas which are under our own control.

The execution of the action plan remains our short-term priority. Our initiatives strive to achieve more synergies from the remainder of this year and beyond and to create sustainable value for the shareholders.

With a renewed motivated team and a more efficient network, Colabor will be in a better competitive position. This will allow the entire organization to leverage its strengths.

In so doing, our drive to foster organic sales growth will as I said earlier directly and rapidly translate into greater profitability. Also any synergistic acquisition would be more efficiently integrated into our network.

We are satisfied with the process accomplished but we know that we must continue the improvement process for the Group. Our focus is on execution and the entire great Colabor team is committed to bring back growth, efficiency and profitability to levels that are expected from us.

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

Hi, good morning.

Good morning.

You have had a nice or a little sequential margin improvement. Is this all from internal initiatives?

Are you seeing any improvement at all in the macro?

It's from internal.

Okay.

We have done a couple of good stuff in operation but also in gross margin, so -- but it's internal. Market is as tough as it was and we do not expect an improvement, significant improvement in the market place.

That’s the reason why I said that we need to stay focused on internal opportunities at this moment and be ready when the market gets better.

Okay. So on the action plan, is there an end date in mind?

And should we expect additional cost savings next year, on top of the 3.5 million you expect to take out this year.

Yes. We believe that it's continues process.

It will not be like finish this day and benefits comes the day after. It's more on a continues basis.

What is -- that’s the reason why we talk now a lot about sequential improvements because we just want to be better the next quarter than we will be the quarter before. So I would say that what has to come yet is we have put in place many new individuals in senior roles.

By the way, we have like 14 new senior managers that have joined the team within the next -- within the next last three months. So it’s obvious that these people have not yet bring everything that they can to this organization.

So we believe that it's going to be a continuous improvement and I would say that by the second half of ’14, we should be up and running at 100%.

Okay. And those 14 senior people, is that all incremental, or does that sort of replace other people?

Replacement.

Okay. And then, maybe just a final question.

On a contract basis, last quarter I think you mentioned you were bidding on one or two. Can we get any update there?

Still expecting an answer. It was supposed to get out last month, beginning of September but it's delayed.

It doesn’t mean that we didn’t get it, it's just delayed, the decision was delayed. So we are just waiting for an answer right now.

Okay. And you did touch on this, sort of on the sales leverage, but do you have any idea on how much additional revenue you could take on, just with the current overhead?

It's tough to say how much organic growth, but I think that with the actual overheads, we can get a lot of organic growth and stick with the number of people that we have in the senior roles. And by the way we hope that we’ve been extremely busy.

As you can see, look at all the initiatives that I’ve been going through. So we’ve been extremely busy to take care of the cost side of the business.

But now it's not totally behind us but we believe that the majority of the work has been done and now the whole team is now pushed to be really focusing on organic growth sales. This being said, okay our DCs are able to receive a lot more business without any fixed cost investments.

Okay. Thanks a lot.

I’ll turn it over.

Yeah. Thanks, and good morning, guys.

You listed in your MD&A about five reasons behind the decline in EBITDA. Just wondering if they were listed in any order of magnitude?

I wouldn’t say order of magnitude, but I would certainly say in magnitude being dollar wise, okay. I cannot say, but in term of importance and if you noted that we have put in this order, we have put internal stuff first and market last.

The reason why is because the top management of this company believe that this company can do a lot better, within the tough market situation. And that’s the reason why when we listed them, we listed internal stuff first.

And this is where we’re focused. I am telling our guys, hey listen guys, the market will not change.

So be ready to be better in a tough market and this is why we are so much focused on our action plans because we believe that there are great opportunities and bringing in new people, I can tell you that a lot of opportunities are now raising from these new arrivals. Jean-Francois has already mentioned in his text that we’re looking to improve a lot, the working capital management with the new CFO, with the new team around him.

We believe that we have great opportunities there and it’s like this in all teams. The three general managers of our three big divisions have looked within their business and they are convinced that there are a lot of opportunities within the business.

And that’s the reason the order is in the way that we have done it. The market is there, we cannot change it, but the other ones it’s under our control and this is where we’re focused.

Okay. So -- but if I just harp still on the market conditions, has the intensity picked up at all?

How was it trending through the quarter?

I'll say that the economy is what you know and -- but the competition has not changed and there is, like I said, even in this tough market conditions, we improved our -- you know that we do not disclose our gross margin and we will not. But I can tell you that we improved our gross margins in nearly all divisions in the last six months with internal initiatives.

Okay. And maybe if you can just comment on the drop in comp sales?

Yes, it’s a good question. As you know it came from the wholesale side of the business.

And the majority of this drop came from one of our important distributors lost two big contracts. And we were hit because these distributors, which are a part -- a significant part of the wholesale segment okay, they are very important customers.

So when the -- if they lose a $10 million contract, we get a hit of approximately 50% of that. So this company lost two contracts and we were hit.

But now we are putting initiatives in place to get this business back from other sources, but in the third quarter it’s been tough, regarding what I just said.

Okay. And maybe just one final question before I requeue.

There was a jump in interest expense this quarter. Can you just maybe tell us what was behind it, and what we should expect going forward, considering the new amendments to the credit facilities?

Yes, I will pass to Jean-Francois.

As I mentioned last quarterly call, yes, we can expect short-term to have higher interest charges, also some depreciation expense has been accelerated. So it’s too early to comment on the initiative that is going on, but we do have some promising lead as we seek to normalize that situation going forward.

Okay. And Jean-Francois, just -- so what was the reason behind the jump this quarter?

Because I think those facilities going -- became effective September 30th, if I'm not mistaken?

Sorry can you repeat again the question?

Yeah, the jump this quarter. What was behind the jump in interest expense this quarter?

Because I think the new facilities, or the new interest rate would kick in at the end of September, no?

It was also adjusted -- it was also adjusted.

Okay. Thank you.

Hi, good morning. My first question is regarding the Edmundston facility that you closed.

You mentioned that you transferred it to Rimouski. I just wanted to know what's the capacity utilization looking like and how the servicing is actually going to happen there.

I mean, is it going to prove to be even more difficult, more costly, or -- just a quick rundown on that, please?

Yes -- no, the answer is it's not more costly to leave from Rimouski and to distribute the [tell] that we added New Brunswick. This DC honestly was badly located.

If you look on the map, where is Edmundston compared to where is the New Brunswick population, you can see that there was nearly always two or three hours driving time to get to where is the populated area, which is Moncton and surroundings like this Edmundston location was totally up North of New Brunswick. And if you leave from Rimouski and if you leave from Edmundston, and you want to go to Moncton, it's not that different.

It's so much similar that we could have decided to put a [crossed] platform in Edmundston like we did in the Chicoutimi, but after studying the whole thing, it was shown that it was better to leave from the Rimouski directly to different areas in the province instead of going through across the platform. On top of that, this DC was totally outdated and so the clientele right now, it's three weeks now it's operating and the clientele is very satisfied.

We get a better perishable products quality, particularly in the produce, we got very good comments and because the volumes, the joint volume of Rimouski and Edmundston is a lot better. So we get a better supply to our clientele that’s very evident.

And we invest a little bit and I am seeing a little bit of the transportation cost, but we also at the same time we have in the warehouse operation we are saving of 25 [bodies], and we don’t like to do lay-offs. It's not -- I hope to be in a mode that I will announce hiring people.

But at this moment, we by the shutdown of this operation; A, we have 25 people left working in the distribution of this business, so it's very significant. So assessing the whole things this was the best move, because -- partially because of the location of the DC, which was not appropriate anyway to get to New Brunswick population.

And what about the Rimouski facility itself? I mean, was that not running at an optimal level, and therefore can take on more capacity?

I just wanted to know what's...

Oh yeah, there was a lot of capacity and even after absorbing the Edmundston we still are able to move more products from there. So it was a natural fit because we was underused in Rimouski and we had an outdated badly located location in New Brunswick.

So this was a kind of very synergistic move.

At the moment, are you comfortable with the number of DCs that you have and where they are situated? Or should we be expecting more changes along those lines -- and consequently, more expenses that we should be looking for, for example, in Q4 and beyond?

No, in 2013 we are done. Am I comfortable with the number of locations?

Probably yes, but we still have too many square feet that are not properly used and it’s both in Quebec and Ontario. So we are still looking on different solutions, but we have not yet decided how we can improve the ratio of productivity within these actual square footage of the company.

If you remember last year we shut down, at the same time of the year we announced that we have shutdown a DC in Ontario. Now we shutdown two in Quebec.

We believe that we still have too many square feet and we’re going to take decision, but it will not be short term because it’s a little bit more complicated than the Edmundston-Rimouski move.

Okay. And then just one final one for me would be -- since your quarter ended September 7, you have had roughly a month or so to look into Q4.

Could you just provide what has been the trend so far?

About the same than the Q2 -- Q3, I’m sorry. The weather has been extremely good in the Eastern part of Canada and even better than last year.

And we are happy with what’s going on right now. The market conditions have not improved but it’s in line with the Q3 trend.

Thank you.

Yes. I had some questions.

On the DC closure, how does the rent expense that you are paying each quarter in cash -- how does that compare to the amortization of the provision?

Yeah, Jean-François will answer that.

It’s about I would say, three-quarter of it and of course there is some fixed charges that goes along with this. So if you’re referring to the note number 10 on our financial statement you can -- this was only for security media amount you have there.

So yes, it’s about three quarter of the amortization would be related to the rents.

So the rent is about three-quarters of the amortization?

Yes.

Its fixed charge, if this is your question, yes.

And now we are giving -- we are doing some significant steps to sublease the closed warehouse and -- but now we can be active because employees know, everybody know. So before this, we couldn’t really get out and try to sublease because the employees were still there.

So now we are very active in subleasing these facilities to make sure that not only we don’t have the accounting expense, but also we don’t have a cash out.

And then in terms of the Saguenay facility, is the cross-docking of there in the old facility, or is it a separate facility?

In the old facility, in the existing facility, but if we would find a sub lesser, it would be easy, very easy to just transfer it somewhere else but now actually we have an empty space there, so we’re doing it there.

I see. And in terms of the Norref certification, is the $2.9 million you spent on equipment there -- do you view that, like, as a necessary investment?

Or does it have a big payback?

Yeah. We, didn’t spend, we invested it.

But Keith I would say that this was a very good move. Firstly, as you know we are a very important fresh fish distributor for the [sow-based] business in Quebec and like all other and then other, also other significant customers that wanted us to be an HACCP certified plant.

And so just to keep our existing business we needed to get to this. Secondly, many customers were asking us if you want to make business with us, you’re going to have to be HACCP certified.

So this was a second reason. It allows us to get out of the province limits.

So we have the -- we believe that it’s not overnight that we will bring back a proper ROI, but we believe that I would say within 12 months to 18 months we will develop a business that will pay -- an additional business that will easily pay for this level of the quality that we have in these operations. They are now really state-of-the-art facilities.

At Luzon and at Norref, if you visit them, you would see that we are a state-of-the-art facility. And with everything going on right now in meat and fish, we want to be whiter than white and this is what we are now.

So we can go to anybody and let them know that we could be the best fresh fish or meat distributor in Quebec and even in the top in Canada.

And just on the CAD2 million of savings, is that -- what does that assume in terms of the amortization of rent over the cash rent expense? Is that after that amount?

No, it's, the majority of this saving is related to the amortization, you are right. So the other portion I would say may be 60 to three-quarter of that is related to the amortization of the provision we took for the lease.

And the rest is coming from the severances.

So to make the $2 million does it require you to have subleased or...

No, the 2 million part of the sub lease thing is the amortization. It’s going to be a non-cash saving to the P&L every quarter.

But more importantly, the fact that we have now -- we are going to rush and there is -- to sub lease that and the minute this is fixed and settled then we can expect to have the same amount of savings, but cash saving. Because it’s a provision we took so we amortized that, so it’s a P&L recurring saving but non-cash.

And then we had to do that, it’s to be inline with the IFRS rules we had no choice to do it. So it’s not to just to make sure that we are doing some make up to the P&L, it’s because it’s the real accounting rules.

So we are totally complying with these rules that are IFRS.

And the -- on the Lauzon meats -- in the notes, the statements, it indicates how profitable the Lauzon business has been. Does that incorporate any benefit from putting part of it in with the Cara, or how do you sort of compute those numbers?

Yeah, we made two acquisitions as you know the first one was we succeeded, tried to switch the wholesale Lauzon division to Décarie within the business and as you just said that Décarie business has been going up by 75% of sales in the same building in the last quarter. So we were very much successful in switching this clientele to our DC.

And this was highly profitable and synergistic. On the other end, the real business that we wanted to buy when we bought Lauzon was the processing plant to for restaurants and institutions and this was a very strategic asset to us if we want to be a great player into the center of the [play].

So this operation is, at this moment is not profitable okay, because we bought it only for the assets. And we need now to build the business with the processing plant.

So it’s going very well. We have integrated the sales coming from Ontario, we also integrated -- we had a little meat plant in Quebec City.

We shut it down. We transferred the business.

So we are bringing in the volume that we need to make this not only a very strategic asset but also a profitable asset. We believe that we need to be patient in this area and in the -- it will take a couple of years before it comes to be a -- I would say a significant contributor.

But we are extremely pleased with the quality of asset that we bought and we are extremely pleased with the opportunity that it’s going to give us to get into restaurants and be the king in fish and meat and it’s a point of differentiation. We cannot differentiate ourselves on the two other guys with battle of ketchups, but we can differentiate ourselves if we are and we are now the best in meat and the best in fish.

And with the Lauzon business, it is sort of a relationship business? Or like -- well, I guess all of the -- it's the same at Norref.

But Norref has 50% of I guess, medium-term contracts. Do you get contracts in meat, or is it…

It's not the same level. At Lauzon we have perhaps 25% under contract.

For the rest we are a three business player. So it's restaurant by restaurant, door by door.

So it has the advantage that you cannot lose 75% of your business with a contract, but it's also the disadvantage is that you have to build it door by door.

And then, just on the IT systems, where are you on that process?

There is no important moves going on there. Actually what we are doing we have, during the last year, we have secured all the systems, so now we can comply with top-notch security level in each of our systems.

At this moment we are in a process to change the Lauzon system, which when we bought it we knew that the system was not adequate. And so we are going to get into an internal little new system.

During 2014, we will study where we should go with these systems. Actually we are working a lot more on getting a very good BI system, which can get all information from the different systems and bring in into one database.

And so we shouldn’t expect -- and the systems by the way that we have all of them work very well. And we know we have more to do right now than changing system, we have to get into sales.

So what we are doing right now we are building and improving our BI system that will get us the information that we need to run the business and we are, at the same time assessing different alternatives but there is no short term investments in IT that we see in '13 and '14. If there is something coming in it would be significant -- I am talking significant investment.

And this would be more in '15 or something like that. So right now the organization is not focusing on systems, it's focusing on clientele.

And then, just on the relationship with the Colabor distributors, would you look at extending the contract, or -- I think it's 2016? I can't remember…

Yeah, now its 2015, you are pretty accurate, and we already started the process. We met Geneviève Brouillette who is responsible for this division and myself and we met seven of the most important customers in September and we made them some offers to renew right now.

And the things are doing -- you know we were pretty much well received. We were pleased with the discussions that we had.

And -- but, there is time in front of us, but we already started because we believe that they are important customers and we want them to be renewing with us as soon as possible to secure this business. But actually and I don’t want to be over optimistic, actually it sounds good.

Great, thank you.

Good morning. Most of the questions have been answered, but if you could just provide an update -- I think in the last couple of quarters, you were mentioning, Claude, on your initiatives in the GTA.

I think you have bulked up some sales capabilities there. Can you just give an update on that?

It's the best market to get in. Yes, we still have some people working to get in the entree business in the Toronto, but it’s tough.

So it’s building up, but too much slowly to my point of view. And so we had a lot of discussion between Jack Battersby, our President of Ontario division and myself and the people and we’re trying to see what should be done differently in 2014.

And -- but we didn’t find yet the right way to build quickly the business in GTA and this is our biggest challenge for Ontario division right now because for the rest Ontario division, as in front of it no major project or cost project is done, it’s over, it’s been extremely well run in the last month after that we have cut down on the cost to make sure that we adjust the business with the loss of Compass. So the cost thing is behind us.

Now this team has to work together and find a way to sell more in the GTA entree business. Remember that we have a lot of chain business in GTA, a lot.

Correct.

Okay. But now we need to get into these very nice Toronto -- and we think it could be faster to get the business between what we call the two highways, before the four-seven, and four-one in the suburbs, in the near suburbs of Toronto included in GTA.

But we still have to find the solution and I cannot say at this moment that we found it.

Okay. Thank you.

Hi. You talked about improving working capital efficiencies.

So year-to-date, I mean sales are flattish, you’ve invested about $27 million in working capital. So is there something structural or something going on there, or should we expect sort of cash or working capital neutral for the year?

What you’ve seen was focus on the third quarter, what we’ve seen happening in the third quarter is if you look into the balance sheet is mainly coming from accounts payable. So that was the Q2 level of accounts payable was not for timely reason to the appropriate levels.

So what you see in Q3 is more what we can expect for the coming quarters. So what we really have to put on in place is initiative sustainable that will -- reduces our working capital.

We see it become – being around 7.5% on last 12 months sales, which we think we must go to 6.5 to find it under $15 million leveraging on our short term debt. That’s really what are going to be our focus.

So I don’t see that year-to-date figure, to answer your question being -- going up again towards the end of the year.

Okay. And maybe just on your priorities for free cash flow -- you talked about debt repayments, and I think you mentioned briefly just on acquisitions.

But how should we think about it? Is there any targeted debt levels or any metrics that we should think about?

Right now, okay, the important point of it is to just work the refinancing of the actual debt. But we expect that and not only we expect, we made some forecast and we think that the -- we will be able to deleverage the company within significant amount of money in the next 12 months and think about something that we have at this moment.

We have 23 million less debt, total debt than last year at the same time. And in the last 12 months we were still paying a dividend of $0.72.

So we changed it only since two quarters. And it shows instantly because we are quite good cash generator.

The issue was that over the last years we were distributing majority of the generated cash. Now the Board has agreed to change it and to keep a large part of this cash inside.

So I don’t want to, at this moment, to make a real forecast of what will be the level of debt in the next 12 months. It’s -- I would say a quarterly by quarterly decision.

If we would have a very synergistic acquisition for example and if it's -- and I say it again, very synergistic acquisition, perhaps the debt would stay at the same level if don’t have this opportunity the debt will go down. So that’s the reason why at this moment, I don’t want to give an objective, a percentage or something like that.

But we know something that the room that was generated okay, since last year is highly benefiting us in what we are doing with the refinancing of the company because having $23 million less debt; it’s an easier position to talk with the eventual finance company that will join Colabor Group. So we don’t want to give an objective, but we are very, I would say very concerned okay, to improve the level of the debt and we showed it when we issued the stock in March we issued $30 million of equity and we took $17 million or $16 million after the charges.

I think we had $16 million that we put into the bank account to de-leverage the company. Since then we have created $7 million more of cash, okay, and we put it against that debt.

So we are concerned and we are focused on de-leveraging the company. But if there is a profitable opportunity in front of us we’ll use it.

Okay, understood. Thanks a lot.

Yes, guys. Just a question on -- what is the role of the '14 new senior managers that you hired, and across what divisions?

And should we expect to a jump in compensation as a result?

No, compensation jump to start. There were replacement and we paid probably a little bit more to each of them because we had senior people to join the company.

But overall you won't see anything, it’s not material. So we -- in Quebec City for example the division, Eastern Quebec division as I said, we changed the top four managers.

Number one, two, three and four and as I said in my text also in the other divisions we also tried to reinforce existing teams by changing the people. I don’t want to get into details on which division, but I can tell you that we just had the top 50 meeting two weeks ago.

And out of the top 50, 14 were new and all in senior positions. We firmly believe that you cannot turn around a company if and the first strongly believe that the first way to turnaround the company is to get new people on board and to support the existing people that have been really good at doing what they do.

But now we have a lot of newcomers to help these people to get to better results.

Okay. And is it -- and are they sales roles?

Are they -- like, what exactly type of -- you say senior management, but…

Yeah, we tried to improve both sides that the two most important side of the business, which are sales and operations because we believe that we and particularly in Quebec and Ontario we have quite a strong team in operation. But in Quebec, we wanted to get more strong operational skills and we also worked on sales.

And also in finance because the arrival of Jean-Francois, with the arrival of Jean-Francois we looked at where we should improve our finance management, working capital management etcetera. So I would say that each of these hiring's will contribute directly to an improvement within six months.

Okay and just to clarify the $2 million in savings, is that on top of $3.5 million you’ve already -- that you’ve already pre-disclosed?

Yes.

Okay, and...

Derek, don’t forget last year at the same time we said, we will take out $3.5 million of cost. I don’t know if you are talking about this 3 million.

But we also said that the last of Compass would erase a large part of it. Okay, so -- but it's on top of this 3.5 and by the way the 3.5 right now is more $4.5 million than $3.5 million.

So ongoing, I think we are going to see improvement, but we also fight against a very important customer loss and this is not showing as it should because of that.

Okay. And why did -- we talked about the lost contract for one of -- in the wholesale business.

Why did they lose that?

I would say that it's quite difficult to answer because we were not involved in these negotiations. There is a part of our business that relies on these independence fellows.

Generally speaking, they are doing extremely well, okay because even in the tough market they still because they are very involved in their community, with their clientele they get good business. But from time to time, when you get -- they lose from time to time, so we were not involved in these negotiations.

I cannot say exactly what happened. But we are an indirect supplier in this time, in this situation, so it’s quite tough to explain what happened.

But this was one of your affiliated wholesalers?

Yes.

Okay. And I guess one final question is -- we are talking about paying down the debt, or your plans to.

Any concerns with the Canada Revenue Agency coming back?

No we have no recent news on that and we look to be more proactive on the next coming month, on the next few months. So they have until mid-next year to take a decision on that, so no news.

The minute we have something new on that we will go and...

And we have no news and we cannot be in touch with the committee, okay, and so it's impossible. We sent a written defense and after that cannot get in any contacts with the agency.

Is there any -- are you guys doing any type of advanced planning in advance of a decision?

Oh yeah. In this amount of money that we would have if it happens that we would have to give CRE as a deposit it's already planned in the financing of the company and don’t worry about that, okay, it's planned.

So if it does not happen, it's going to be at just a good new in our debt.

Okay. Thanks guys.

Yes. I was just wondering, do you have any major contracts coming up for renegotiation or renewal with your outside customers who are under contract?

No, not for 15 months. The next one is the distributors in May 15.

And then on the Lauzon meats, in terms of Ontario street business, is the Lauzon meat business too far away, or could it be a differentiator in Ontario street business?

It's already going on, so we offer the Lauzon products right now in the [three] business and its building up I would say month-after-month and now it's not too far. We have a lot of Ontario meat distributors that sell in Quebec.

So we do the same.

And then just on the bank facility, are you looking for non-bank lenders, or what's the idea there?

It's too early to comment on our initiatives and strategy. It's promising what we have so far and I expect that to have some news on that during the quarter or at the end of 2013.

But no, we are looking at Canadian banks opportunities.

And then, just finally, on -- we talked quite a bit about the warehouse capacity utilization. How is the -- how do you feel you are standing on fleet logistics and, I guess, logistics generally?

We believe actually that if I were to assess where we are, I would probably assess our performance at a seven on ten, if I would assess our performance. We are more advanced in some divisions and a little bit behind in other divisions.

Overall speaking, I would assess Colabor Group as being a seven. So another opportunity to get to an eight in 2014.

That's the reason why I am talking about internal opportunities.

Great, thanks very much.

Thank you very much everybody to attend this very active session and for participation -- active participation to this session. I look forward to updating you on our progress on our year-end conference call and if we have any important news between now and then, be sure that you will be communicated.

So have a great long weekend and hoping to see you soon, bye-bye.