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Executives

Claude Gariépy - President and Chief Executive Officer

Jean-Francois Neault - Vice President and Chief Financial Officer

Analysts

Mark Neville - Scotiabank

Derek Lessard - TD Securities

Leon Aghazarian - National Bank Financial

Keith Howlett - Desjardins Securities

Ben Jekic - Industrial Alliance

Colabor Group Inc. (OTCPK:COLFF) Q4 2013 Earnings Conference Call March 13, 2014 10:30 AM ET

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Colabor Group’s Fourth Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions)

Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Thursday, March 13, 2014.

I will now turn the conference over to Claude Gariépy, President and CEO. Please go ahead.

Claude Gariépy - President and Chief Executive Officer

Good morning, everyone. And welcome to Colabor Group’s 2014 fourth quarter and year end conference call. With me is Jean-Francois Neault, Vice President and Chief Financial Officer. I will first provide general comments and discuss recent events. Then Jean-Francois will 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 earlier this morning via the Canada NewsWire News Service. These documents are also available on our website and will be on SEDAR.

In 2013 Colabor made this significant progress towards becoming a leaner and more efficient organization. We also reviewed our global debt structure as Jean-Francois will explain later. While operating results do not yet reflect full benefit from the initiatives put in place in 2013 – put in place I’m sorry 2013 was a busy and very constructive year for Colabor.

On the revenue side we launched several initiatives to stimulate organic growth. These initiatives limited the comparable sales drop to 0.7% in 2013 despite a tough economy affecting most particularly consumer discretionary expenses. Our fresh fish and wholesale meat division add strong organic growth. With regard to cost reductions the closure of two facilities following the in-depth review of operation in Eastern Quebec and New Brunswick division provides recurring annual savings without compromising customer service.

We also reviewed goods and services supplier agreements which generated significant sustainable savings and we reviewed our organization chart to become leaner particularly in the Eastern Quebec and Maritimes division. Our central procurement team reviewed many supplier agreements that generated additional suppliers’ revenues. These actions combined with a strong growth in our private label programs generated more profitable sales in the second half of 2013.

Our management team has also been strengthened both at the corporate level and in the divisions. Finally the integration of the Lauzon activity was completed further enhancing our offering in the meat category and providing synergies with other operating units. Although the first year was not profitable we’re convinced that it is a strategic acquisition in our plan to be the best foodservice distributor particularly in the perishable category.

In the second half of 2013 we started renewal discussions with our affiliated distributors. Today we’re proud to announce the early renewal of long-term supply agreement with three affiliated distributors. This is an important step forward for Colabor as two of these distributors are the largest customers of our Boucherville Wholesale division in both segments meaning the retail part of it as much as the foodservice part of it.

The three agreements represent total sales of approximately $115 million per year and more than 30% of our wholesale sales to these independent distributors. We have a strong network of affiliated distributors and we intend to work closely with them to further develop their respective markets. It is in Colabor’s interest to foster a win-win relationship. Over the next few months we intend to continue renewing more long-term contracts with affiliated distributors before the expiring dates.

A year ago I mentioned that measures initiated in 2012 would result in annual savings of approximately $3.5 million. That objective was achieved, but it was offset by the non-renewal of an important supply agreement in Ontario as of April 2013. This said we’re equally confident to achieve the savings related to the initiative implemented in 2013 that have been discussed in the (President) calls. Jean-Francois will now review our results and financial position.

Jean-Francois Neault - Vice President and Chief Financial Officer

Thank you, Claude. Good morning everyone. I’ll go over our fourth quarter operating results which was a 16 week period, after which I’ll discuss our financial position and cash flow. Fourth quarter consolidated sales reached $456.5 million in 2013 versus $464.3 million a year earlier. This 1.7% decrease was mainly due to the non-renewal of a supply agreement in Ontario effective April 1, 2013. It also reflects our decision to abandon the distribution of unprofitable tobacco products as of the second quarter of 2013.

On the other hand the acquisition of Lauzon on March 4, 2013 added sales of $33 million during the quarter, while the disposal of SKOR Culinary Concepts reduced sales by $2.5 million. Comparable sales which exclude all aforementioned items decreased slightly by 1.9%. EBITDA as a percentage of sales was stable at 2.6% but decreased slightly in monetary terms reflecting the end of the supply agreement in Ontario.

During the fourth quarter of 2013 we have reclassified to earning as part of costs not related to current operation, the $3.6 million write-down of our investment in Colabor and investment in non arm’s length entity. That was previously recorded as a pending last available for sale financial assets in our third quarter statement of comprehensive income. As a result Colabor concluded the fourth quarter 2013 with a net loss $1.9 million while last year net loss reached $2.4 million after costs not related to current operation of $5.3 million.

Cash flow defined as after-tax cash flow from operating activity before net change and working capital, less capital expenditures and interest paid was $6.4 million versus $7.5 million a year earlier. After dividend payments we generated free cash flow of $4.8 million up 45% from $3.3 million a year ago. This greater free cash flow provides Colabor with more flexibility to execute its business plan and reduce debt. As of December 31, 2013 we had drawn $108.7 million from our authorized credit facility.

This figure however does not illustrate the progress made to reduce debt in the last 12 months as it shows a portrait add a specific moment which can be affected by the punctual movement of funds. The average daily debt provides more accurate pictures of our debt reduction as it eliminates volatility enter into a point in time measure. On that basis the average daily debt in the fourth quarter of 2013 was $102 million down from $111 million in the third quarter and from $130 million in the fourth quarter of 2012. This $28 million year-over-year reduction stems from the net $15 million share issue completed in March 2013 lower average working capital and greater free cash flow after dividend payment.

As a reminder we refinanced our credit facility at the beginning of 2014 and the new agreement provide us with greater financial and operational flexibility. On that note the average fourth quarter daily debt of $102 million was well below the maximum authorized amount of $140 million as per our new syndicated bank credit facility. Finally the Board of Directors declared a quarterly dividend of $0.06 per share payable on April 15 to shareholders of record at the close of the business on March 31.

I now turn back the call to Claude.

Claude Gariépy - President and Chief Executive Officer

Thank you, Jean-Francois. We firmly believe Colabor has now more elements to be fully competitive in its key markets. While we have no control over the economy which should remain weak in 2014 in Eastern Canada and particularly in Quebec and no control over competition which is not going to ease. We will remain proactive in areas that we can control. In 2014 we will continue to focus on execution as part of a continuous improvement process to become the best in all aspects of our business.

Despite my optimism for 2014 I must stay that the less favorable year-over-year weather conditions affected January and February performance which may amplify the effect of the normal seasonal variations on the first quarter results both at sales and for the cost of doing business. We have a strong management team and this team has been highly (strengthened) in the last year as I said, dedicated employees and a solid network. These elements provide a foundation for initiatives to stimulate sales growth.

As a leaner and more efficient organization Colabor will be ready when market conditions improve. So that organic sales growth would directly lead to additional profitability gain. Furthermore our financial structure now provides us with more flexibility and is by far better suited to our business model. This will allow us to focus on capturing profitable growth opportunities that will leverage our existing markets and provide synergy – provide synergy gains I should say across our network.

In closing we spend most of 2012 and 2013 on identifying and implementing measures to become more efficient and more profitable. In 2014 we will continue to execute to capture this recurring benefits and to create more sustainable value for the shareholders.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Mark Neville with Scotiabank. Your line is open.

Mark Neville - Scotiabank

Hi, good morning. Just on big working capital adjustments and more specifically payables, at the end of Q4 I mean was that payable number too low or is where it should be and how do we think about going forward sort of thinking seasonality as well, just it was really big adjustments trying to figure it out?

Jean-Francois Neault

Hey Mark and that’s why I’ve introduced on our financial statement at Note 17, the average daily debt so you can better asses our ability to reduce debt. So the point in time comments as mentioned earlier is reflected directly to payables. Yes we’ve closed the year-end on December 31 as opposed to Saturday so that have affected point in time for 2013 as well 2012 should be looking at another point in time variation. So I would say that 2013 is a little bit higher than it should be on an average daily basis, yes.

Mark Neville - Scotiabank

Sorry so the payable number for Q4 was too low is that sort of what you’re saying, it was too high maybe in 2012 and maybe too low in 2013. Is that…

Jean-Francois Neault

Too low at 2013 sorry and too high yes in 2012 when you look at the specific point in time yes.

Mark Neville - Scotiabank

Okay. But the seasonality should be the same as it’s been historically?

Jean-Francois Neault

Exactly.

Mark Neville - Scotiabank

Okay. On the comparable sales, other down almost 2% in Q4, I assume that the weather had some impact in December. So can you give some sort of any indication as what the comp sales were in October and November?

Claude Gariépy

October, November would have been like – it’s about 1% better.

Mark Neville - Scotiabank

Okay, okay. So for Q1 sorry – you sort of touched on the guidance for Q1 on weather, but is there any additional color you can maybe provide just how big of an impact we should expect?

Claude Gariépy

I was expecting the question guys. As you know we do not do precise guidance on the future results. We wanted to illustrate that, that it’s been really I would say a special thing this weather in the.

Mark Neville - Scotiabank

Yes.

Claude Gariépy

First two months of the year as you know and even in March I don’t know what happened in Toronto yesterday but in Montreal yesterday, it was again one of the numerous snowstorm that we had this year. So I would say that we do not expect a very deep, very deep issue but I just wanted to let people know that it affects us when we have that kind of weather, it affects us on both sides. It affects us on the fact that cost of doing business gets up because you send tracks that cannot come back to the (dizzy), you – a lot of issues happened and particularly in Ontario you have a pretty tough year and a pretty tough two months I should say and our trusts were often caught into closed roads. So the cost it affects us more on the cost side than on the sales side.

Mark Neville - Scotiabank

Okay.

Claude Gariépy

That kind of weather and on the sales side just an example yesterday night I stepped at one of our very big customer and it was Canadian (indiscernible) normally displaced would have packed like 300 people minimum. We were 20 customers in the place.

Mark Neville - Scotiabank

Okay.

Claude Gariépy

We cannot ignore that fact.

Mark Neville - Scotiabank

Okay. And maybe just one last one on the revenue side then. I think it was the Q2 call you mentioned some sizable contracts that you’re working on and then potentially could be signed. Can you give maybe an update on those or anything else that you maybe bidding on that’s coming up, just trying to get a sense of where sales are going to go this year?

Claude Gariépy

We expect to get on the general comments we expect to get organic growth this year.

Mark Neville - Scotiabank

Okay.

Claude Gariépy

In 2014 despite the slow start of 2014. And the optimism regarding this is coming from the fact that we have implemented a lot of new people in the sales team. We have restructured totally the Eastern Quebec division sales team. We just hired some weeks ago a new VP Sales for Ontario. So we’ve been working really hard to strengthen the sales force. So and we have early signs that we’ll get good results in 2014 regarding that.

On another standpoint you also know that probably that we have just renewed the three very important contracts with the distributors to secure the actual sales. On the new contract we were bidding on the customer decided not to attribute a contract this year to just postpone its decision for a couple of years. But we did very well in this bid and we would have got the contract.

So it shows that we can be competitive that we can win new contracts and this is what we’re going to do in the next month. We will be – because of the new cost structure that we have implemented in the last two years, because of some of the additional supplier revenues we will be enabled to – it will enable us to be very competitive and we saw it in this bid, we’re sorry that we decided not to go with their decision but at least it showed us that we can be extremely competitive.

Mark Neville - Scotiabank

Good. Thanks very much.

Operator

Your next question comes from the line of Derek Lessard with TD Securities. Your line is open.

Derek Lessard - TD Securities

Yes, good afternoon or good morning guys. Thanks for taking my call. I have a question on the $1 million related to the increase in interest expense and amortization. Just wondering how much of the increase was related to the higher interest rates and what would have been – how much was related to the refinancing, the actual cost of refinancing?

Jean-Francois Neault

In Q4 when you compare year-over-year I’d say most of the increase is on the interest rate impact year-over-year. So I’d say more than 70% of it is interest rate. There is a portion on the accelerated amortization would be the – pretty much the balance of it.

Derek Lessard - TD Securities

Okay. Thanks. In recent quarters mostly the pressure has been felt in the distribution segment, the wholesale it’s been tough, it’s held up well. Can you just maybe help us figure out why this seems to have reversed this quarter where EBITDA was down in wholesale but extremely strong in the distribution business?

Claude Gariépy

Yes. In the wholesale business we have two businesses, the first one is Boucherville division and the other one is the carry meat. In the carry meat we take – we took it in our – the carry meat business because we have to clean some inventory. You remember that in March we have bought the inventory and some customer list coming from the Lauzon, the wholesale business of Lauzon. And we integrated the fully – this whole thing into the carry meat. At the end of the year because we’re already a well run company and cautious company, so we really went through everything into the inventory and we took it into inventory in a important manner in the carry meat. So it’s behind us and this should come back at the normal level in the first quarter.

By the way I also have to when you bring me on this thing, I will have to – I have to say that we also did the same thing in the Lauzon, the T. Lauzon acquisition. At the end of the year we just went through all inventories that we had bought in March and we qualified all the inventory and we took another if important, it’s there. It’s not in the one-time cost, it’s within the operations.

So that’s the reason why it explain this to explain a large part of the fact that our EBITDA margin went down from third quarter to the fourth quarter. If we wouldn’t have taken these two ifs in the inventory our EBITDA margin would have been at the same level than in the third quarter. So both of them is behind now. We started 2014 as a very clean at all levels of operation. And that’s the reason why we think that in 2014 we’re going to stop talking about one-time cost and integration cost and we’re going to talk about growth and about sales growth. And this company is now ready for 2014, after two years of tough times.

Derek Lessard - TD Securities

Okay. Thanks for the color guys. And then final question, can you just explain the jump in corporate expenses, it was pretty consistent with last year’s quarter, but it’s still quite volatile on a quarterly basis and I’m not sure if I can see any seasonality trends. So I was just wondering if – how should we be looking at this line item going forward?

Jean-Francois Neault

No, I would say that most of the variance comes from health and safety credit from (indiscernible) of 2012 that reduces the charge and some non-recurring revenue from our internal IT services we typically have some revenues that was not that recurring in (2013). I would focus on that mostly because the other variances are non-material.

Claude Gariépy

Yes. And just to add to Jean-Francois’s comment, the IT Department of Colabor Group is not only servicing the Colabor Group units but it’s also servicing many affiliated distributors. Last year we had the opportunity to sell two systems; two new distributors join our company in our Phoenix system. So we add one-time revenues that we did in the last quarter of 2014 – 2013 I’m sorry.

Derek Lessard - TD Securities

Okay. Thanks guys.

Operator

Your next question comes from the line of Leon Aghazarian with National Bank Financial. Your line is open.

Leon Aghazarian - National Bank Financial

Hi, good morning guys. My first question is regarding the renewal of these supply agreements. Can you just comment on the pricing there I mean was it roughly the same pricing as we had the previous contract or is there wasn’t an improvement or an increase there. Could you just quantify that a little bit first, just trying to understand all the terms of these new agreements?

Claude Gariépy

Yes. Firstly these two agreements will be on a very different basis than in the past. You have to remember that these agreements were signed when the distributors decided to sell their company to the public, okay, that to become a public company. So the initial ten years contract was a very different link between them and us. Now the renewal are done on a basis of customer – the relationship is now a customer with its suppliers. So this means that for the most important distributors it gives them better contract than they had before, but for the little one and for the less important one okay it’s less money for them.

So what it means, it means that overall okay we think that we’re going to have a very good renewal contract but it’s instead of being like a kind of co-op contract that we had 10 years ago or nine years ago. Now it’s going to be a one-to-one contract and with each of them we make sure that it’s going to be a win-win approach. So overall we do not expect important cost okay for the company if we succeed to renew all the contracts. And we’re really, really confident that we’re on the right way.

Leon Aghazarian - National Bank Financial

And how long were the contracts, is it long-term, is it…

Claude Gariépy

Many years.

Leon Aghazarian - National Bank Financial

Okay.

Claude Gariépy

Many years – it’s more than three years.

Leon Aghazarian - National Bank Financial

Okay. Fair enough.

Claude Gariépy

For me three is few and many is more, now it’s a long-term.

Leon Aghazarian - National Bank Financial

Okay.

Claude Gariépy

That’s according to the competitors I cannot say exactly is the number of years.

Leon Aghazarian - National Bank Financial

Are there any other ones that are upcoming –any type of – these type of important contracts that are up for renewal soon?

Claude Gariépy

Here we’re only talking about distributor’s important contracts, for the rest we don’t have rest of unchanged contracts.

Leon Aghazarian - National Bank Financial

Sure.

Claude Gariépy

Important one that are coming. So our focus now is to work with the distributor and the contracts that we sign are okay on top of the one year left than the existing one. So the new conditions will not get into operation before April 15 of 2015.

Leon Aghazarian - National Bank Financial

Okay. The other question that I had is you’re mentioning that Colabor is now better prepared for 2014, it’s been two years of action plan and cost cutting and restructuring and all that stuff that you mentioned and that the focus will be on growth? I mean guarding in any type of acquisition, how do you expect to grow the organic growth and what are some of the concrete initiatives that, that are out there to push the sales up basically?

Claude Gariépy

Yes. The biggest opportunities right now for organic growth, will come from the Eastern Quebec division, okay. We have totally changed the team there. We have launched a new remuneration package, it’s a brand new division and remember then partially in Quebec City the economy is good that – so we think that we have a solid organic capacity of growth out there. The other point our optimism comes from the perishable businesses. Norref, our fish business is still doing very, very good.

And then Lauzon meat, okay, the Lauzon meat that I told you that the first year was tough again when you do an acquisition, you make an acquisition like this, its something that you have to restructure to put in place new people. So everything is in place now and we believe that Lauzon will give us pretty good organic growth. So I’m talking here Norref, Lauzon, EQM, what we call EQM is Eastern Quebec and Maritimes. And also when you’re going to be looking at our sales starting April 1 of 2014 Compass less will be the (indiscernible).

And it’s been tough for the – for nine months we’ve been explaining that we have lost this contract. And so now I think that it’s going to come in a better, far better manner. Also remember that in the tobacco decision it was for $30 million to $40 million decision to let go these top-line sales. And it’s not been yet finished until March the 15. So for the first two or three months of 2014 it’s going to – it will not show as good but starting April 1 Compass will be behind, tobacco will be behind.

Our sales team will be really on the ground and hopefully April 15 the bad weather will be behind also. So we expect to have – we’re already for a better year. Just imagine how much time Jean-Francois, myself and the operators we have been involved into their refinancing debt. So it’s behind also. So in all different kind of aspects we strongly believe that Colabor is a better company today than it was.

Leon Aghazarian - National Bank Financial

Okay. Thanks for that. And then final just last one from me is I mean you just mentioned the refinancing you’re in better I guess financial situation they’ve been previously. What do you think the capital will be deployed in 2014 and what’s the acquisition pipeline looking like? Thanks.

Claude Gariépy

The first thing if you look at organic CapEx we will be raising a bit our organic CapEx not a lot but we think that in the past we’ve been really CapEx times because of all the issues that we had. Now we will be investing and getting more productivity of our DC and we have a couple of interesting internal projects regarding this aspect. So we expect CapEx to be more around $6 million in the future than what it was before. And on the other side okay by talking with our distributor for renewal some of them have indicated to us that they would prefer to get out of the business because they’re getting older. So we have – we believe good opportunities in front of us in terms of acquisition we will be extremely organized and rational and we – each of them will have to be accretive fast and also in existing markets. So I think that the approach will be more disciplined than it has been. So we’ve already determined what are the criteria to look after and make a decision so now instead of talking refinancing we’re talking growth.

Leon Aghazarian - National Bank Financial

Thank you.

Operator

Your next question comes from the line of Keith Howlett with Desjardins Securities. Your line is open.

Keith Howlett - Desjardins Securities

Yes. I had a question on the extension to the supply agreements that starts I guess in April 2015. Do they still have a right of first refusal in them and are they more like customer contracts now?

Claude Gariépy

We believe that it is a very sensitive question, Keith. And according to the fact that competitors are listening to these calls, I cannot answer these questions, I’m sorry.

Keith Howlett - Desjardins Securities

Okay. And then just on the Cara relationship, I guess they recently merged with Prime. Where is that relationship or that contract at the moment?

Claude Gariépy

At this moment we’re three more years left on the contract. So that’s the reason why I answered that, that we didn’t have in the short term any important contract. Our relationship with Cara organization and even with the new Cara organization is excellent. And we talk to each other on a regular basis and we honestly we see it at this moment as an opportunity because that Cara now owns also Prime and which is the important restaurant chain and they just also bought Keg. So we – our goal is to show how good we are to these new people and get more business from them.

Keith Howlett - Desjardins Securities

And then on the new financing agreement, the new credit facility. What sort of effective interest rate should we sort of apply to the debt on that facility?

Jean-Francois Neault

We do not comment on specific interest rate, Keith. However we’ve mentioned that you should consider a new model on a year-over-year basically the interest charges on the P&L front to be similar 2014 compared to 2013. So that’s the guidance. We’re going to be more efficient on our credit line in terms of pricing but we’re going with a mixed effect of the new sub debt, we’re going to set part of the saving. But what’s more important to remember with this new financing is the flexibility we gained with new covenants and also the adaptability of the asset base lending to our seasonal fluctuation and working capital. So it is very the first and foremost benefits we gained with this new financing.

Claude Gariépy

We could have saved some money interest wise but we took a decision, the management took a decision that we wanted to secure a part of the debt on long-term. And we knew that there was a cost to it, but also it gives us the flexibility and the time to grow the business. But the line of credit was extremely competitive but because we decided that we’re going to play cautious we’re going to just save on the side, big amount of long-term debt instead of being always in the line of credit like Jean-Francois told you it’s going to be – the gains going to be offset by the decision of parking some debt long-term wise. But we believe that for the shareholders and for the company this was the right decision.

Keith Howlett - Desjardins Securities

And then I wasn’t quite sure on the – what’s going on with this. I guess it’s – the case relating to the Norref purchase price, I (gather) there was a decision December, last period of quarter, but could you just recap what all that is about?

Jean-Francois Neault

Yes, it was not Norref, we were referring to a previous acquisition. This decision was on – we owe the former owner of this acquisition, it was a vendor take back that was sitting on our balance sheet as long-term debt, as a short term debt, sorry, the 10.600 decision court say still we’re in dispute for some adjustments on the purchase price but by the – the court decision was that we need to do the payment on the vendor take back right away. So there was a gap in our interest charges that we have accrued, so it was kind of an accounting error we mentioned on our previous press release. And we have corrected that, that’s why there is no material difference between Q4, 2012 and Q4, 2013 because you have in both quarter the impact of that extra interest charges on the vendor take back. It was not related to Norref license.

Claude Gariépy

No, it was not. Again this was a kind of a surprise but now it’s behind, so that’s the point. The point is that we’re starting 2014 extremely, extremely sharp on all operations, financial call it as you want.

Keith Howlett - Desjardins Securities

So there is – is there still some case going on about this amount or not?

Jean-Francois Neault

Not this amount. I would refer you to our financial statement. We have entered a contingent liability on Note 30 that disclosed what’s pending, but we think it’s not the opinion of the management is unfounded so there is no probation on that. So we’re still disputing in that acquisition in regards to some adjustment on the purchase price, I don’t want to get into the detail, but you’ll find all the detail in our financial statement at Note #30. I decided to insert that note for this quarter regarding to the same dispute. You have also…

Claude Gariépy

Management.

Jean-Francois Neault

On the MD&A this is a return on Note #13, sorry.

Keith Howlett - Desjardins Securities

Yes. I saw on the part of it being unfounded. The – just in terms of the – with the federal tax department on the use of the tax loss carry-forward. Is there any indication as to when that decision is coming on there or not?

Jean-Francois Neault

No, honestly we’re waiting, we’re not the only one in that situation. My understanding is that there is one or two public company that’s been in final notify on that regard. But we’re still waiting. We have some communication the CRA but nothing that we can comment on.

Keith Howlett - Desjardins Securities

Sorry, did you say some companies have received an answer?

Claude Gariépy

Yes, two of them.

Jean-Francois Neault

Yes. Two of them it’s public information, yes.

Keith Howlett - Desjardins Securities

And what was the answer?

Claude Gariépy

And some of them have been notified but the six other ones are like us waiting. And I remind you Keith that our case is quite different, the number one that has been notified is Superior Plus but Superior Plus was the first one. And as you know we were nearly the last one and we have been waiting for couple of years before getting into this to make sure that the revenue agency was agreeing with that. So our case is quite different. And I think that’s probably the reason why they’re still thinking about what they’re going to do instead of just sending us the notice.

Keith Howlett - Desjardins Securities

And then just on the cost reduction front. I know that you’re continuingly working to manage the cost of us possible. There is no similar target like last year where you set a target for the year to bring down the cost structure?

Claude Gariépy

I’m sorry.

Keith Howlett - Desjardins Securities

Last year I think you set the target of bringing down the cost structure by about $3.5 million, but going forward is it fair to assume that you – the cost structure is about where you wanted?

Claude Gariépy

No. At the third quarter I think that I identified that we were shooting for an additional $2 million.

Keith Howlett - Desjardins Securities

Okay.

Claude Gariépy

So on top of the $3.5 million.

Keith Howlett - Desjardins Securities

Okay. So no change in that objective?

Claude Gariépy

No, no change. And again this is showing into cost but it is also we – it gives us the capacity to lower the margin for the new – to get new business. So it doesn’t mean that this whole thing will directly translate into bottom line but at least we make sure that we are becoming very competitive and also as I said in my final comments when I read my initial text. We’re focused on execution. And so every month when we’ll look at the P&L we’re really looking at the cost. And but it’s not significant as a unique thing, but when you’re focusing like we’re focusing, we expect to become again lower cost operator.

Keith Howlett - Desjardins Securities

Sorry, just one last one on the Norref I know the certification to sell across provinces is been a lengthy process. How – do you feel that will be done within Q1 or Q2 or..

Claude Gariépy

That it’s something – it’s something that is very, very unusual. We are operating as a (OTC:ASAP) process since July 2013. And the inspector is he didn’t find anytime to come and to approve our processes. I shouldn’t say that but I’m really pissed off. That we’re (OTC:ASAP) in our mind, in our operations, in our finance. We just – we’re just missing this federal agency to come and give us the blessing. So we owe that it’s going to be within days or weeks but we say that’s in September 1st because they had told us at that time that it would have taken like two or three months maximum and we’re ready since July 1st.

Keith Howlett - Desjardins Securities

That’s two year, that’s very frustrating. Great. Thanks very much.

Claude Gariépy

Yes. One of the issues Keith I should have said this. There are not a lot of fish plants that are (OTC:ASAP), normally it’s for meat. And I think that they’re in the learning curve with us.

Jean-Francois Neault

Yes.

Claude Gariépy

And that’s one of the issue that right now that you cannot come with (OTC:ASAP) meat specs, you need to reinvent the wheel to be focused on fish. And that’s the reason why I think they’re getting into delays.

Keith Howlett - Desjardins Securities

Thank you.

Operator

Your next question comes from the line of Ben Jekic with Industrial Alliance. Your line is open.

Ben Jekic - Industrial Alliance

Good morning. I just have two quick questions. In terms of cost reductions of $2 million. Can you elaborate on that? Is that going to be achieved in 2014 and what steps I’m assuming that at least some of the steps from the action plan will continue, what will you undertake during the year?

Claude Gariépy

Yes. Firstly most of this comes from the write-offs that we’ve taken into the third quarter regarding the leases of the closed DCs. And so it’s not too many earnings in 2014 because part of it was already in place for Q3, Q4.

Ben Jekic - Industrial Alliance

On top of the 3, 3.5, right?

Claude Gariépy

Exactly. So most of it comes from these two facilities that we shutdown just by themselves, it was like 1.5 coming from the shutdown plus other initiatives. So I won’t say that – it’s already in place and we should show some results.

Ben Jekic - Industrial Alliance

Okay.

Claude Gariépy

But like I said again these – all these costs okay savings that we’ve done we didn’t plan that we would have 14 storm days in Toronto and 17 in Montreal. So…

Ben Jekic - Industrial Alliance

Correct.

Claude Gariépy

Remember that last year in March we see that in terraces – on terraces with a letter of warning March 20 some, today I’m looking outside and I’m seeing three feet of snow on my land right now.

Jean-Francois Neault

And we’re in line with the projected saving on debt, warehouse shutdown and even better than expected regarding the inventory side of it also. So that have added…

Claude Gariépy

That showed in the index.

Jean-Francois Neault

That showed into the reduction in inventory, you can appreciate into the financial statement.

Ben Jekic - Industrial Alliance

Right.

Jean-Francois Neault

So yes we’re in line. It’s just a run rate figures to achieve in 2014.

Ben Jekic - Industrial Alliance

Okay. And my last question is I just wanted to ask about the state of private label sales I think you have some initiatives there and probably some room to catch up to the competitors given especially some of the bigger ones and how much days to remunerate from private labels, how is the progress going in private labels?

Claude Gariépy

The progress is going in line with the expectations, okay. We had said that we would have 30% to 40% in three years and we’re in line to get that. And we started very, very strongly 2014. We did very near to double-digits in 2013 but 2014 we expect mid double-digit.

Ben Jekic - Industrial Alliance

Good. Okay. Thank you very much.

Operator

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

Derek Lessard - TD Securities

Hi guys, I just wanted to follow-up. You did a good job at answering the question as to the pressure in the wholesale business. What about the I guess the large swing and profitability in the distribution side of the business?

Jean-Francois Neault

I think Derek that’s a very important element here. We had restated our split into that segment for 2012 and 2013, that’s a good, very good cash. I can walk you to it specifically in a separate call. What we have done is our (indiscernible) segments of the distribution what we call (indiscernible). We had restated as a cost center. So that should have been presented that way. So if you follow, if you take out the previous financial information you’re right on that note. We had restated in a – to be more accurate, so the yearly figure is accurate now. So for the next quarter we’ll be following that trend. So it might change your model, you’re right. If you need more detail on that I can provide on a separate call.

Derek Lessard - TD Securities

Okay.

Jean-Francois Neault

But all of you guys should be aware that it’s a good point. We have readjusted to be more precise on our (indiscernible) company. So that’s something over the years we’ve not been precise on it.

Derek Lessard - TD Securities

Okay. I’ll do that. Thanks.

Jean-Francois Neault

Call me, I’ll walk you through the details.

Derek Lessard - TD Securities

Sure, Jean-Francois. Thanks.

Operator

There are no further questions at this time. I turn the call back over to our presenters.

Claude Gariépy - President and Chief Executive Officer

Thank you, operator and thank you ladies and gentlemen. Thank you for your participation. I look forward to updating you on our progress on our next conference call. Also note that our Annual Meeting of Shareholders will be held at our Boucherville headquarters on May the 1st. We really hope to see you there. Thank you. And have a pleasant day and there is no snow which is forecasted for today, so we should celebrate. Bye-bye.

Operator

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

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