GCL Global Holdings Ltd Ordinary Shares Price & Performance (GCL)

Merci, Sylvie. Thank you, Sylvie. Good morning, everyone, and welcome to Carnaval Group's fiscal twenty twenty four fourth quarter and year end results conference call. This is Louis Frenet, President and Chief Executive Officer. Last evening, we released our earnings results for the sixteen and fifty two week period ended 12/28/2024. The press release and disclosure documents can be found on our website at SEDAR on the website, sedarplus.ca and on our website, calabar.com. Joining me today on this call is Pierre Lachete, our Chief Financial Officer, who, following my initial remarks, will provide an overview of our financial results. Our fourth quarter and full year results demonstrate that we can win even in challenging macroeconomic environment Because of our diversification strategy within the HIRI market and investments made to expand our presence in Western Quebec, we've managed to offset the effect of challenging backdrop in the restaurant and retail channel and set the table for a bright future for Calabar. In the fourth quarter, sales grew by 3.2%, driven by distribution sales growth at 5.6%, which compensate for weaker wholesale revenues. Weakness in restaurant channel put pressure on our adjusted EBITDA margins, which still represent a healthy 5.6% of sales in the fourth quarter of twenty twenty four, down from 5.9% in the equivalent quarter of last year.

Because of our efficient management of working capital, we increased our cash flows from operations by 18.6% to $10,600,000 By prioritizing sound capital allocation, we've also ended the year with a strong balance sheet. Our leverage ratio represents 2.4 times adjusted EBITDA from 2.7 at the end of last year. Fiscal twenty twenty four was a milestone year in the second half of our twenty twenty to twenty twenty five strategic plan. We entered the year having completed an important CapEx project that would provide us with a base to triple the size, the market of our distribution activities. Starting in Q1, we slowly ramped up the facility by serving our new chain customers. And once we felt we had the required level of service, we started going after market share. While headwind affected the restaurant industry in 2024, our diversification strategy and ability to gain market share allowed us to grow our distribution sales, mitigating the effect of the difficult macro environment in this activity. We also completed a small acquisition of the Baudrilles Caderene distribution asset, which helped us raise synergy at our Eastern Quebec facility and create cross selling opportunities. For fiscal twenty twenty four, we generated $35,400,000 of adjusted EBITDA, down by $2,200,000 Margins stood at $5,400,000 down from $5,600,000 last year from the effect of a lower sales volume.

However, by soundly managing operations and prudently allocating capital, we ended the year in a strong financial situation with healthy cash flows. This provides us with the means to accelerate our growth and profitability plan. On February 19, we announced the conclusion of a highly strategic acquisition, which will further consolidate our position as the largest food distributor and boost our presence in Western Quebec. This follows into the footsteps of the ramp up of our new facility in Saint Bruno. I would like to once again go over the strategic rationale and key benefits of this transaction, which is expected to close before the end of the current, which is the second quarter. The price paid was $51,500,000 and the deal represent annual revenues of $225,000,000 We acquired certain distribution assets of Alain Plus, which operates under Meraint Plus, all of the equity of Toupre, a processor and distributor of ready to use fresh cut fruits and vegetables and concurrently concluded a six year supply agreement for the four Mera depot stores. This was a cost effective way to accelerate our presence in Western Quebec with an added value and complementary customer mix. The distribution asset purchased are primarily working capital, sorry, customer contracts and certain tangible assets.

By adding this volume to our legacy business, we will increase our purchasing power and supplier revenues, which will benefit everyone. We can also extract cross selling opportunities with our private label and specialty products, seafood and meat with our Noress and Nozons division, adding also the Toups Perre opportunity. On Slide six, we can see that together on a pro form a basis, our new customer mix move in favor of restaurants and retail, which represents 58% of revenues, up from 48% prior to the transaction. Institutional accounts will practically maintain their share of revenues at 19%, down from 20%, while wholesale customers will represent 18% sorry, 18% of revenues, down from 25. Overall, this transaction favorably impact our customer mix, allowing us to achieve an optimal risk reward profile. Along with revenue synergies, this transaction bring potential efficiency gain and operating synergies, including some interesting route optimization, capacity and geographical utilization that we aim to gradually realize over the next two years. Efficiently managing our customer mix and product portfolio has allowed us to raise our gross margin in the past few years. We will maintain this approach in the years to come to mitigate any possible headwinds.

In conclusion, the acquisition announced last week is highly strategic and accretive to earnings per shares. Because of our sound financial situation and financing structure accompanying the deal, our leverage ratio will also remain manageable as we expect it to land in the mid 3s upon closing of the Translaco. Twenty twenty five marks the last year of our five year strategic plan. The Alentis acquisition runs off this journey quite nicely. We now have a catalyst for growth and operational efficiency and stronger foundation on which to realize our longer term ambition. The acquisition of Allenteous raised our market share in the Quebec foodservice market from 11% to 16%. As the third largest distributor in a highly fragmented market, our long term ambition is to consolidate the market and create a strong and competitive Quebec supplier focus on supporting our local artisans, producers and manufacturers. We are all very excited by the potential of Ennucleus brings to Calabar and look forward to welcoming new customers and employees to our platform shortly. Jack, on this side, turn the call over to you.

Thank you, Louis, and good morning, everyone. I'm pleased to be here today to discuss our key financial results for the fourth quarter of fiscal twenty twenty four. Please refer to Slide seven to 10 of the presentation for highlights of our financial performance in the quarter. In the fourth quarter of twenty twenty four, sales were up 3.2% to $202,600,000 Revenue from our distribution activities increased by 5.6% while our wholesale activities were down by 3.8% Volume growth from our effort to develop new territories, 1.9% inflation and contribution of our Q1 twenty twenty four acquisition allowed us to mitigate the effect of lower customer spending in the restaurant and retail channel, which continues to impact our wholesale business. Consolidated adjusted EBITDA and continuing operation reached $11,300,000 or 5.6% of sales compared with $11,700,000 or 5.9% in the fourth quarter of last year, mainly from a decrease in gross margin, reflecting the decline in the restaurant industry. Net earnings from continuing operations were $500,000 or $0.01 per share, slightly up from $400,000 in the fourth quarter of twenty twenty three. Cash flows from operating activities were $10,600,000 in the fourth quarter, up from $8,900,000 in the equivalent quarter of last year, resulting from lower utilization of working capital.

There were no significant CapEx investment aside from our regular basic maintenance, which landed our total annual CapEx for fiscal twenty twenty four at $3,100,000 Looking at 2025, we don't expect significant changes to maintenance and capital expenses. We ended the year with a lower net debt of $47,800,000 down from $61,500,000 at the end of twenty twenty three and a leverage ratio of 2.4 times adjusted EBITDA also down from 2.7 times at the end of last fiscal year. Total available borrowing capacity on our credit facility before the recently announced financing structure concurrent with the acquisition of Alain Plus stood at $29,500,000 I would now like to turn the call over to the operator for the Q and A period.

Thank you. First, we will hear from Kyle Micksey at Cormark Securities. Please go ahead.

Hello, everyone. Great results. First one for me, the distribution business seems to be benefiting from volume wins that are more than offsetting the macro headwinds, but more than I thought. Were the year over year benefits of the volume wins in Q4 just wins from prior periods that are not yet lapped? Or have you also landed yet another round of new wins during Q4? And if that's the case, what kind of client types or channels is that weighted to?

Hi, Karl. Thanks for your question. It's a mix of a lot of things, but yes, we have new customers and parts that we won in the last quarter we start servicing. And they're mainly in the independent restaurants business. And also, as I said, just said, the inflation for was at 1.9% and also in our results, we have that portion of the M and A we made in the spring, existing customer net growth and but that was mitigated by the retail business as it was not as solid as it was before.

Got it. Okay. And when you quote that 1.9% inflation, is that including the offset from the downward pricing hit on the reprice contract we learned about last quarter or is the 1.9% just the pure inflation number before any impact from that? Pure inflation number, I think you do with the contract.

Okay. And that restaurant channel data that's out in the market seems to indicate there are some meaningful tailwinds into Q1 twenty twenty five from the GSTHST break for consumers. Have you noticed any benefits for your business that align with this type of data that I'm seeing?

We have mixed signals on that and mixed reporting from the industry, but to us it was minimal. And some restaurants are saying, no, there's nothing happened with that. And some others said, yes, it happened. But overall, we think at Calabar, it was minimal.

Got it. Okay. Thank you. Okay. That's it for me. I'll leave it there and pass the line. Thank you.

Thanks, Hassan.

Thank you. Next question will be from Michael Glenn of Raymond James. Please go ahead.

Hey, good morning. Just maybe to follow on the last question. To what degree are you seeing any incoming inquiries for you based on your positioning as a Quebec only distribution company, an alternative to some of the large competitors that are U. S. Based. Is that serving as any type of tailwind for your business right now?

I hope. Michael. Thanks for the question. We have, in summary, the market was tough, okay? And our results are above average because we gained 10% market share last year, okay, with a similar gross margin. And the future of the restaurant business is shown as it will progress slightly in the year. But the fact of the what's going on with the tariffs, the potential tariffs and everything and the prices that could come with the politically wise, we're in a good position because most of our products are from Canada and Quebec, especially in Canada and the rest of Canada. And only 3% of our purchases comes from The U. S. So we don't see a major shift in pricing for us, While it may be more difficult for competitors that have a large portion of their products coming straight from The U. S. So in general, I hope to report same date next year that we gain market share with a good gross margin.

Okay. And then just to circle back on the contract renewal, just can you just remind us what it was active for about five weeks in the quarter, I believe, is that accurate? And once there I guess you don't have to quantify it, but the gross margin you reported would have been impacted by that contract renewal? I'm just looking for you to maybe confirm that.

Yes. It's not material. Effectively, it's five weeks in the year. But yes, it does affect the margin ratios. And the idea is with what Pierre and I shared with the acquisition that over time, we'll recover that to the levels we want.

Okay. And just on the cash flow statement. So the lease liability line in the financing section, are you able to like that number continues to track below where I thought it would be. Do you have some updated guidance on where that number will be in 2025? And this is, of course, before. I'm not talking about the acquisition, but just for your stand alone for your business as it is today, where that lease liability payments line will be in 2025?

Yes, Michael, it's Ger. Les, what did happen between twenty twenty three prior years and 2024 is when we took on the new lease in Saint Bruno, it's a twenty year lease. And as and the accounting now is like a mortgage. So the liability goes down slower and the payments go to interest. So you'll see in the financing charges a higher number without having a higher debt necessarily. And the portion and the cash flow that goes to the liability is lower. It's like a new mortgage. Kind of not easy to figure out, but so the payments are there. It's just that it's the allocation that is different. So some goes to financing charges and some goes to the balance sheet against the liability. So to the cash flow, it's the same goes at the same place, like same lines.

I see.

Okay. And just to clarify though, I think in a couple of the prior quarters, you maybe had received a lower rate from the landlord. I don't know if I'm correct on that, but I seem to recall it.

You are correct.

Is that specific to the next quarter?

No, no, no, no. It's like the quarter is fully loaded.

Okay, perfect. That's great. Thank you so much.

No problem.

Thank you. Next question will be from Frederic Tremblay at Desjardins. Please go ahead.

Thank you. Good morning. Just on the contract renewal, I think there were some margin enhancement initiatives that you were contemplating related to that. Can you give us maybe an update on where you're at? I realize it's early stage, but just a quick update on that would be helpful.

Yes, Frederic. Thank you for the question. We have implemented mitigation measures in Q4. And again, to your comment in the question, it's early stage, but we did what we expected or what we wanted to do as mitigation. And as a reminder, the new acquisition will reduce the impact as it will make it less as a lower percentage of total sales.

Okay, great. And just on the Saint Bruno facility, how's the ramp up there going, I guess, on some of the key KPIs that you're tracking in terms of customer service and sort of order flow and quality of service? Anything to highlight there?

Yes, good improvement. We're not there yet, but we're close to our target. So since we move in early twenty twenty four, '1 of the KPIs is to measure the case per hour per employee, and it's improving. The delivery rates, service levels are almost where it's expected to be. And we reduced the overtime, and we're overall happy with the progression, okay? So it's a slow ramp up. It takes a few months to achieve it, but we're close to it. So we're happy.

Okay, great. Last question for me. Just on the sales force. You obviously invested in the sales force in 2024 to break into some regions in Western Quebec. Just wondering if the investments in the sales force are largely done or is there more to do there? And just your overall comments on where you're positioned on that aspect? So they cooperate in a competitive environment. So I don't share my game plan for the future. But the strategy we use, we declared that going after Western Quebec hiring reps with no sales, we call them the hunters, paid off quite nicely. So that was part of the standard of actions that we had on the decision of do we go Western Quebec, Greater Montreal or we continue to develop only Eastern Quebec. So it did work. And with the acquisition of Allenthus, we'll have a bunch of new more sales reps that are excellent reps over there to help us develop further our market, competitive market.

And at this time, Mr. Clement, we have no other questions. Please proceed.

Thank you, Sylvie. Thanks, Kyle, Frederic and Michael for your questions. We're now entering in the last year of our five year strategic plan on a high note. Over the last four years, we have built a diversified and resilient business by paying special attention to our customers and product mix. We've significantly improved our cash flow generation capabilities and strengthened our balance sheet. We are now eager to start integrating the activities of Alain Plus and Coupere and start surveying the four Meran Depot stores. This will provide us with scale and efficiencies that will benefit all our stakeholders and strengthen our position and open the door to new possibilities. As we look further ahead, we are getting closer to ambition of consolidating the Quebec distribution market, strengthening our local ecosystem and supply chain. This concludes our call for the fourth quarter of fiscal twenty twenty four. Thank you very much for joining us, and stay safe and healthy. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Enjoy the rest of your day.