ANNUAL REPORT
2017
COMPANY PROFILE
With annual sales of over $12 billion and over 65,000 employees, METRO is a leader in the food and pharmaceutical
distribution in Québec and Ontario, where it operates or supplies a network of 948 food stores under several banners
including Metro, Metro Plus, Super C, Food Basics, Adonis and Première Moisson, as well as 256 drugstores under the
Brunet, Metro Pharmacy and Drug Basics banners.
2017 HIGHLIGHTS
53-week fiscal year versus 52 weeks in 2016
•
Sales of $13,175.3 million, up 3.0%
•
• Net earnings of $608.4 million, up 3.8%
•
• Return on equity of 21.7%, exceeding 14% for the 24th consecutive year
• Dividends per share increase of 16.9%, the 23rd consecutive year of dividend growth
Fully diluted net earnings per share of $2.57, up 7.5%
RETAIL NETWORK
Supermarkets
Discount stores
Neighbourhood stores
Partners
Total
Drugstores
Québec
201
Ontario
134
Metro
97
58
214
78
9
25
682
183
Food Basics
129
Adonis
Première Moisson
Pharmacy
Drug Basics
2
1
266
73
Total
335
226
350
11
26
948
256
Metro
Metro Plus
Super C
Marché Richelieu
Marché Ami
Marché Extra
Adonis
Première Moisson
Brunet
Brunet Plus
Brunet Clinique
Clini Plus
Forward-looking information: For any information on statements in this Annual Report that are of a forward-looking nature, see section on "Forward-
looking information" in the Management's Discussion and Analysis (MD&A).
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FINANCIAL HIGHLIGHTS
OPERATING RESULTS
(Millions of dollars)
Sales
OI*
Net earnings
Adjusted net earnings from continuing
operations(1)
Cash flows from operating activities
FINANCIAL STRUCTURE
(Millions of dollars)
Total assets
Non-current debt
Equity
PER SHARE
(Dollars)
Basic net earnings
Fully diluted net earnings
Adjusted fully diluted net earnings from
continuing operations(1)
Book value
Dividends
FINANCIAL RATIOS
(%)
OI*/ Sales
Return on equity
2017
2016
2015
2014
2013
(53 weeks)
(52 weeks)
(52 weeks)
(52 weeks)
(52 weeks)
13,175.3
12,787.9
12,223.8
11,590.4
11,399.9
931.3
586.2
586.2
707.4
857.8
519.3
523.6
678.3
781.5
456.2
460.9
433.1
765.3
703.9
460.7
566.0
5,606.1
1,231.0
2,693.2
5,387.1
1,145.1
2,657.2
5,279.5
1,044.7
2,684.1
5,064.2
650.0
2,799.8
966.4
608.4
608.4
696.2
6,050.7
1,441.6
2,923.9
2.59
2.57
2.57
12.87
0.6275
2.41
2.39
2.39
11.52
0.5367
7.3
21.7
7.3
21.9
2.03
2.01
2.03
11.00
0.4500
7.0
19.4
30.1
38.10
24.27
35.73
1.70
1.69
1.71
10.59
0.3833
6.7
16.6
28.0
24.93
20.00
24.62
2.44
2.43
1.58
10.21
0.3217
6.7
26.4
18.8
25.27
18.84
21.58
Non-current debt/total capital
33,0
31,4
SHARE PRICE
(Dollars)
High
Low
Closing price (At year-end)
47,41
48,19
38,00
35,61
42,91
44,09
* Operating income before depreciation and amortization and associate's earnings
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
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MESSAGE FROM THE CHAIR OF THE BOARD
Dear Shareholders,
METRO achieved a good performance growth during the 2017 financial year despite a fiercely competitive market marked
by deflation of food prices. Once again, the METRO team was able to display disciplined management.
This year marks an important milestone for METRO not only because the Corporation celebrates its 70th anniversary,
but it also entered into the most important transaction of its history with The Jean Coutu Group (PJC) Inc., the leader in
the pharmacy industry in Québec. This transaction should be(2) completed in the first half of the coming year.
I would like to congratulate the President and Chief Executive Officer as well as all members of the METRO team for
the excellent work they have accomplished. We are proud to be able to count on an experienced management team to
begin this next growth phase of the Corporation.
Board of Directors
Once again, this year, the Board of Directors reviewed and approved the Corporation’s strategic plan and supported
management in ongoing initiatives and projects. We were actively involved in making and approving the transaction with
the Jean Coutu Group. The directors also reviewed and approved a six-year investment project of $400 million(2) aimed
at modernizing the Corporation's distribution network in Ontario. The Board will continue to support management on
these two strategic projects as well as on all other priorities.
The Board continued to improve the Corporation’s governance. In fact, amongst other things, the Board approved a new
code of conduct for suppliers in order to establish high ethical standards between suppliers and the Corporation.
Furthermore, the Directors’ Code of Ethics was updated to, amongst other things, include certain elements of the new
employee code of conduct approved in 2016 and to reflect the new reality of social media.
Having reached the mandatory age of retirement, Mr. Michel Labonté will retire from the Board in January 2018. Serving
on the Board of Directors since 2006, Mr. Labonté chaired the Audit Committee since 2007. On behalf of the Board, I
would like to thank him for his important contribution and the dedication that he has shown over the course of his mandate.
Mr. Labonté’s seat will not be filled as the Board expects(2) to welcome two additional directors who will be appointed
during the coming year by the Jean Coutu Group once the transaction is completed. Therefore, there will be 12 directors
serving on the Board following the next annual general meeting of shareholders, the number of Board members increasing
to 14 once the transaction is completed.
Diversity
METRO is proud to be amongst the TSX60 corporations which fosters diversity the most, according the Canadian Board
Diversity Council, with a representation of 38% of women serving on the Board during the 2017 financial year. In the
next year, our Board will continue to exceed its representation target of 30% of women or men.
I would like to thank the Board members for their cooperation and their commitment in making METRO a successful
and innovative company which continues to build for the future. Finally, thank you to our shareholders for their continued
trust.
Réal Raymond
Chair of the Board
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
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MESSAGE FROM THE PRESIDENT AND CEO
Dear Shareholders,
2017 will be a memorable year in METRO’s history.
First, we celebrated our 70th anniversary, a symbol of longevity which deserves to be recognized.
On December 22, 1947, a few independent grocers of the Montréal area joined forces to form a buying group and
became Les Magasins Lasalle Stores to better rival large retail chains of the time. This small Québec business would
transform and develop to become the Canadian leader in food and pharmaceutical distribution we know today.
We are proud of our success to date but we are not taking anything for granted. We will pursue our growth by continuously
adapting to our customer's evolving expectations.
The food industry environment was more difficult this year, marked by the deflation of food prices in a fiercely competitive
market. However, we successfully grew our sales and our net earnings while our market shares remained stable.
We recorded sales of $13,175.3 million, up 3.0%. Excluding the 53rd week of fiscal 2017, sales were up 1.0%. Same-
store sales were up 0.3%. Our net earnings were $608.4 million, up 3.8% over 2016, and fully diluted net earnings per
share were $2.57, up 7.5%. Return on equity was 21.7% and METRO’s share price closed the year at $42.91, down
2.7% over one year, but up 74.3% over three years and 120.4% over five years.
Beyond our anniversary and our good performance, we will remember 2017 mostly because of our acquisition of the
Jean Coutu Group (PJC) Inc. in October 2017, the largest transaction in our history.
Strategic investments
On October 2, 2017, we announced the acquisition of the Jean Coutu Group (PJC) Inc., the leader in pharmacy in
Québec, for approximately $4.5 billion. This transaction is subject to the completion of customary closing conditions,
including regulatory approvals, and should be(2) completed in the first half of 2018. If the closing conditions are satisfied,
this major transaction will make METRO a leader in the food, pharmacy, health and beauty retail industry in Canada,
particularly in Québec, with over 1,300 stores and projected revenues of about $16 billion(2). It will strengthen our
competitive positioning and will provide us with a new avenue for growth.
Our current distribution and franchising activities in the pharmaceutical sector, through our subsidiary McMahon
Distributeur pharmaceutique Inc. mostly under the Brunet banner, will be combined with those of the Jean Coutu Group
to create a standalone division of METRO. Jean Coutu Group shareholders will become important METRO shareholders
and will have two representatives on our Board of Directors.
As a result of this transaction, which we anticipate will deliver cost reduction synergies of $75 million(2) per year three
years from now, METRO will maintain a strong balance sheet and all of the flexibility required to pursue its growth
strategy. Twenty-five percent of the acquisition price will be paid by issuing METRO shares. The proceed of the sale of
a majority of the shares that we held in Alimentation Couche-Tard Inc. worth approximately $1.5 billion, the proceed of
the $1.2 billion debt offering announced on November 29, together with new bank financing, will be used to finance the
acquisition.
In the food sector, we announced on October 11, 2017, a $400 million(2) investment over 6 years to modernize our Ontario
distribution facilities. We will build two new distribution facilities in Toronto, one for fresh products and one for frozen
products. Both will make use of the most recent technology, including automation. The investment, which will allow us
to increase our efficiency, reflects our commitment to continue our expansion in the Ontario market. These new facilities
will enable us to offer our customers a wider range of quality products as well as improve our efficiency and the level of
service to our stores.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
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Our network and partnerships
2017 was a record year in terms of investments in our retail network. We invested $305 million with our retailers to
expand and modernize our store network. We carried out 55 large-scale projects, including 10 new stores and 45 major
renovation projects, which resulted in a 1.2% increase in our net square footage.
We relocated, remodeled or expanded 14 Metro stores and 6 Super C stores across Québec and also opened 4 new
Super C stores. For its part, Première Moisson opened a new store.
In Ontario, our improved performance and the population growth led us to open a record number of new stores. We
opened 2 Metro stores and 4 Food Basics stores. We also renovated 12 Metro stores and 9 Food Basics stores with
encouraging results.
On April 25, 2017, we announced that we would acquire the minority interests of the Adonis and Phoenicia founders, of
which we have been the majority shareholder since 2011. This transaction should close by the end of the current year.
Our partnership was a successful one for both parties and I want to thank Jamil Cheaib, Elie Cheaib and Georges
Ghrayeb for their exceptional collaboration. We are committed to continue(2) along the path they have set and expand
Adonis in Québec and Ontario.
Exceeding our customers’ expectations
Today and tomorrow's consumer is at the center of our strategic plan. That’s why we are especially proud to report an
increase in customer satisfaction in all of our banners. We noted improvements against all five of our satisfaction metrics.
This reflects the commitment of our team members and the quality of our training programs, a key element of
differentiation.
In October of 2016, we implemented an online grocery service in the Montréal area and then, at the end of this year, in
the Québec City region. After completing their online transaction, our customers can pick up their purchases at the store
or choose to have them delivered. Our omnichannel digital platform is easy to use and efficient. It received two grand
prizes, first at the 2017 Octas Gala which recognizes excellence and innovation in information technology and then at
the Boomerang Awards which recognizes the best in digital technology in Québec. The online service is accessible to
60% of Québec’s population as of November of 2017, following its deployment in the Outaouais region. We also plan(2)
to implement it in Ontario in fiscal 2019.
As a result of our determination to adapt to new trends, we acquired a majority stake in MissFresh, a Montréal company
founded in 2015, specializing in the online sale and delivery of meal kits. This service is complementary to our stores
and we believe(2) this investment will lead to increased sales and synergies.
We continue to improve our product offering in all categories and in all banners, to address our customers’ evolving
needs. Metro stores are also offering a more and more personalized experience which reflects customer preferences
through our loyalty programs - metro&moi in Québec and Air Miles in Ontario.
Our pharmaceutical activities
In the pharmaceutical sector, we achieved our goals despite the decline of generic drug prices in the wake of regulatory
reforms. We continued our efforts to optimize our network in both Québec and Ontario. In Québec, this led to the opening
of 3 new stores, the conversion of 3 others to the Brunet Plus banner and 1 relocation project. In Ontario, we successfully
launched a new layout concept in 3 pharmacies integrated into Metro stores, providing our customers with an improved
experience.
Finally, McMahon obtained an exclusive three-year contract from Québec’s Ministry of Health and Social Services to
distribute drugs in public health institutions in four regions.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
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Outlook(2)
2018 will be marked by the beginning of the combination of the activities of the Jean Coutu Group and McMahon's,
which will get underway as soon as the transaction is approved by the regulatory authorities. We will invest in our retail
network, and start our project to modernize our distribution facilities in Ontario.
In Ontario, the minimum wage will increase by more than 20% in January 2018. For METRO, the impact will be
approximately $35 million(2) for fiscal 2018. In the current market environment, characterized by low inflation and strong
competition, this significant increase in our operating costs will create significant challenges but we will make every effort
to minimize its impact.
We will continue to work to realize our vision of delivering the best customer experience in each of our banners. This
vision is supported by our strategic priorities: improving customer satisfaction, investing in our retail network, increasing
efficiencies, deploying e-commerce and developing our people.
In closing, I would like to thank and congratulate all our employees, our retailers, and my senior management colleagues
for their hard work and contribution to our success. I would also like to thank our directors for supporting our strategic
projects and their sound advice, and of course, our shareholders for their continued trust.
Eric R. La Flèche
President and Chief Executive Officer
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
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CORPORATE RESPONSIBILITY
We continue to execute and implement our 2016-2020 Corporate Responsibility Plan. One of our significant achievements
in 2017 was the development and implementation of a Responsible Procurement Framework and a Supplier Code of
Conduct for Responsible Procurement, which complement our existing policies on local purchasing and sustainable
procurement. The first applies immediately to our food activities at METRO, and will gradually be extended to other
sectors. The second went into effect throughout the whole organization and applies to the entire supply chain. These
new tools were inspired by four major principles that are important to us: commercial ethics, respect for workers and
contributing to economic development, protecting the environment and respect for animal health and welfare.
Along the same line, we continued to implement our Local Purchasing Program. In Québec, where the program was
launched in 2013, it is now in place in 11 regions, with 175 suppliers and more than 1,000 products. In Ontario, we are
currently present in 3 regions, with 50 suppliers and 220 products.
METRO increased the scope of its food recovery programs, Récupartage in Québec and One More Bite in Ontario. In
Québec, some 1,679 metric tons (including 691 tons of meat) were recovered and distributed to more than 1,200 recipient
organizations thanks to our collaboration with several food banks.
The 5th edition of the Green Apple School Program was rolled out in 2017 and will continue in 2018. Its goal is to encourage
students in Québec and Ontario schools to increase their fruit and vegetable consumption and to continue to support
our merchants' close connection to their communities.
At the start of the fiscal year, the Conseil des entreprises en technologies environnementales du Québec (CETEQ)
recognized the quality of our organic waste recovery program by awarding METRO the prix Projet vert ICI at the 7th edition
of the Envirolys Gala. In 2016, the program resulted in the recovery of over 19,000 tons of organic waste from Metro,
Super C and Food Basics stores, which was then redistributed to food banks, used for composting or sent to
biomethanization.
Once again, our employees showed great generosity during the annual campaign to benefit Centraide. We registered
a record contribution of $887,460 for the Greater Montréal area and of $1,376,722 throughout Québec. For the second
straight year, METRO received the Centraide “Solidaires Coup de coeur - Appui Global” award.
We also gave $135,000 through our employee donation program in Ontario, the Metro Full Plate Program, which lends
its support to four organizations in the food security and wellness sector.
In the spring of 2017, we led a fundraising effort involving our Metro, Metro Plus and Super C customers and employees,
to assist victims of major floods that affected more than 140 Québec municipalities. Over $516,000 was raised and
donated to the Red Cross. Another campaign involving Super C customers, raised $279,000 for the MIRA organization.
In Ontario, METRO once again partnered with The Grocery Foundation for the Toonies for Tummies campaign. A total
of $582,833 was raised by our Metro and Food Basics stores’ customers and employees.
To learn more about METRO’s orientations and achievements with respect to corporate responsibility, please consult
the documentation available at metro.ca/responsibility.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
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MANAGEMENT'S DISCUSSION AND ANALYSIS
AND CONSOLIDATED FINANCIAL STATEMENTS
For the year ended September 30, 2017
TABLE OF CONTENTS
Overview .......................................................................................................................................................
Goal, mission and strategy ............................................................................................................................
Key performance indicators ...........................................................................................................................
Key achievements in fiscal 2017 ...................................................................................................................
Events after the reporting period ...................................................................................................................
Selected annual information ..........................................................................................................................
Outlook ..........................................................................................................................................................
Operating results ...........................................................................................................................................
Quarterly highlights .......................................................................................................................................
Cash position ................................................................................................................................................
Financial position ...........................................................................................................................................
Sources of financing ......................................................................................................................................
Contractual obligations ..................................................................................................................................
Related party transactions .............................................................................................................................
Fourth quarter
...............................................................................................................................................
Derivative financial instruments .....................................................................................................................
New accounting policies ................................................................................................................................
Forward-looking information ..........................................................................................................................
Non-IFRS measurements ..............................................................................................................................
Controls and procedures ...............................................................................................................................
Significant judgements and estimates ...........................................................................................................
Risk management
.........................................................................................................................................
Management's responsibility for financial reporting .......................................................................................
Independent auditors' report
..........................................................................................................................
Annual consolidated financial statements ......................................................................................................
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33
The following Management's Discussion and Analysis sets out the financial position and consolidated results of METRO INC. for the
fiscal year ended September 30, 2017, and should be read in conjunction with the annual consolidated financial statements and the
accompanying notes as at September 30, 2017. This report is based upon information as at November 24, 2017 unless otherwise
indicated. Additional information, including the Annual Information Form and Certification Letters for fiscal 2017, is available on the
SEDAR website at www.sedar.com.
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OVERVIEW
The Corporation is a leader in food and pharmaceutical industry in Québec and Ontario.
The Corporation, as a retailer or a distributor, operates under different grocery banners in the traditional supermarket
and discount segments. For those consumers wanting service, variety, freshness and quality, we operate 335
supermarkets under the Metro and Metro Plus banners. The 226 discount stores operating under the Super C and
Food Basics banners offer products at low prices to consumers who are both cost-and quality-conscious. The Adonis
banner, which currently has 11 stores, is specialized in fresh products and Mediterranean and Middle-Eastern products.
The majority of these stores are owned by the Corporation or by structured entities and their financial statements are
consolidated with those of the Corporation. Independent owners bound to the Corporation by leases or affiliation
agreements operate a large number of Metro and Metro Plus stores. Supplying these stores contributes to our sales.
The Corporation also acts as a distributor by providing neighbourhood grocery stores with banners that reflect their
environment and customer base. Their purchases are included in the Corporation's sales. The Corporation also operates
Première Moisson, a company specialized in bakery, pastry, charcutery and other food offerings prepared on an artisanal
basis and respectful of great traditions. Première Moisson sells its products to the Corporation’s stores, to restaurant
and distribution chains as well as directly to consumers in its 26 shops. What’s more, with MissFresh, the Company is
well-positioned in a growing market, the online sale of meal kits delivered to your door or picked up in-store in a box
with recyclable packaging that seals in all of the food’s freshness.
The Corporation also acts as franchisor and distributor for 183 franchised Brunet Plus, Brunet, Brunet Clinique, and
Clini Plus drugstores, owned by independent pharmacists. The Corporation also operates 73 drugstores under Metro
Pharmacy and Drug Basics banners and their sales are included in the Corporation's sales. Our sales also include the
supply of non-franchised drugstores and various health centres.
GOAL, MISSION AND STRATEGY
The Corporation’s goal is to provide the best customer experience in each of our banners.
Our mission is to exceed our customers’ expectations day in and day out to earn their long-term loyalty.
The four pillars of our business strategy are : customer focus, best team, execution and efficiency.
We put the customer at the heart of every decision. In our supermarkets and our discount stores, friendly service, a
pleasant and efficient shopping experience, quality products and competitive prices are our priorities.
The best team consists of leaders who put the Corporation’s interests first. Employee growth and leadership development
and succession planning ensure its continued strength.
Execution and efficiency means high operating standards across the board, a results-driven corporate culture, engaging
all employees and monitoring performance so as to react swiftly.
Our business strategy is founded on corporate responsibility. The fundamental purpose of our actions is to ensure
profitable growth for all: employees, shareholders, business partners and the communities that we serve.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
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KEY PERFORMANCE INDICATORS
We evaluate the Corporation's overall performance using the following principal indicators:
• sales:
same-store sales growth;
dollar value of the average basket (average customer transaction) and number of transactions;
average weekly sales;
average weekly sales per square foot;
percentage of sales represented by customers who are loyalty program members;
market share;
customer satisfaction;
• gross margins percentage;
• sales per hour worked by store to assess productivity;
• operating income before depreciation and amortization and associate's earnings as a percentage of sales;
• net earnings as a percentage of sales;
• net earnings per share growth;
•
•
return on equity;
retail network investments:
dollar value and nature of store investments;
number of stores;
average store square footage;
network's total square footage.
KEY ACHIEVEMENTS IN FISCAL 2017
Our sales in 2017 rose 3.0% over those for 2016. Net earnings increased by 3.8% and fully diluted net earnings per
share by 7.5% over those for 2016. The 2017 fiscal year was 53 weeks long, one more than in fiscal 2016. That extra
week had an impact of $258.4 million on our sales and $0.05 on our net earnings per share. Our customer-first strategies
and sustained investments in our retail network enabled us to increase our sales in a very competitive market. We
realized several projects over the fiscal year, including the following major ones:
• We continued, along with our retailers, our investment plan in our stores with projects totalling $305 million. In Québec,
we opened a new Super C store, converted three Metro stores into Super C stores, relocated three stores and carried
out major renovations in 17 others. We were also very active in Ontario, where we opened two new Metro stores,
four new Food Basics stores, and carried out renovations in 21 other stores.
• Our online grocery service, launched in October of 2016 in three stores in the Montréal area, continued its expansion
in the province. Since October 2017, the service is available to the entire Greater Montréal region, including both the
South Shore and the North Shore, as well as the Québec City region. The service will be available to 60% of the
population of Québec by the end of 2017 as we add other regions, always with the promise of guaranteed freshness.
We plan to implement the service in Ontario in fiscal 2019. Last May, METRO was recognized for its online shopping
project by winning an award at the OCTAS Gala, organized by l’Association des technologies de l’information du
Québec, in the Large Company category. The OCTAS awards recognize projects for their creativity, vitality and
contribution to the growth of digital information and technology.
• The METRO banner continued to work on an increasingly more relevant offering for its consumers, as well as on
personalizing its offerings. In a market that is converging more and more towards digital activities, metro&moi members
can now enjoy an even more user-friendly app with coupons and reward cheques now available on their mobile.
• Super C and Food Basics are always trying to find new ways to better serve their clientele and they seized the
opportunity to become the first two discount banners to feature a mobile app. This app allows users to go through
the flyer, view the weekly specials, access multiple exclusive supplier coupons and locate the nearest store.
• We began selling beer last year in certain Metro and Food Basics stores in Ontario and we added wine this past
year. We are always on the lookout for ways to better meet the needs of our clientele.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 12 -
• Three Marché Richelieu stores underwent expansion or renovations. The new concept provides a different ambiance
with a modern design and a greater variety of products in all departments, as well as more space set aside for local
beers.
• The Local Purchasing Program continued to progress with presently 11 regions in Québec and three regions in
Ontario. There are now a combined 225 participating suppliers in both provinces. Local food purchasing helps build
a strong agri-food system and also helps our economy grow by creating good jobs.
• Our private labels won 22 awards, recognizing the quality, originality and innovation of our Selection and Irresistibles
products. Among them was our French wine, Hémisphère, named one of the best private label wines in the world
with respect to taste and design by The Private Label Manufacturers Association (PLMA).
• The Brunet banner continued to develop as it opened three new establishments. Our McMahon pharmaceutical
division was awarded an exclusive contract to distribute drugs in all of the public health institutions in the Montérégie,
Laurentides-Lanaudière, the Outaouais and Abitibi. Those last two regions constitute new business for McMahon.
• Last April we announced the repurchase of the minority interest held by the three founders of Groupe Adonis and
Groupe Phoenicia at the end of fiscal 2017, as they have decided to retire. This ends a very successful partnership
for both parties. The succession at the head of Groupe Adonis and Groupe Phoenicia was planned long ago with the
founders in order to ensure continuity within the companies, for both employees and customers.
• Première Moisson introduced a new line of products exclusive to Metro, Collection Première Moisson, launched in
September of 2017. We also opened a new store in Ville St-Laurent in October 2016.
• On August 1st we announced the acquisition of a majority interest in MissFresh Inc., a very young company specializing
in the online sale and delivery of meal kits. As a result, METRO is positioning itself in a fast-growing market and
continues its efforts to meet all of its clientele’s needs.
• Deeming the market favourable, on February 27, 2017 we issued a private placement offering of $400 million Series E
senior unsecured notes at the floating bankers’ acceptance rate plus 57 basis points (0.57%). The proceeds of this
issuance were used to pay down our revolving credit facility.
• We continued our share buyback program with over seven million repurchased shares over the course of the fiscal
year. The Company did not renew its share buyback program in the normal course of its activities.
• Well aware of the various ongoing issues in our society, METRO is present on a regular basis to make donations
and to help with fundraising efforts mainly for Centraide, the Red Cross, MIRA, Sainte-Justine’s Tree of Lights, and
through the Metro Full Plate Program and Toonies for Tummies in Ontario. For the second straight year, METRO
won the “Solidaires Coup de c ur- appui Global” award, handed out by Centraide. Furthermore, in an effort to get
even more involved in the community, METRO partnered with the Regroupement partage organization to carry out
the Cultiver l’espoir project: growing organic vegetables on five hectares of unused farmland on the West Island, on
loan from the City of Montréal. METRO committed to selling half of the organic carrot production in its Metro and
Super C stores, in order to sustain the project’s self-financing, and thus allow Regroupement partage to distribute,
free of charge, to food banks, such as the Welcome Hall Mission, Moisson Montréal and Sun Youth. In doing so,
METRO is pleased to ensure a guaranteed source of revenue to establish the program’s longevity and to support
the sustainable procurement of food safety organizations.
• On November 21, 2016, METRO was awarded the prix Projet vert ICI at the 7th edition of the Envirolys Gala, organized
by the Conseil des entreprises en technologies environnementales du Québec (CETEQ). The project rewards an
institution, business or industry whose activity is not directly linked to the environment sector, but who takes part in
protecting the environment by developing an innovative project in a sustainable development perspective related to
its mission. METRO presented the organic waste recovery program for all banners in Québec (Metro and Super C)
and in Ontario (Metro and Food Basics). This program resulted in recovering a total of over 19,000 tons of organic
waste in 2016.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 13 -
EVENTS AFTER THE REPORTING PERIOD
On October 2, 2017, the Corporation and The Jean Coutu Group (PJC) Inc. (“PJC”) announced that they had entered
into a definitive combination agreement pursuant to which the Corporation will acquire all of the outstanding PJC Class
A subordinate voting shares and all of the outstanding PJC Class B shares (collectively, the “PJC Shares”) for $24.50
per PJC Share (the “Purchase Price”), representing a total consideration of approximately $4,500.0 million, subject to
the completion of customary closing conditions, including regulatory and PJC shareholder approvals (the “Acquisition”).
Under the terms of the Acquisition, The Jean Coutu Group shareholders (“PJC Shareholders”) will receive an aggregate
consideration which will consist of 75% in cash and 25% in common shares of the Corporation. The PJC shareholders
approved the Acquisition on November 29, 2017.
To finance the cash element of the Purchase Price, at the moment of the announcement, the Corporation secured access
to committed bank facilities fully underwritten by Bank of Montréal, Canadian Imperial Bank of Commerce and National
Bank of Canada. The committed facilities consisted of a $500.0 million term loan facility (itself consisting of a 3-year
$100.0 million tranche A, 4-year $150.0 million tranche B and a 5-year $250.0 million tranche C), a 1-month $250.0 million
bridge term facility, an asset sale term facility of $1,500.0 million and a 1-year $1,200.0 million term facility.
The Corporation completed the sale of the majority of its holding in Alimentation Couche-Tard Inc. on October 13, 2017
and October 17, 2017. As a result of such sale, the Corporation has terminated the $1,500.0 million asset sale term
facility and plans(2) to use the proceeds of such sale to finance in part the Acquisition.
On December 4, 2017 the Corporation issued a private placement of $300.0 million aggregate principal amount of
Series F unsecured senior notes, bearing interest at a fixed nominal rate of 2.68% and maturing in 2022; $450.0 million
aggregate principal amount of Series G unsecured senior notes, bearing interest at a fixed nominal rate of 3.39% and
maturing in 2027; and $450.0 million aggregate principal amount of Series H unsecured senior notes, bearing interest
at a fixed nominal rate of 4.27% and maturing in 2047. As a result of such issuance, the Corporation terminated the
$1,200.0 million term facility and plans(2) to use the proceeds of such issuance to finance in part the Acquisition.
The Corporation revised the terms of the $500.0 million term loan facility, now consisting of a 1-year $100.0 million
tranche A, 2-year $200.0 million tranche B and a 3-year $200.0 million tranche C.
The Corporation also announced on October 11, 2017, a projected $400.0 million(2) investment over six years in its
Ontario distribution network. The Corporation will modernize its Toronto operations between 2018 and 2023, building a
new fresh distribution centre and a new frozen distribution centre.
In October 2017, the Canadian Competition Bureau began an investigation into the supply and sale of commercial bread
which involves certain Canadian suppliers and retailers, including the Corporation. The Corporation fully cooperates
with the authorities. Since the investigation is in its early stages, the Corporation is unable to assess what further action,
if any, the Competition Bureau may take or the possible impact of the inquiry on the Corporation. However, based on
the very limited information currently available, the Corporation does not believe that this matter will have a material
adverse effect on the Corporation’s business, results of operations or financial condition.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 14 -
SELECTED ANNUAL INFORMATION
2017
2016
Change
2015
Change
(Millions of dollars, unless otherwise indicated)
Sales
(53 weeks)
(52 weeks)
13,175.3
12,787.9
Net earnings attributable to equity holders of the parent
Net earnings attributable to non-controlling interests
Net earnings
Basic net earnings per share
Fully diluted net earnings per share
Adjusted net earnings(1)
Adjusted fully diluted net earnings per share(1)
Return on equity (%)
Dividends per share (Dollars)
Total assets
Current and non-current portions of debt
591.7
16.7
608.4
2.59
2.57
608.4
2.57
21.7
571.5
14.7
586.2
2.41
2.39
586.2
2.39
21.9
0.6275
6,050.7
1,454.5
0.5367
5,606.1
1,246.5
%
3.0
3.5
13.6
3.8
7.5
7.5
3.8
7.5
—
16.9
7.9
16.7
(52 weeks)
12,223.8
506.1
13.2
519.3
2.03
2.01
523.6
2.03
19.4
0.4500
5,387.1
1,161.6
%
4.6
12.9
11.4
12.9
18.7
18.9
12.0
17.7
—
19.3
4.1
7.3
Sales were $13,175.3 million in 2017, up 3.0% from 2016 sales. Sales for 2016 were $12,787.9 million, up 4.6% from
$12,223.8 million in 2015. Fiscal 2017 was 53 weeks long, one week longer than fiscal 2016. Excluding this extra week,
fiscal 2017 sales were up 1.0%. In 2017, same-store sales were up 0.3%. In 2016, same-store sales were up 3.7%.
Net earnings for fiscal 2017 reached $608.4 million, up 3.8% from the previous fiscal year. Fully diluted net earnings per
share were $2.57 in 2017, an increase of 7.5% from the previous year. Fiscal 2017 was a 53-week year, one more week
than fiscal 2016. Excluding the 53rd week results and $2.5 million before taxes for professional fees related to The Jean
Coutu Group acquisition and the modernization project of our distribution network in Toronto, net earnings would have
been up 2.0% and fully diluted net earnings per share, up 5.4%. Net earnings for fiscal 2016 were $586.2 million, up
12.9% from $519.3 million in fiscal 2015. Fully diluted net earnings per share for 2016 were $2.39 versus $2.01 in fiscal
2015, an increase of 18.9%.
In 2015, we recorded after-tax Series A notes early redemption fees of $4.3 million as non-recurring item. Excluding this
non-recurring item, net earnings for 2016 were up 12.0% versus adjusted net earnings(1) of $523.6 million in 2015 and
fully diluted net earnings per share for 2016 were up 17.7% versus adjusted fully diluted net earnings per share(1) of
$2.03 in 2015.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 15 -
OUTLOOK(2)
2018 will be marked by the beginning of the combination of the activities of the Jean Coutu Group and McMahon's,
which will get underway as soon as the transaction is approved by the regulatory authorities. We will invest in our retail
network, and start our project to modernize our distribution facilities in Ontario.
In Ontario, the minimum wage will increase by more than 20% in January 2018. For METRO, the impact will be
approximately $35 million(2) for fiscal 2018. In the current market environment, characterized by low inflation and strong
competition, this significant increase in our operating costs will create significant challenges but we will make every effort
to minimize its impact.
We will continue to work to realize our vision of delivering the best customer experience in each of our banners. This
vision is supported by our strategic priorities: improving customer satisfaction, investing in our retail network, increasing
efficiencies, deploying e-commerce and developing our people.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 16 -
OPERATING RESULTS
SALES
Sales for fiscal 2017 totalled $13,175.3 million versus $12,787.9 million for fiscal 2016, an increase of 3.0%. Excluding
the extra 53rd week in 2017, sales were up 1.0 %. Same-store sales were up 0.3%.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND ASSOCIATE'S EARNINGS
This earnings measurement excludes financial costs, taxes, depreciation and amortization and associate's earnings.
For fiscal 2017, operating income before depreciation and amortization and associate's earnings totalled $966.4 million
or 7.3% of sales versus $931.3 million or 7.3% of sales for fiscal 2016, up 3.8%.
Gross margins on sales for fiscal 2017 and 2016 was 19.7%. Operating expenses as a percentage of sales for fiscal
2017 and 2016 was stable at 12.4% reflecting ongoing cost controls.
DEPRECIATION AND AMORTIZATION AND NET FINANCIAL COSTS
Total depreciation and amortization expenses for fiscal 2017 were $194.2 million versus $182.8 million for fiscal 2016.
For fiscal 2017, net financial costs totalled $63.9 million compared to $61.4 million in 2016.
SHARE OF AN ASSOCIATE'S EARNINGS
For fiscal 2017, our share of earnings in Alimentation Couche-Tard was $93.5 million versus $91.1 million in 2016.
INCOME TAXES
The income tax expense of $193.4 million for 2017 and $192.0 million for 2016 represented effective tax rates of 24.1%
and 24.7% respectively.
NET EARNINGS
Net earnings for fiscal 2017 were $608.4 million, an increase of 3.8% over net earnings of $586.2 million for fiscal 2016.
Fully diluted net earnings per share rose 7.5% to $2.57 from $2.39 last year. Excluding the 53rd week results and $2.5
million before taxes for professional fees related to The Jean Coutu Group acquisition and the modernization project of
our distribution network in Toronto, net earnings would have been up 2.0% and fully diluted net earnings per share, up
5.4%.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 17 -
QUARTERLY HIGHLIGHTS
(Millions of dollars, unless otherwise indicated)
2017
2016 Change (%)
Sales
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
Net earnings
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
Fully diluted net earnings per share (Dollars)
Q1(3)
Q2(3)
Q3(4)
Q4(5)
Fiscal
(3) 12 weeks
(4) 16 weeks
(5) 2017 - 13 weeks, 2016 - 12 weeks
2,971.3
2,902.4
4,073.2
3,228.4
2,961.6
2,882.0
4,015.4
2,928.9
13,175.3
12,787.9
138.1
132.4
183.0
154.9
608.4
0.58
0.56
0.78
0.66
2.57
139.8
124.9
176.5
145.0
586.2
0.56
0.51
0.72
0.60
2.39
0.3
0.7
1.4
10.2
3.0
(1.2)
6.0
3.7
6.8
3.8
3.6
9.8
8.3
10.0
7.5
Sales in the first quarter of 2017 reached $2,971.3 million, up 0.3% compared to $2,961.6 million in the first quarter of
2016. Same-store sales were up 0.7% (2.8% in the same quarter of 2016). Our aggregate food basket experienced
deflation of 1.0% versus an inflation of 2.8% in 2016, which largely explains our lower sales growth. Certain other factors
also impacted our sales negatively, namely our decision not to renew a supply agreement for a network of hospitals in
our wholesale pharmaceutical business, as well as the closure for conversion of some Metro stores that has not been
offset in the first quarter by sales of the newly-opened discount stores.
Sales in the second quarter of 2017 reached $2,902.4 million, up 0.7% compared to $2,882.0 million in the second
quarter of 2016. Same-store sales were up 0.3% (5.0% in the same quarter of 2016). Our food basket experienced more
deflation than in the previous quarter, at about 2.0% (inflation of 3.0% in 2016), which largely explains our modest sales
growth.
Sales in the third quarter of 2017 reached $4,073.2 million, up 1.4% compared to $4,015.4 million in the third quarter of
2016. Same-store sales decreased slightly by 0.2% compared to an increase of 3.9% in the third quarter of 2016. Our
food basket continued to experience a deflation of approximately 1% (inflation of 1.5% in 2016) which largely explains
our lower sales growth.
Sales in the fourth quarter of 2017 reached $3,228.4 million, up 10.2% compared to $2,928.9 million in the fourth quarter
of 2016. Excluding the extra 13th week in 2017, fourth quarter sales were up 1.4%. Same-store sales increased by 0.4%
compared to an increase of 2.8% in the fourth quarter of 2016. Our food basket experienced a slight inflation of about
0.3%, compared to deflation in the three previous quarters.
Net earnings for the first quarter of 2017 were $138.1 million, a decrease of 1.2% from $139.8 million for the first quarter
of 2016. Fully diluted net earnings per share rose 3.6% to $0.58 from $0.56 in 2016. The decrease in net earnings is
due to a $6.7 million decline in our share of an associate’s earnings (Alimentation Couche-Tard).
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 18 -
Net earnings for the second quarter of 2017 were $132.4 million, an increase of 6.0% from $124.9 million for the second
quarter of 2016. Fully diluted net earnings per share rose 9.8% to $0.56 from $0.51 in 2016.
Net earnings for the third quarter of 2017 were $183.0 million, an increase of 3.7% from $176.5 million for the third
quarter of 2016. Fully diluted net earnings per share rose 8.3% to $0.78 from $0.72 in 2016.
Net earnings for the fourth quarter of 2017 were $154.9 million, an increase of 6.8% from $145.0 million for the fourth
quarter of 2016. Fully diluted net earnings per share rose 10.0% to $0.66 from $0.60 in 2016. Excluding the 13th week
results and $2.5 million before taxes for professional fees related to The Jean Coutu Group acquisition and the
modernization project of our distribution network in Toronto, net earnings would have been similar to net earnings in
2016 and fully diluted net earnings per share, up 1.7%.
CASH POSITION
OPERATING ACTIVITIES
Operating activities generated cash flows of $696.2 million over fiscal 2017 compared to $707.4 million in 2016. This
difference is mainly due to the increase in income tax paid.
INVESTING ACTIVITIES
Investing activities required outflows of $333.0 million over fiscal 2017 versus $328.3 million in 2016. This difference is
due to $55.3 million higher fixed and intangible asset acquisitions in 2017 and $35.0 million in business acquisitions in
2016.
During fiscal 2017, we and our retailers opened 10 new stores and carried out major expansions and renovations of
45 stores for a net increase of 236,300 square feet or 1.2% of our retail network.
FINANCING ACTIVITIES
Over fiscal 2017, we utilized $241.8 million versus $373.1 million in 2016. This variance is due in part to a $121.0 million
net increase in debt compared with 2016. In 2017, there was a $737.7 million debt increase as well as a $537.0 million
debt repayment compared to a $222.3 million increase and $142.6 million repayment in 2016. The greater debt increase
and repayment in 2017, are due to the issuance of $400.0 million unsecured notes. Also, redemption of shares was
$28.7 million lower compared to 2016.
FINANCIAL POSITION
We do not anticipate(2) any liquidity risk and consider our financial position at the end of fiscal 2017 as very solid. We
had an unused authorized revolving credit facility of $600.0 million. Our non-current debt corresponded to 33.0% of the
combined total of non-current debt and equity (non-current debt/total capital).
At the end of fiscal 2017, the main elements of our non-current debt were as follows:
Revolving Credit Facility
Interest Rate
Rates fluctuate with changes in bankers'
Maturity
acceptance rates
November 3, 2022
Series E Notes
Rates fluctuate with changes in bankers'
Series C Notes
Series B Notes
Series D Notes
acceptance rates
3.20% fixed rate
5.97% fixed rate
5.03% fixed rate
February 27, 2020
December 1, 2021
October 15, 2035
December 1, 2044
Balance
(Millions of dollars)
—
400.0
300.0
400.0
300.0
At the end of fiscal 2017, we had foreign exchange forward contracts to hedge against the effect of foreign exchange
rate fluctuations on our future foreign-denominated purchases of goods and services in US$.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 19 -
Our main financial ratios were as follows:
Financial structure
Non-current debt (Millions of dollars)
Equity (Millions of dollars)
Non-current debt/total capital (%)
As at
September 30, 2017
As at
September 24, 2016
1,441.6
2,923.9
33.0
2017
(53 weeks)
1,231.0
2,693.2
31.4
2016
(52 weeks)
Results
Operating income before depreciation and amortization and
associate's earnings/Financial costs (Times)
15.1
15.2
CAPITAL STOCK
(Thousands)
Balance – beginning of year
Share redemption
Stock options exercised
Balance – end of year
Balance as at November 24, 2017 and November 25, 2016
(Thousands)
Balance – beginning of year
Acquisition
Release
Balance – end of year
Balance as at November 24, 2017 and November 25, 2016
Common Shares issued
2017
234,511
(7,433)
641
227,719
227,719
Treasury shares
2017
665
170
(256)
579
519
2016
242,285
(8,477)
703
234,511
231,699
2016
743
165
(243)
665
665
STOCK OPTIONS PLAN
Stock options (Thousands)
Exercise prices (Dollars)
As at
November 24, 2017
As at
September 30, 2017
As at
September 24, 2016
3,180
15.09 to 44.73
3,180
3,483
15.09 to 44.73
14.55 to 44.73
Weighted average exercise price (Dollars)
26.94
26.94
23.67
PERFORMANCE SHARE UNIT PLAN
Performance share units (Thousands)
520
547
664
As at
November 24, 2017
As at
September 30, 2017
As at
September 24, 2016
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 20 -
NORMAL COURSE ISSUER BID PROGRAM
The normal course issuer bid program covering the period between September 12, 2016 and September 11, 2017
allowed the Corporation to repurchase up to 12,000,000 of its Common Shares. Under this program, the Corporation
has repurchased 7,811,722 Common Shares at an average price of $40.82, for a total of $318.9 million. The Corporation
didn’t renew its normal course issuer bid program.
DIVIDEND
For the 23rd consecutive year, the Corporation paid quarterly dividends to its shareholders. The annual dividend increased
by 16.9%, to $0.6275 per share compared to $0.5367 in 2016, for total dividends of $143.5 million in 2017 compared
to $127.1 million in 2016. Dividends paid in 2017 represented 24.5% of adjusted net earnings(1) of 2016.
SHARE TRADING
The value of METRO shares remained in the $38.00 to $47.41 range throughout fiscal 2017 ($35.61 to $48.19 in 2016).
A total of 153.3 million shares traded on the TSX during this fiscal year (144.4 million in 2016). The closing price on
Friday, September 29, 2017 was $42.91, compared to $44.09 at the end of fiscal 2016. Since fiscal year-end, the value
of METRO shares has remained in the $39.55 to $43.33 range. The closing price on November 24, 2017 was $40.27.
METRO shares have maintained sustained growth over the last 10 years, reflecting a performance superior to that of
the S&P/TSX index and the Canadian Food Industry sector index.
COMPARATIVE SHARE PERFORMANCE (10 YEARS)*
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 21 -
SOURCES OF FINANCING
Our operating activities as well as net increase in debt generated in 2017 cash flows in the amount of $696.2 million
and $200.7 million respectively. These major cash flows were used to finance our investing activities, including
$368.9 million in fixed and intangible assets acquisition, to redeem shares for an amount of $302.6 million, to pay
dividends of $143.5 million, and to carry out other investing and financing activities.
On February 27, 2017, the Corporation issued a private placement of $400.0 million aggregate principal amount of
Series E unsecured senior notes, bearing interest at a floating rate equal to the 3-month bankers' acceptance rate plus
57 basis points (0.57%) set quarterly and maturing February 27, 2020. The Corporation decided to allocate the proceeds
of this issue to repay $450.0 million of its revolving credit facility which had a weighted average interest rate of 1.90%.
At 2017 fiscal year-end, our financial position mainly consisted of cash and cash equivalents in the amount of
$148.9 million, an unused authorized Revolving Credit Facility of $600.0 million maturing in 2022, Series E Notes in the
amount of $400.0 million maturing in 2020, Series C Notes in the amount of $300.0 million maturing in 2021, Series B
Notes in the amount of $400.0 million maturing in 2035 and Series D Notes in the amount of $300.0 million maturing in
2044.
We believe(2) that cash flows from next year's operating activities will be sufficient to finance the Corporation's current
investing activities.
CONTRACTUAL OBLIGATIONS
Payment commitments by fiscal year (capital and interest)
(Millions of dollars)
2018
2019
2020
2021
2022
Facility
and
loans
10.0
3.4
4.1
1.6
1.5
Notes
54.7
54.7
451.1
48.6
340.6
2023 and thereafter
23.1
43.7
1,344.9
2,294.6
Finance
lease
commitments
Service
contract
commitments
Operating
lease
commitments
5.4
4.9
3.6
2.1
1.9
18.1
36.0
73.3
61.2
26.2
3.9
3.9
7.3
186.4
170.5
149.3
131.9
114.2
548.8
175.8
1,301.1
Lease and
sublease
commitments(6)
44.9
44.0
39.8
35.9
32.5
Total
374.7
338.7
674.1
224.0
494.6
169.0
366.1
2,111.2
4,217.3
(6) The Corporation has lease commitments with varying terms through 2035, to lease premises which it sublets to clients, generally under the same
conditions.
RELATED PARTY TRANSACTIONS
During fiscal 2017, we supplied supermarkets held by a member of the Board of Directors (member until January 24, 2017)
and paid fees to Dunnhumby Canada Limited, a joint venture, for analysis of our customer sales data. These transactions
were carried out in the normal course of business and recorded at exchange value. They are itemized in note 27 to the
consolidated financial statements.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 22 -
FOURTH QUARTER
(Millions of dollars, except for net earnings per share)
Sales
Operating income before depreciation
and amortization and associate's earnings
Net earnings
Fully diluted net earnings per share
Cash flows from:
Operating activities
Investing activities
Financing activities
SALES
2017
(13 weeks)
3,228.4
236.1
154.9
0.66
236.8
(112.0)
(37.8)
2016
Change
(12 weeks)
2,928.9
221.6
145.0
0.60
224.0
(94.9)
(101.6)
%
10.2
6.5
6.8
10.0
—
—
—
Sales in the fourth quarter of 2017 reached $3,228.4 million, up 10.2% compared to $2,928.9 million in the fourth quarter
of 2016. Excluding the extra 13th week in 2017, fourth quarter sales were up 1.4%. Same-store sales increased by 0.4%
compared to an increase of 2.8% in the fourth quarter last year. Our food basket experienced a slight inflation of about
0.3%, compared to deflation in the three previous quarters.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND ASSOCIATE'S EARNINGS
Operating income before depreciation and amortization and associate's earnings (Alimentation Couche-Tard) for the
fourth quarter of 2017 totalled $236.1 million or 7.3% of sales versus $221.6 million or 7.6% of sales for the same quarter
last year, up 6.5%. This increase is largely attributable to 2017’s 13th week.
Gross margins on sales for the fourth quarter of 2017 was 19.6% compared to 19.8% for the corresponding quarter of
2016. Operating expenses as a percentage of sales for the fourth quarter of 2017 was 12.3% versus 12.2% for the fourth
quarter of 2016.
DEPRECIATION AND AMORTIZATION AND NET FINANCIAL COSTS
Total depreciation and amortization expense for the fourth quarter of 2017 was $46.0 million versus $43.9 million for the
corresponding quarter of 2016.
Net financial costs for the fourth quarter of 2017 totalled $15.5 million compared to $14.0 million for the same quarter
last year.
SHARE OF AN ASSOCIATE'S EARNINGS
Our share of earnings in Alimentation Couche-Tard was $27.5 million for the fourth quarter of 2017 versus $23.8 million
for the corresponding quarter of 2016.
INCOME TAXES
The 2017 fourth quarter income tax expense of $47.2 million represented an effective tax rate of 23.4% compared with
the 2016 fourth quarter tax expense of $42.5 million for an effective tax rate of 22.7%.
NET EARNINGS
Net earnings for the fourth quarter of 2017 were $154.9 million, an increase of 6.8% from $145.0 million for the fourth
quarter of 2016. Fully diluted net earnings per share rose 10.0% to $0.66 from $0.60 last year. Excluding the 13th week
results and $2.5 million before taxes for professional fees related to The Jean Coutu Group acquisition and the
modernization project of our distribution network in Toronto, net earnings would have been similar to last year and fully
diluted net earnings per share, up 1.7%.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 23 -
CASH POSITION
Operating activities
Operating activities generated cash flows of $236.8 million in the fourth quarter of 2017 compared to $224.0 million for
the corresponding quarter of 2016.
Investing activities
Investing activities required outflows of $112.0 million in the fourth quarter of 2017 versus $94.9 million for the
corresponding quarter of 2016. This difference is primarily due to fixed and intangible asset acquisitions that were
$30.4 million greater in 2017 than in 2016, less $13.0 million in proceeds from disposal of assets.
Financing activities
In the fourth quarter of 2017, we utilized $37.8 million in funds versus $101.6 million for the corresponding quarter of
2016. This variance is primarily attributable to the redemption of shares in the amount of $71.7 million in 2016 while
there was no share redemption in 2017.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation adopted a risk management policy, approved by the Board of Directors in April 2010, setting forth
guidelines relating to its use of derivative financial instruments. These guidelines prohibit the use of derivatives for
speculative purposes. During fiscal 2017, the Corporation used derivative financial instruments as described in notes 2
and 29 to the consolidated financial statements.
NEW ACCOUNTING POLICIES
ISSUED BUT NOT YET EFFECTIVE
Financial instruments
IFRS 9 “Financial Instruments” replaces IAS 39 “Financial Instruments: Recognition and Measurement” and includes
the following significant changes:
•
•
a single approach to determine whether a financial asset is measured at amortized cost or fair value;
a new hedge accounting model to enable financial statement users to better understand an entity’s risk exposure
and its risk management activities;
a new impairment model for financial assets based on expected credit losses.
•
IFRS 9 shall be applied to fiscal years beginning on or after January 1, 2018, therefore, for the Corporation fiscal year
beginning on Septembre 30, 2018. Earlier application is permitted, but the Corporation does not intend to do so. This
new standard will have no significant impact on the Corporation's consolidated financial statements.
Revenue from contracts with customers
IFRS 15 “Revenue from Contracts with Customers” replaces IAS 18 “Revenue”, IAS 11 “Construction Contracts”, and
related interpretations. Under IFRS 15, revenue is recognized when control of the goods or services is transferred to
the customer rather than when the significant risks and rewards are transferred. The new standard also requires additional
disclosures through notes to financial statements. IFRS 15 shall be applied to fiscal years beginning on or after
January 1, 2018, therefore, for the Corporation fiscal year beginning on Septembre 30, 2018. Earlier application is
permitted, but the Corporation does not intend to do so. The Corporation has completed a preliminary assessment of
the adoption of this new standard on its consolidated financial statements and consider that the potential impact will not
be significant.
Leases
IFRS 16 “Leases” replaces IAS 17 “Leases” and related interpretations. Under IFRS 16, which provides a single model
for leases abolishing the current distinction between finance leases and operating leases, most leases will be recognized
in the statement of financial position. Certain exemptions will apply for short-term leases and leases of low-value assets.
IFRS 16 shall be applied to fiscal years beginning on or after January 1, 2019, therefore, for the Corporation fiscal year
beginning on September 29, 2019. Earlier application is permitted under certain conditions, but the Corporation does
not intend to do so.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 24 -
Given that the Corporation is committed under multiple operating leases under IAS 17 (note 25), the Corporation considers
that the adoption of IFRS 16 will have a significant impact on its consolidated financial statements. The Corporation will
have to recognize a right-of-use asset and a liability for the present value of future lease payments. Depreciation expense
on the right-to-use asset and interest expense on the lease liability will replace the operating lease expense.
The Corporation continues evaluating the impact of this new standard on its consolidated financial statements. The
Corporation has not yet determined which transition method it will apply.
FORWARD-LOOKING INFORMATION
We have used, throughout this annual report, different statements that could, within the context of regulations issued
by the Canadian Securities Administrators, be construed as being forward-looking information. In general, any statement
contained in this report that does not constitute a historical fact may be deemed a forward-looking statement. Expressions
such as "should be", "expect", "continue", "plan", "believe", “anticipate”, "estimate" and other similar expressions are
generally indicative of forward-looking statements. The forward-looking statements contained in this report are based
upon certain assumptions regarding the Canadian food industry, the general economy, our annual budget, as well as
our 2018 action plan.
These forward-looking statements do not provide any guarantees as to the future performance of the Corporation and
are subject to potential risks, known and unknown, as well as uncertainties that could cause the outcome to differ
significantly. The arrival of a new competitor is an example of those described under the “Risk Management” section of
this annual report that could have an impact on these statements. We believe these statements to be reasonable and
relevant as at the date of publication of this report and represent our expectations. The Corporation does not intend to
update any forward-looking statement contained herein, except as required by applicable law.
NON-IFRS MEASUREMENTS
In addition to the International Financial Reporting Standards (IFRS) earnings measurements provided, we have included
certain non-IFRS earnings measurements. These measurements are presented for information purposes only. They do
not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similar measurements
presented by other public companies.
ADJUSTED NET EARNINGS FROM CONTINUING OPERATIONS, ADJUSTED FULLY DILUTED NET EARNINGS
PER SHARE FROM CONTINUING OPERATIONS, ADJUSTED NET EARNINGS AND ADJUSTED FULLY DILUTED
NET EARNINGS PER SHARE
Adjusted net earnings from continuing operations, adjusted fully diluted net earnings per share from continuing operations,
adjusted net earnings and adjusted fully diluted net earnings per share are earnings measurements that exclude non-
recurring items. They are non-IFRS measurements. We believe that presenting earnings without non-recurring items
leaves readers of financial statements better informed as to the current period and corresponding prior year's period's
earnings, thus enabling them to better evaluate the Corporation's performance and judge its future outlook.
CONTROLS AND PROCEDURES
The President and Chief Executive Officer, and the Executive Vice President, Chief Financial Officer and Treasurer of
the Corporation, are responsible for the implementation and maintenance of disclosure controls and procedures (DC&P),
and of the internal control over financial reporting (ICFR), as provided for in National Instrument 52-109 regarding the
Certification of Disclosure in Issuers' Annual and Interim Filings. They are assisted in this task by the Disclosure
Committee, which is comprised of members of the Corporation's senior management.
An evaluation was completed under their supervision in order to measure the effectiveness of DC&P and ICFR. Based
on this evaluation, the President and Chief Executive Officer and the Executive Vice President, Chief Financial Officer
and Treasurer of the Corporation concluded that the DC&P and the ICFR were effective as at the end of the fiscal year
ended September 30, 2017.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 25 -
Therefore, the design of the DC&P provides reasonable assurance that material information relating to the Corporation
is made known to it by others, particularly during the period in which the annual filings are being prepared, and that the
information required to be disclosed by the Corporation in its annual filings, interim filings and other reports filed or
submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation.
Furthermore, the design of the ICFR provides reasonable assurance regarding the reliability of the Corporation's financial
reporting and the preparation of its financial statements for external purposes in accordance with IFRS.
SIGNIFICANT JUDGEMENTS AND ESTIMATES
Our Management's Discussion and Analysis is based upon our annual consolidated financial statements, prepared in
accordance with IFRS, and it is presented in Canadian dollars, our unit of measure. The preparation of the consolidated
financial statements and other financial information contained in this Management's Discussion and Analysis requires
management to make judgements, estimates and assumptions that affect the recognition and valuation of assets,
liabilities, sales, other income and expenses. These estimates and assumptions are based on historical experience and
other factors deemed relevant and reasonable and are reviewed at every closing date. The use of different estimates
could produce different amounts in the consolidated financial statements. Actual results may differ from these estimates.
JUDGEMENTS
In applying the Corporation's accounting policies, management has made the following judgements, which have the
most significant effect on the amounts recognized in the consolidated financial statements:
Consolidation of structured entities
The Corporation has no voting rights in certain food stores. However, the franchise contract gives it the ability to control
these stores' main activities. Its decisions are not limited to protecting its trademarks. The Corporation retains the majority
of stores' profits and losses. For these reasons, the Corporation consolidates these food stores in its financial statements.
The Corporation has no voting rights in the trust created for performance share unit plan participants. However, under
the trust agreement, it instructs the trustee as to the sale and purchase of Corporation shares and payments to
beneficiaries, gives the trustee money to buy Corporation shares, assumes vesting variability, and ensures that the trust
holds a sufficient number of shares to meet its obligations to the beneficiaries. For these reasons, the Corporation
consolidates this trust in its financial statements.
The Corporation also has an agreement with a third party that operates a plant exclusively for the needs and according
to the specifications of the Corporation, which assumes all costs. For these reasons, the Corporation consolidates it in
the Corporation's financial statements.
Investment in an associate
Until October 13, 2017, the Corporation held less than 20% of the voting rights in an associate, but one of its
representatives sat on the associate’s Board of Directors and was involved in financial and operating policy decisions.
Management has concluded that the Corporation exercised significant influence over the associate; so the Corporation
in its consolidated financial statements, accounted for its investment in the associate using the equity method.
ESTIMATES
The assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the value of assets and liabilities within the next period, are discussed
below:
Impairment of assets
In testing for impairment of intangible assets with indefinite useful lives and goodwill, value in use and fair value less
costs of disposal are estimated using the discounted future cash flows model, the capitalized excess earnings before
financial costs and taxes (EBIT) and royalty-free licence methods. These methods are based on various assumptions,
such as the future cash flows estimate, excess EBIT, royalty rates, discount rate, earnings multiples and growth rate.
The key assumptions are disclosed in notes 14 and 15 to the annual consolidated financial statements.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 26 -
Pension plans and other plans
Defined pension plans, ancillary retirements and other long-term benefits obligations and costs associated to these
obligations are determined from actuarial calculations according to the projected credit unit method. These calculations
are based on management's best assumptions relating to salary escalation, retirement age of participants, inflation rate
and expected health care costs. The key assumptions are disclosed in note 24 to the annual consolidated financial
statements.
Non-controlling interests
The non-controlling interest-related current liability is equivalent to the estimated price to be paid by the Corporation for
the non-controlling interest, which is based on Adonis and Phoenicia 2017 results according to the agreement. The non-
controlling interest-related non-current liability is calculated in relation to the price to be paid by the Corporation for the
non-controlling interest, which price is based mainly on the future earnings of Première Moisson and MissFresh as of
the date the options will become exercisable. Given the uncertainty associated with the estimation of these future
earnings, the Corporation used, at the end of the fiscal year, its most probable estimate and various other assumptions,
including the discount rate, growth rate and capital investments. Additional information is presented in note 29 to the
annual consolidated financial statements.
RISK MANAGEMENT
Management identifies the main risks to which the Corporation is exposed as well as the appropriate measures for
proactively managing these risks, and presents both the risks and risk reduction measures to the Audit Committee and
the Board of Directors on an ongoing basis. Internal Audit has the mandate to audit all business risks triennially. Hence,
each segment is audited every three years to ensure that controls have been implemented to deal with the business
risks related to its business area.
In the normal course of business, we are exposed to various risks, which are described below, that could have a material
impact on our earnings, financial position and cash flows. In order to counteract the principal risk factors, we have
implemented strategies specifically adapted to them.
FOOD SAFETY
We are exposed to potential liability and costs regarding defective products, food safety, product contamination and
handling. Such liability may arise from product manufacturing, packaging and labelling, design, preparation, warehousing,
distribution and presentation. Food products represent the greater part of our sales and we could be at risk in the event
of a major outbreak of food-borne illness or an increase in public health concerns regarding certain food products.
To counter these risks, we apply very strict food safety procedures and controls throughout the whole distribution chain.
Employees receive continuous training in this area from Metro's L'École des professionnels. Our main meat distribution
facilities are Hazard Analysis and Critical Control Point (HACCP) accredited, the industry's highest international standard.
Our systems also enable us to trace every meat product distributed from any of our main distribution centres to its
consumer point of sale.
CRISIS MANAGEMENT
Events outside our control that could seriously affect our operations may arise. We have set up business recovery plans
for all our operations. These plans provide for several disaster recovery sites, generators in case of power outages and
back-up computers as powerful as the Corporation's existing computers. A steering committee oversees and regularly
reviews all our recovery plans. We have also developed a contingency plan in the event of a pandemic to minimize its
impact.
COMPUTER SYSTEMS
We rely on various computer systems that are necessary for our business activities and we could have to deal with
certain security risks, notably cyberattacks, which could harm the availability and integrity of the systems or compromise
data privacy.
In the normal course of our activities, we gather information that is confidential in nature concerning our customers,
suppliers, employees, partners and loyalty program participants. Personal and confidential data is also gathered from
customers who do business with our pharmaceutical subsidiary. Furthermore, since October 25, 2016, we have been
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 27 -
operating an online shopping site that represents an additional risk with respect to the security of our systems. As a
result, we are even more exposed to the risk of cyberattacks aimed at stealing information or interrupting our computer
systems.
A systems breakdown could have a major impact on our business operations, while a cyberattack or an intrusion into
our systems could result in unauthorized persons altering our systems or gaining access to sensitive and confidential
information and then using or damaging it. Such situations could also affect third parties who provide essential services
for our operations or who store confidential information. These events could have a negative impact on our customers
and partners that could result in financial losses, reducing our competitive advantage or tarnishing our reputation.
In order to mitigate these risks, management has taken technological security measures, which include a high-availability
environment for all of its critical systems, and has set up procedures and controls related to the various systems concerned.
For instance, in addition to setting up strong controls with respect to systems access, the Company has hired a specialized
firm to carry out occasional intrusion tests. We have also implemented an information security awareness and training
program for our new employees. Third parties integrated into our operations have been selected by the computer systems
team, taking their specific expertise into consideration.
No significant technology-related incident occurred over the course of the fiscal year. Considering the rapid evolution of
risks with respect to cybersecurity as well as the complexity of threats, we cannot guarantee that the measures taken,
by the Company and the third parties that it deals with, will be adequate enough to prevent a cyberattack in time. In that
regard, we keep ourselves informed of the new information security trends and practices in order to take proactive action.
LABOUR RELATIONS
The majority of our store and distribution centre employees are unionized. Collective bargaining may give rise to work
stoppages or slowdowns that could impact negatively the Corporation. We negotiate agreements with different maturity
dates, conditions that ensure our competitiveness and terms that promote a positive work environment in all our business
segments. We have experienced some minor labour conflicts over the last few years but expect(2) to maintain good
labour relations in the future.
OCCUPATIONAL HEALTH AND SAFETY
Workplace accidents may occur at any of our sites. To minimize this risk, we developed a worked-related accident
prevention policy. Furthermore at all of our sites, we have workplace health and safety committees responsible for
accident prevention.
CORPORATE RESPONSIBILITY
If our actions do not respect our environmental, social and economic responsibilities, we are exposed to criticism, claims,
boycotts and even lawsuits, should we fail to comply with our legal obligations.
In order to go beyond its role of distributor and become an active player in sustainable development, the Corporation
introduced in 2010 its Corporate Responsibility Roadmap. Closely linked to our business strategy, our approach is built
on four pillars: Delighted Customers, Respect for the Environment, Strengthened Communities and Empowered
Employees, all of which involve priorities. Since then, the Corporation has issued annual reports with status updates on
the various projects, and in 2016, it unveiled its new 2016-2020 Corporate Responsibility Plan. The new plan seeks to
ensure the consistency of our actions and the alignment of our business practices with our corporate responsibility
commitments and objectives. For more information, visit metro.ca/Corporate Responsibility.
REGULATIONS
Changes are regularly brought to accounting policies, laws, regulations, rules or policies impacting our operations. We
monitor these changes closely.
MARKET AND COMPETITION
Intensifying competition, the possible arrival of new competitors and changing consumer needs are constant concerns
for us.
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 28 -
To cope with competition and maintain our leadership position in the Québec and Ontario markets, we are on the alert
for new ways of doing things and new sites. We have an ongoing investment program for all our stores to ensure that
our retail network remains one of the most modern in Canada.
We have also developed a successful market segmentation strategy. Our grocery banners: the conventional Metro
supermarkets, Super C and Food Basics discount banners, and Adonis ethnic food stores, target three different market
segments. In fiscal 2014, we acquired Première Moisson, a company specialized in bakery, pastry, charcutery and other
food offerings prepared on an artisanal basis and respectful of great traditions. In 2017, we acquired MissFresh, a
company specializing in the delivery of meal kits, allowing us to continue our efforts aimed at meeting all of the emerging
needs and behaviours in the food industry. In the pharmacy market, we have large, medium, and small pharmacies
under the Brunet, Clini Plus, Metro Pharmacy, and Drug Basics banners.
With the metro&moi and Air Miles® loyalty programs in our Metro and Metro Plus supermarkets and our partner
Dunnhumby Canada Limited, we are able to know the buying habits of loyal customers, offer them personalized
promotions so as to increase their purchases at our stores.
PRICE OF FUEL, ENERGY AND UTILITIES
We are a big consumer of utilities, electricity, natural gas and fuel. Increases in the price of these items may affect us.
SUPPLIERS
Negative events could affect a supplier and lead to service breakdowns and store delivery delays. As a remedy for this
situation, we deal with several suppliers. In the event of a supplier's service breakdown, we can turn to another supplier
reasonably quickly.
FRANCHISEES AND AFFILIATES
Some of our franchisees and affiliates might breach prescribed clauses of franchise or affiliation contracts, such as
purchasing policies and marketing plans. Non-compliance with such clauses may have an impact on us. A team of retail
operations advisers ensures our operating standards' consistent application in all of these stores.
FINANCIAL INSTRUMENTS
We make some foreign-denominated purchases of goods and services and we have, depending on market conditions,
US borrowings on our revolving credit facility, exposing ourselves to exchange rate risks. According to our risk
management policy, we may use derivative financial instruments, such as foreign exchange forward contracts and cross
currency interest rate swaps. The policy's guidelines prohibit us from using derivative financial instruments for speculative
purposes, but they do not guarantee that we will not sustain losses as a result of our derivative financial instruments.
We hold receivables generated mainly from sales to customers. To guard against credit losses, we have adopted a credit
policy that defines mandatory credit requirements to be maintained and guarantees to be provided. Affiliate customer
assets guarantee the majority of our receivables.
We are also exposed to liquidity risk mainly through our non-current debt and creditors. We evaluate our cash position
regularly and estimate(2) that cash flows generated by our operating activities are sufficient to provide for all outflows
required by our financing activities.
PJC ACQUISITION
Additional information on the risk factors relating to the PJC Acquisition can be found in section 3.9 entitled “Risk Factors”
in the Corporation’s 2017 Annual Information Form which is available on SEDAR (www.sedar.com) as well as on the
Corporation’s corporate Internet website (www.corpo.metro.ca).
Montréal, Canada, December 11, 2017
(1) See section on "Non-IFRS measurements"
(2) See section on "Forward-looking information"
- 29 -
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The preparation and presentation of the consolidated financial statements of METRO INC. and the other financial
information contained in this Annual Report are the responsibility of management. This responsibility is based on a
judicious choice of appropriate accounting principles and policies, the application of which requires making estimates
and informed judgements. It also includes ensuring that the financial information in the Annual Report is consistent with
the consolidated financial statements. The consolidated financial statements were prepared in accordance with
International Financial Reporting Standards and were approved by the Board of Directors.
METRO INC. maintains accounting systems and internal controls over the financial reporting process which, in the
opinion of management, provide reasonable assurance regarding the accuracy, relevance and reliability of financial
information and the well-ordered, efficient management of the Corporation's affairs.
The Board of Directors fulfills its duty to oversee management in the performance of its financial reporting responsibilities
and to review the consolidated financial statements and Annual Report, principally through its Audit Committee. This
Committee is comprised solely of directors who are independent of the Corporation and is also responsible for making
recommendations for the nomination of external auditors. Also, it holds periodic meetings with members of management
as well as internal and external auditors to discuss internal controls, auditing matters and financial reporting issues. The
external and internal auditors have access to the Committee without management. The Audit Committee has reviewed
the consolidated financial statements and Annual Report of METRO INC. and recommended their approval to the Board
of Directors.
The enclosed consolidated financial statements were audited by Ernst & Young LLP and their report indicates the extent
of their audit and their opinion on the consolidated financial statements.
Eric R. La Flèche
President and Chief Executive Officer
December 11, 2017
François Thibault
Executive Vice President,
Chief Financial Officer and Treasurer
- 30 -
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated financial statements of METRO INC., which comprise the consolidated
statements of financial position as at September 30, 2017 and September 24, 2016, and the consolidated statements
of income, comprehensive income, changes in equity and cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
METRO INC. as at September 30, 2017 and September 24, 2016 and its financial performance and its cash flows for
the years then ended in accordance with International Financial Reporting Standards.
Montréal, Canada
December 11, 2017
1 CPA auditor, CA, public accountancy permit no. A120803
- 31 -
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- 32 -
Annual Consolidated Financial Statements
METRO INC.
September 30, 2017
- 33 -
Table of contents
Page
35
36
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38
40
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41
41
46
47
48
48
49
50
51
51
52
53
54
54
55
55
56
56
56
57
58
58
60
61
65
66
66
67
68
70
Consolidated statements of income ...............................................................................................................
Consolidated statements of comprehensive income ......................................................................................
Consolidated statements of financial position ................................................................................................
Consolidated statements of changes in equity ...............................................................................................
Consolidated statements of cash flows ..........................................................................................................
Notes to consolidated financial statements ....................................................................................................
1- Description of business ...........................................................................................................................
2- Significant accounting policies .................................................................................................................
3- New accounting policies ..........................................................................................................................
4- Significant judgements and estimates .....................................................................................................
5- Business acquisitions ..............................................................................................................................
6- Events after the reporting period .............................................................................................................
7- Additional information on the nature of earnings components ..................................................................
8- Income taxes ...........................................................................................................................................
9- Net earnings per share ............................................................................................................................
10- Inventories
..............................................................................................................................................
11- Investment in an associate ......................................................................................................................
12- Fixed assets ............................................................................................................................................
13- Investment properties ..............................................................................................................................
14- Intangible assets .....................................................................................................................................
15- Goodwill
..................................................................................................................................................
16- Other assets ............................................................................................................................................
17- Bank loans ..............................................................................................................................................
18- Offsetting .................................................................................................................................................
19- Provisions
...............................................................................................................................................
20- Debt
........................................................................................................................................................
21- Other liabilities .........................................................................................................................................
22- Capital stock
...........................................................................................................................................
23- Dividends ................................................................................................................................................
24- Employee benefits ...................................................................................................................................
25- Commitments ..........................................................................................................................................
26- Contingencies .........................................................................................................................................
27- Related party transactions .......................................................................................................................
28- Management of capital
............................................................................................................................
29- Financial instruments ..............................................................................................................................
30- Approval of financial statements ..............................................................................................................
- 34 -
Consolidated statements of income
Years ended September 30, 2017 and September 24, 2016
(Millions of dollars, except for net earnings per share)
Sales (notes 7 and 27)
Cost of sales and operating expenses (notes 7 and 27)
Operating income before depreciation and amortization and
associate's earnings
Depreciation and amortization (note 7)
Financial costs, net (note 7)
Share of an associate's earnings (notes 7 and 11)
Earnings before income taxes
Income taxes (note 8)
Net earnings
Attributable to:
Equity holders of the parent
Non-controlling interests
Net earnings per share (Dollars) (notes 9 and 22)
Basic
Fully diluted
See accompanying notes
2017
(53 weeks)
2016
(52 weeks)
13,175.3
12,787.9
(12,208.9)
(11,856.6)
966.4
(194.2)
(63.9)
93.5
801.8
(193.4)
608.4
591.7
16.7
608.4
2.59
2.57
931.3
(182.8)
(61.4)
91.1
778.2
(192.0)
586.2
571.5
14.7
586.2
2.41
2.39
- 35 -
Consolidated statements of comprehensive income
Years ended September 30, 2017 and September 24, 2016
(Millions of dollars)
Net earnings
Other comprehensive income
Items that will not be reclassified to net earnings
Changes in defined benefit plans
Actuarial gains (losses)
Asset ceiling effect
Minimum funding requirement
Share of an associate's other comprehensive income
Corresponding income taxes
Items that will be reclassified later to net earnings
Share of an associate's other comprehensive income
Corresponding income taxes
Comprehensive income
Attributable to:
Equity holders of the parent
Non-controlling interests
See accompanying notes
2017
(53 weeks)
608.4
2016
(52 weeks)
586.2
108.3
(8.1)
0.7
(0.9)
(26.6)
73.4
(1.4)
0.2
(1.2)
72.2
680.6
663.9
16.7
680.6
(90.7)
(0.9)
0.6
(0.7)
24.3
(67.4)
(0.6)
0.1
(0.5)
(67.9)
518.3
503.6
14.7
518.3
- 36 -
Consolidated statements of financial position
As at September 30, 2017 and September 24, 2016
(Millions of dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (notes 16 and 27)
Inventories (note 10)
Prepaid expenses
Current taxes
Non-current assets
Investment in an associate (note 11)
Fixed assets (note 12)
Investment properties (note 13)
Intangible assets (note 14)
Goodwill (note 15)
Deferred taxes (note 8)
Defined benefit assets (note 24)
Other assets (note 16)
LIABILITIES AND EQUITY
Current liabilities
Bank loans (note 17)
Accounts payable (notes 18 and 27)
Current taxes
Provisions (note 19)
Current portion of debt (note 20)
Non-controlling interests (note 29)
Non-current liabilities
Debt (note 20)
Defined benefit liabilities (note 24)
Provisions (note 19)
Deferred taxes (note 8)
Other liabilities (note 21)
Non-controlling interests (note 29)
Equity
Attributable to equity holders of the parent
Attributable to non-controlling interests
Commitments and contingencies (notes 25 and 26)
Events after the reporting period (note 6)
See accompanying notes
On behalf of the Board,
2017
2016
148.9
313.7
856.6
19.0
18.1
1,356.3
475.9
1,761.5
15.0
389.1
1,973.8
1.9
39.3
37.9
6,050.7
1.1
1,036.1
8.8
2.7
12.9
224.3
1,285.9
1,441.6
92.7
2.0
255.7
12.3
36.6
3,126.8
2,911.1
12.8
2,923.9
6,050.7
27.5
306.4
827.5
19.7
11.9
1,193.0
396.5
1,594.8
25.7
391.7
1,955.4
9.4
7.5
32.1
5,606.1
1.4
1,012.8
35.2
2.6
15.5
—
1,067.5
1,231.0
160.7
2.8
193.9
12.2
244.8
2,912.9
2,680.6
12.6
2,693.2
5,606.1
ERIC R. LA FLÈCHE
Director
MICHEL LABONTÉ
Director
- 37 -
Consolidated statements of changes in equity
Years ended September 30, 2017 and September 24, 2016
(Millions of dollars)
Attributable to the equity holders of the parent
Capital
stock
(note 22)
Treasury
shares
(note 22)
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income
Non-
controlling
interests
Total
Balance as at
September 24, 2016
Net earnings
Other comprehensive
income
Comprehensive income
Stock options exercised
Shares redeemed
Share redemption
premium
Acquisition of treasury
shares
Share-based
compensation cost
Performance share units
settlement
Dividends (note 23)
Share of an associate's
equity
Change in fair value of
non-controlling interests
liability (note 29)
Sale of shares in joint
ventures
Balance as at
September 30, 2017
See accompanying notes
571.0
(20.5)
19.3
2,106.1
—
—
—
12.9
(18.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(6.9)
—
5.5
—
—
—
—
(5.2)
(1.4)
—
—
—
(2.2)
—
—
—
8.1
591.7
73.4
665.1
—
—
(284.5)
—
—
(5.4)
(0.1)
—
—
—
—
0.5
(143.5)
(0.2)
1.0
—
(427.3)
Total
equity
2,693.2
608.4
72.2
680.6
10.7
(18.1)
(284.5)
(6.9)
8.1
—
12.6
16.7
—
16.7
—
—
—
—
—
—
(143.5)
(2.8)
(146.3)
(0.2)
—
(0.2)
1.0
—
(13.9)
(12.9)
0.2
0.2
(433.4)
(16.5)
(449.9)
4.7
—
2,680.6
591.7
72.2
663.9
10.7
(18.1)
(284.5)
(6.9)
8.1
—
(1.2)
(1.2)
—
—
—
—
—
—
—
—
—
—
—
565.8
(21.9)
19.8
2,343.9
3.5
2,911.1
12.8
2,923.9
- 38 -
Consolidated statements of changes in equity
Years ended September 30, 2017 and September 24, 2016
(Millions of dollars)
Attributable to the equity holders of the parent
Capital
stock
(note 22)
Treasury
shares
(note 22)
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income
Non-
controlling
interests
Total
Total
equity
579.0
(18.5)
18.0
2,059.7
—
—
—
12.4
(20.4)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7.1)
—
5.1
—
—
—
—
—
(8.0)
(2.0)
—
—
—
(2.1)
—
—
—
8.5
571.5
(67.4)
504.1
—
—
(310.9)
—
—
(5.2)
(0.1)
—
(127.1)
0.1
—
—
—
1.3
0.6
(21.0)
—
0.8
(457.7)
5.2
—
(0.5)
(0.5)
—
—
—
—
—
—
—
—
—
—
—
—
2,643.4
13.8
2,657.2
571.5
14.7
586.2
(67.9)
503.6
10.3
(20.4)
(310.9)
(7.1)
8.5
(0.2)
—
(67.9)
14.7
518.3
—
—
—
—
—
—
10.3
(20.4)
(310.9)
(7.1)
8.5
(0.2)
(127.1)
(12.6)
(139.7)
0.7
—
0.7
(21.0)
(2.5)
(23.5)
—
0.8
0.3
0.3
(1.1)
(0.3)
(466.4)
(15.9)
(482.3)
571.0
(20.5)
19.3
2,106.1
4.7
2,680.6
12.6
2,693.2
Balance as at
September 26, 2015
Net earnings
Other comprehensive
income
Comprehensive income
Stock options exercised
Shares redeemed
Share redemption
premium
Acquisition of treasury
shares
Share-based
compensation cost
Performance share units
settlement
Dividends (note 23)
Share of an associate's
equity
Change in fair value of
non-controlling interests
liability (note 29)
Sale of shares in joint
ventures
Repurchase of shares in
joint ventures
Balance as at
September 24, 2016
See accompanying notes
- 39 -
Consolidated statements of cash flows
Years ended September 30, 2017 and September 24, 2016
(Millions of dollars)
Operating activities
Earnings before income taxes
Non-cash items
Share of an associate's earnings
Depreciation and amortization
Loss (gain) on disposal and write-offs of fixed and intangible assets and
investment properties
Impairment losses on fixed assets
Impairment loss reversals on fixed and intangible assets
Share-based compensation cost
Difference between amounts paid for employee benefits and current year cost
Financial costs, net
Net change in non-cash working capital items
Interest paid
Income taxes paid
Investing activities
Business acquisitions (note 5)
Sale of shares in joint ventures
Net change in other assets
Dividends from an associate
Additions to fixed assets and investment properties
Disposals of fixed assets and investment properties
Additions to intangible assets
Financing activities
Net change in bank loans
Shares issued (note 22)
Shares redeemed (note 22)
Acquisition of treasury shares (note 22)
Performance share units cash settlement
Increase in debt
Repayment of debt
Net change in other liabilities
Dividends (note 23)
Net change in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
See accompanying notes
- 40 -
2017
(53 weeks)
2016
(52 weeks)
801.8
778.2
(93.5)
194.2
(5.6)
0.8
(5.3)
8.1
(3.5)
63.9
960.9
(21.8)
(59.3)
(183.6)
696.2
—
0.1
3.9
11.6
(328.3)
20.3
(40.6)
(333.0)
(0.3)
10.7
(302.6)
(6.9)
—
737.7
(537.0)
0.1
(143.5)
(241.8)
121.4
27.5
148.9
(91.1)
182.8
1.9
0.8
(5.0)
8.5
(13.5)
61.4
924.0
(9.1)
(60.6)
(146.9)
707.4
(35.0)
—
0.6
9.4
(278.0)
10.3
(35.6)
(328.3)
0.5
10.3
(331.3)
(7.1)
(0.2)
222.3
(142.6)
2.1
(127.1)
(373.1)
6.0
21.5
27.5
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
METRO INC. (the Corporation) is a company incorporated under the laws of Québec. The Corporation is one of Canada’s
leading food retailers and distributors and operates a network of supermarkets, discount stores and drugstores. Its head
office is located at 11011 Maurice-Duplessis Blvd., Montréal, Québec, Canada, H1C 1V6. Its various components
constitute a single operating segment.
2.
SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements, in Canadian dollars, have been prepared by management in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements have been prepared within the reasonable limits of materiality, on a historical cost
basis, except for certain financial instruments and defined benefit plan assets measured at fair value and defined benefit
obligations measured at present value. The significant accounting policies are summarized below:
Consolidation
The consolidated financial statements include the accounts of the Corporation and its subsidiaries, as well as those of
structured entities (note 4). All intercompany transactions and balances were eliminated on consolidation.
Sales recognition
Sales come essentially from the sale of goods. Retail sales made by corporate stores and stores that are structured
entities are recognized at the time of sale to the customer, and sales to affiliated stores and other customers when the
goods are delivered. Rebates granted by the Corporation are recorded as a reduction in sales.
Recognition of considerations from vendors
Cash considerations from vendors are considered as an adjustment to the vendor's product pricing and are therefore
characterized as a reduction of cost of sales and related inventories when recognized in the consolidated financial
statements.
Loyalty programs
The Corporation has two loyalty programs.
The first program, for which the Corporation acts as an agent, belongs to a third party and its cost is recorded as a
reduction in sales at the time of sale to the customer.
The second program belongs to the Corporation. At the time of a sale to the customer, part of it is recorded as deferred
revenue equal to the fair value of the program's issued points. This fair value is determined based on the exchange
value of the points awarded and the expected redemption rate which are regularly remeasured. The deferred revenue
is included in accounts payable and recognized as sales when the points are redeemed.
Foreign currency translation
The consolidated financial statements are presented in Canadian dollars, the Corporation's functional currency.
Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the
transaction. At each closing, monetary items denominated in foreign currency are translated using the exchange rate
at the closing date. Non-monetary items that are measured at historical cost in foreign currency are translated using the
exchange rate at the date of the transaction. Gains or losses resulting from currency translations are recognized in net
earnings.
Income taxes
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax laws used to determine these amounts are those that are
enacted or substantively enacted by tax authorities by the closing date.
- 41 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
The Corporation follows the liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are accounted for based on estimated taxes recoverable or payable that would result from the recovery or
settlement of the carrying amount of assets and liabilities. Deferred tax assets and liabilities are measured using
substantively enacted tax rates expected to be in effect when the temporary differences are expected to reverse. Changes
in these amounts are included in current net earnings in the period in which they occur. The carrying amount of deferred
tax assets is reviewed at every closing date and reduced to the extent that it is no longer probable that sufficient earnings
will be available to allow all or part of the deferred tax assets to be utilized.
Income tax relating to items recognized directly in equity is recognized in equity.
Share-based payment
A share-based compensation expense is recognized for the stock option and performance share unit (PSU) plans offered
to certain employees as well as a deferred share unit (DSU) plan offered to directors.
Stock option awards vest gradually over the vesting term and each tranche is considered as a separate award. The
value of the remuneration expense is calculated based on the fair value of the stock options at the option grant date and
using the Black-Scholes valuation model. The compensation expense is recognized over the vesting term of each
tranche.
The compensation expense for the PSU plan is determined based on the market value of the Corporation's Common
Shares at grant date. Compensation expense is recognized on a straight-line basis over the vesting period. The impact
of any changes in the number of PSUs is recorded in the period where the estimate is revised. The grant qualifies as
an equity instrument.
The compensation expense and corresponding liability for the DSU plan are recognized on the grant date and determined
based on the grant-date market value of the Corporation’s Common Shares. The DSU liability is included in accounts
payable and periodically adjusted to reflect any changes in the stock market valuation of the Corporation’s Common
Shares.
Net earnings per share
Basic net earnings per share are calculated by dividing the net earnings attributable to equity holders of the parent by
the weighted average number of Common Shares outstanding during the year. For the fully diluted net earnings per
share, the net earnings attributable to equity holders of the parent and the weighted average number of Common Shares
outstanding are adjusted to reflect all potential dilutive shares.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, bank balances, highly liquid investments (with an initial term of
three months or less) and outstanding deposits. They are classified as “Financial assets at fair value through net earnings”
and measured at fair value, with revaluation at the end of each period. Resulting gains or losses are recorded in net
earnings.
Accounts receivable
Accounts receivable and loans to certain customers are classified as “Loans and receivables”. After their initial fair value
measurement, they are measured at amortized cost using the effective interest method. For the Corporation, the
measured amount generally corresponds to cost.
Inventories
Inventories are valued at the lower of cost and net realizable value. Warehouse inventories cost is determined by the
average cost method net of certain considerations received from vendors. Retail inventories cost is valued at the retail
price less the gross margin and certain considerations received from vendors. All costs incurred in bringing the inventories
to their present location and condition are included in the cost of warehouse and retail inventories.
Investment in an associate
Until October 13, 2017, the Corporation's investment in its associate was accounted for using the equity method and
will be subsequently measured at fair value (see note 6). An associate is an entity in which the Corporation has significant
influence.
- 42 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Investment in a joint venture
The Corporation has an interest in a joint venture, whereby the venturers have a contractual agreement that establishes
joint control over the economic activities of the entity. This investment is accounted for using the equity method and is
presented in other assets. The Corporation's share in the joint venture's earnings is recorded in the cost of sales and
operating expenses.
Fixed assets
Fixed assets are recorded at cost. Principal components of a fixed asset with different useful lives are depreciated
separately. Buildings and equipment are depreciated on a straight-line basis over their useful lives. Leasehold
improvements are depreciated on a straight-line basis over the shorter of their estimated useful lives or the remaining
lease term. The depreciation method and estimate of useful lives are reviewed annually.
Buildings
Equipment
Leasehold improvements
Leases
20 to 50 years
3 to 20 years
5 to 20 years
Leases are classified as finance leases if substantially all risks and rewards incidental to ownership are transferred to
the lessee. At the moment of initial recognition, the lessee records the leased item as an asset at the lower of the fair
value of the asset and the present value of the minimum lease payments. A corresponding liability to the lessor is recorded
in the consolidated statement of financial position as a finance lease obligation. In subsequent periods, the asset is
depreciated on a straight-line basis over the term of the lease and interest on the obligation is expensed through net
earnings.
Leases are classified as operating leases if substantially all risks and rewards incidental to ownership are not transferred
to the lessee. The lease payments are recognized as an expense on a straight-line basis over the lease term.
Investment properties
Investment properties are held for capital appreciation and to earn rentals. They are not occupied by the owner for its
ordinary activities. They are recognized at cost. Principal components, except for land which is not depreciated, are
depreciated on a straight-line basis over their respective useful lives which vary from 20 to 50 years. The depreciation
method and estimates of useful lives are reviewed annually.
Intangible assets
Intangible assets with finite useful lives are recorded at cost and amortized on a straight-line basis over their useful lives.
The amortization method and estimates of useful lives are reviewed annually.
Leasehold rights
Software
Retail network retention premiums
Customer relationships
20 to 40 years
3 to 7 years
5 to 30 years
10 years
The banners that the Corporation intends to keep and operate, the private labels for which it continues to develop new
products and the loyalty programs it intends to maintain qualify as intangible assets with indefinite useful lives. They are
recorded at cost and not amortized.
Goodwill
Goodwill, which represents the excess of purchase price over the fair value of the acquired enterprise's identifiable net
assets at the date of acquisition, is recognized at cost and is not amortized.
Impairment of non financial assets
At each reporting date, the Corporation must determine if there is any indication of depreciation of its fixed assets,
intangible assets with finite useful lives, investment properties and investment in an associate. If any indication exists,
the Corporation has to test the assets for impairment. Impairment testing of intangible assets with indefinite useful lives
and goodwill is to be done at least annually, regardless of any indication of depreciation.
- 43 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Impairment testing is conducted at the level of the asset itself, a cash generating unit (CGU) or group of CGUs. A CGU
is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets. Each store is a separate CGU. Impairment testing of warehouses is conducted
at the level of the different groups of CGUs. As for goodwill and corporate assets that cannot be allocated wholly to a
single CGU, impairment testing is conducted at the level of the unique operating segment. Impairment testing of
investment properties, investment in an associate, banners, private labels and loyalty programs is conducted at the level
of the asset itself.
To test for impairment, the carrying amount of an asset, CGU or group of CGUs is compared with its recoverable amount.
The recoverable amount is the higher of the value in use and the fair value less costs of disposal. The value in use
corresponds generally to the pre-tax cash flow projections from the management-approved budgets for the next fiscal
year. These projections reflect past experience and are discounted at a pre-tax rate corresponding to the expected
market rate for this type of investment. The recoverable amount of investment properties, investment in an associate,
banners, private labels and loyalty programs is these assets' fair value less costs of disposal. If the carrying amount
exceeds the recoverable amount, an impairment loss in the amount of the excess is recognized in net earnings. CGU
or group of CGUs' impairment losses are allocated pro rata to the assets of the CGU or group of CGUs, without however
reducing the carrying amount of the assets below the highest of their fair value less costs of disposal, their value in use,
and zero.
Except for goodwill, any reversal of an impairment loss is recognized immediately in net earnings. A reversal of an
impairment loss for a CGU or group of CGUs is allocated pro rata to the assets of the CGU or group of CGUs. The
recoverable amount of an asset increased by a reversal of an impairment loss may not exceed the carrying amount that
would have been determined, net of depreciation and amortization, if no impairment loss had been recognized for the
asset in prior years.
Deferred financing costs
Financing costs related to debt are deferred and amortized using the effective interest method over the term of the
corresponding loans. When one of these loans is repaid, the corresponding financing costs are charged to net earnings.
Employee benefits
Employee benefits include short-term employee benefits which correspond to wages and fringe benefits and are
recognized immediately in net earnings as are termination benefits which are also recorded as a liability when the
Corporation cannot withdraw the offer of termination.
Employee benefits also include post-employment benefits which comprise pension benefits (both defined benefit and
defined contribution plans) and ancillary benefits such as post-employment life and medical insurance. Employee benefits
also comprise other long-term benefits, namely long-term disability benefits not covered by insurance plans and ancillary
benefits provided to employees on long-term disability. Assets and obligations related to employee defined benefit plans,
ancillary retirement benefits and other long-term benefits plan are accounted for using the following accounting policies:
• Defined benefit obligations and the cost of pension, ancillary retirement benefits and other long-term benefits earned
by participants are determined from actuarial calculations according to the projected credit unit method. The
calculations are based on management’s best assumptions relating to salary escalation, retirement age of
participants, inflation and expected health care costs.
• Defined benefit obligations are discounted using high-quality corporate bond yield rates with cash flows that match
the timing and amount of expected benefit payments.
• Defined benefit plan assets or liabilities recognized in the consolidated statement of financial position correspond
to the difference between the present value of defined benefit obligations and the fair value of plan assets. In the
case of a surplus funded plan, these assets are limited at the lesser of the actuarial value determined for accounting
purposes or the value of the future economic benefit by way of surplus refunds or contribution holidays. Furthermore,
an additional liability could be recorded when minimum funding requirements for past services exceed economic
benefits available.
•
The interest expense on defined benefit obligations, on the asset ceiling and on the minimum funding requirement
is net of interest income on plan assets, which is calculated by applying the same rate used to evaluate the obligations,
and is recognized as financing costs.
- 44 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
•
Actuarial gains or losses on pension plans and ancillary post-employment benefits arise from changes to current
year end actuarial assumptions used to determine the defined benefit obligations. They also arise from variances
between the experience adjustments of the plans for the current year and the assumptions defined at the end of
the previous fiscal year to determine the employee benefit expense for the current fiscal year and the defined benefit
obligations at the previous fiscal year end.
• Remeasurements of defined benefit net liabilities include actuarial gains or losses, the yield on plan assets, and
asset ceiling and minimum funding requirement changes, excluding the amount already recorded in net interest.
Remeasurements are recognized under other comprehensive income during the period in which they occur and
reclassified from accumulated other comprehensive income to retained earnings at the end of each period.
•
•
Actuarial gains or losses to other long-term employee benefits are recognized in full immediately in net earnings.
Past service amendment costs are recognized immediately in net earnings.
• Defined contribution plan costs, including those of multi-employer plans, are recorded when the contributions are
due. As sufficient information to reliably determine multi-employer defined benefit plan obligations and assets is not
available and as there is no actuarial valuation according to IFRS, these plans are accounted for as defined
contribution plans and the Corporation participation is limited to the negotiated contributions. The vast majority of
the Corporation's contributions to multi-employer plans are paid into the Canadian Commercial Workers Industry
Pension Plan (CCWIPP). The Corporation and its franchisees represent approximately 25% of the Plan’s total
number of participants.
Provisions
Provisions are recognized when the Corporation has a present obligation (legal or constructive) resulting from a past
event, will likely have to settle the obligation and the amount of which can be reliably estimated. The amount recognized
as provision is the best estimate of the expense required to settle the present obligation at the closing date. When a
provision is measured based on estimated cash flows required to settle the present obligation, its carrying amount is
the discounted value of these cash flows.
Present obligations resulting from onerous contracts are accounted for and measured as provisions. A contract is said
to be onerous when the costs involved in fulfilling the terms and conditions of the contract are higher than the contract's
expected economic benefits.
Other financial liabilities
Bank loans, accounts payable, revolving credit facility, notes and loans payable are classified as “Other financial liabilities”.
After their initial fair value measurement, they are measured at amortized cost using the effective interest method. For
the Corporation, the measured amount generally corresponds to cost.
Non-controlling interests
Non-controlIing interests are generally recognized in equity. However, with respect to its interests in Adonis, Phoenicia,
Première Moisson and MissFresh, the Corporation has the option to buy out the minority interests and the minority
shareholders in these companies have the option to be bought out by the Corporation under certain conditions as of the
options’ exercisable dates. Given these options, the non-controlling interests become a financial liability that is classified
as "Financial liabilities held for trading" and measured at fair value. Gains or losses resulting from the revaluation at the
end of each period recorded in net earnings or in retained earnings. The Corporation elected to record them in retained
earnings.
Derivative financial instruments
In accordance with its risk management strategy, the Corporation uses derivative financial instruments for hedging
purposes. On inception of a hedging relationship, the Corporation indicates whether or not it will apply hedge accounting
to the relationship. Should there be any, the Corporation formally documents several factors, such as the election to
apply hedge accounting, the hedged item, the hedging item, the risks being hedged and the term over which the
relationship is expected to be effective, as well as risk management objectives and strategy.
The effectiveness of the hedging relationship is measured at its inception to determine whether it will be highly effective
over the term of the relationship and assessed periodically to ensure that hedge accounting is still appropriate. The
results of these assessments are formally documented.
- 45 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
The Corporation could use foreign exchange forward contracts and cross currency interest rate swaps. Given their short-
term maturity, the Corporation elected not to apply hedge accounting. These derivative financial instruments are classified
as "Financial assets or liabilities at fair value through net earnings" and measured at fair value with revaluation at the
end of each period. Resulting gains or losses are recorded in net earnings.
Fair value measurements hierarchy
Fair value measurements of assets and liabilities recognized at fair value in the consolidated statements of financial
position or whose fair value is presented in the notes to the consolidated financial statements are categorized in
accordance with the following hierarchy:
•
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly
(i.e., as prices) or indirectly (i.e., derived from prices);
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Fiscal year
The Corporation's fiscal year ends on the last Saturday of September. The fiscal year ended September 30, 2017
included 53 weeks of operations and the fiscal year ended September 24, 2016 included 52 weeks of operations.
3. NEW ACCOUNTING POLICIES
ISSUED BUT NOT YET EFFECTIVE
Financial instruments
IFRS 9 “Financial Instruments” replaces IAS 39 “Financial Instruments: Recognition and Measurement” and includes
the following significant changes:
•
•
a single approach to determine whether a financial asset is measured at amortized cost or fair value;
a new hedge accounting model to enable financial statement users to better understand an entity’s risk exposure
and its risk management activities;
a new impairment model for financial assets based on expected credit losses.
•
IFRS 9 shall be applied to fiscal years beginning on or after January 1, 2018, therefore, for the Corporation fiscal year
beginning on Septembre 30, 2018. Earlier application is permitted, but the Corporation does not intend to do so. This
new standard will have no significant impact on the Corporation's consolidated financial statements.
Revenue from contracts with customers
IFRS 15 “Revenue from Contracts with Customers” replaces IAS 18 “Revenue”, IAS 11 “Construction Contracts”, and
related interpretations. Under IFRS 15, revenue is recognized when control of the goods or services is transferred to
the customer rather than when the significant risks and rewards are transferred. The new standard also requires additional
disclosures through notes to financial statements. IFRS 15 shall be applied to fiscal years beginning on or after
January 1, 2018, therefore, for the Corporation fiscal year beginning on Septembre 30, 2018. Earlier application is
permitted, but the Corporation does not intend to do so. The Corporation has completed a preliminary assessment of
the adoption of this new standard on its consolidated financial statements and consider that the potential impact will not
be significant.
Leases
IFRS 16 “Leases” replaces IAS 17 “Leases” and related interpretations. Under IFRS 16, which provides a single model
for leases abolishing the current distinction between finance leases and operating leases, most leases will be recognized
in the statement of financial position. Certain exemptions will apply for short-term leases and leases of low-value assets.
IFRS 16 shall be applied to fiscal years beginning on or after January 1, 2019, therefore, for the Corporation fiscal year
beginning on September 29, 2019. Earlier application is permitted under certain conditions, but the Corporation does
not intend to do so.
- 46 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Given that the Corporation is committed under multiple operating leases under IAS 17 (note 25), the Corporation considers
that the adoption of IFRS 16 will have a significant impact on its consolidated financial statements. The Corporation will
have to recognize a right-of-use asset and a liability for the present value of future lease payments. Depreciation expense
on the right-to-use asset and interest expense on the lease liability will replace the operating lease expense.
The Corporation continues evaluating the impact of this new standard on its consolidated financial statements. The
Corporation has not yet determined which transition method it will apply.
4.
SIGNIFICANT JUDGEMENTS AND ESTIMATES
The preparation of the consolidated financial statements requires management to make judgements, estimates and
assumptions that affect the recognition and valuation of assets, liabilities, sales, other income and expenses. These
estimates and assumptions are based on historical experience and other factors deemed relevant and reasonable and
are reviewed at every closing date. The use of different estimates could produce different amounts in the consolidated
financial statements. Actual results may differ from these estimates.
JUDGEMENTS
In applying the Corporation's accounting policies, management has made the following judgements, which have the
most significant effect on the amounts recognized in the consolidated financial statements:
Consolidation of structured entities
The Corporation has no voting rights in certain food stores. However, the franchise contract gives it the ability to control
these stores' main activities. Its decisions are not limited to protecting its trademarks. The Corporation retains the majority
of stores' profits and losses. For these reasons, the Corporation consolidates these food stores in its financial statements.
The Corporation has no voting rights in the trust created for PSU plan participants. However, under the trust agreement,
it instructs the trustee as to the sale and purchase of Corporation shares and payments to beneficiaries, gives the trustee
money to buy Corporation shares, assumes vesting variability, and ensures that the trust holds a sufficient number of
shares to meet its obligations to the beneficiaries. For these reasons, the Corporation consolidates this trust in its financial
statements.
The Corporation also has an agreement with a third party that operates a plant exclusively for the needs and according
to the specifications of the Corporation, which assumes all costs. For these reasons, the Corporation consolidates it in
the Corporation's financial statements.
Investment in an associate
Until October 13, 2017, the Corporation held less than 20% of the voting rights in an associate, but one of its
representatives sat on the associate’s Board of Directors and was involved in financial and operating policy decisions.
Management has concluded that the Corporation exercised significant influence over the associate; so the Corporation
in its consolidated financial statements, accounted for its investment in the associate using the equity method.
ESTIMATES
The assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have
a significant risk of causing a material adjustment to the value of assets and liabilities within the next period, are discussed
below:
Impairment of assets
In testing for impairment of intangible assets with indefinite useful lives and goodwill, value in use and fair value less
costs of disposal are estimated using the discounted future cash flows model, the capitalized excess earnings before
financial costs and taxes (EBIT) and royalty-free licence methods. These methods are based on various assumptions,
such as the future cash flows estimate, excess EBIT, royalty rates, discount rate, earnings multiples and growth rate.
The key assumptions are disclosed in notes 14 and 15.
- 47 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Pension plans and other plans
Defined pension plans, ancillary retirements and other long-term benefits obligations and costs associated to these
obligations are determined from actuarial calculations according to the projected credit unit method. These calculations
are based on management's best assumptions relating to salary escalation, retirement age of participants, inflation rate
and expected health care costs. The key assumptions are disclosed in note 24.
Non-controlling interests
The non-controlling interest-related current liability is equivalent to the estimated price to be paid by the Corporation for
the non-controlling interest, which is based on Adonis and Phoenicia 2017 results according to the agreement. The non-
controlling interest-related non-current liability is calculated in relation to the price to be paid by the Corporation for the
non-controlling interest, which price is based mainly on the future earnings of Première Moisson and MissFresh as of
the date the options will become exercisable. Given the uncertainty associated with the estimation of these future
earnings, the Corporation used, at the end of the fiscal year, its most probable estimate and various other assumptions,
including the discount rate, growth rate and capital investments. Additional information is presented in note 29.
5. BUSINESS ACQUISITIONS
In 2016, the Corporation acquired the assets of three affiliated stores in Québec which it already supplied, and of a food
store from a competitor in Ontario. The total purchase price was $35.3, with a remaining balance of $0.1 to be paid as
at September 30, 2017. The acquisition of these stores was accounted for using the purchase method. The stores' results
have been consolidated as of their respective acquisition dates. The final total purchase price allocation was as follows:
Net assets acquired at their fair value
Inventories
Fixed assets
Goodwill
Deferred tax assets
3.0
9.1
23.1
0.1
35.3
6.
EVENTS AFTER THE REPORTING PERIOD
On October 2, 2017, the Corporation and The Jean Coutu Group (PJC) Inc. (“PJC”) announced that they had entered
into a definitive combination agreement pursuant to which the Corporation will acquire all of the outstanding PJC Class
A subordinate voting shares and all of the outstanding PJC Class B shares (collectively, the “PJC Shares”) for $24.50
per PJC Share (the “Purchase Price”), representing a total consideration of approximately $4,500.0, subject to the
completion of customary closing conditions, including regulatory and PJC shareholder approvals (the “Acquisition”).
Under the terms of the Acquisition, The Jean Coutu Group shareholders (“PJC Shareholders”) will receive an aggregate
consideration which will consist of 75% in cash and 25% in common shares of the Corporation. The PJC shareholders
have approved the Acquisition on November 29, 2017.
To finance the cash element of the Purchase Price, at the moment of the announcement, the Corporation secured access
to committed bank facilities fully underwritten by Bank of Montréal, Canadian Imperial Bank of Commerce and National
Bank of Canada. The committed facilities consisted of a $500.0 term loan facility (itself consisting of a 3-year $100.0
tranche A, 4-year $150.0 tranche B and a 5-year $250.0 tranche C), a 1-month $250.0 bridge term facility, an asset sale
term facility of $1,500.0 and a 1-year $1,200.0 term facility.
The Corporation completed the sale of the majority of its holding in Alimentation Couche-Tard Inc. on October 13, 2017
and October 17, 2017. As a result of such sale, the Corporation has terminated the $1,500.0 asset sale term facility and
plans to use the proceeds of such sale to finance in part the Acquisition.
On December 4, 2017 the Corporation issued a private placement of $300.0 aggregate principal amount of Series F
unsecured senior notes, bearing interest at a fixed nominal rate of 2.68% and maturing in 2022; $450.0 aggregate
principal amount of Series G unsecured senior notes, bearing interest at a fixed nominal rate of 3.39% and maturing in
2027; and $450.0 aggregate principal amount of Series H unsecured senior notes, bearing interest at a fixed nominal
- 48 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
rate of 4.27% and maturing in 2047. As a result of such issuance, the Corporation terminated the $1,200.0 term facility
and plans to use the proceeds of such issuance to finance in part the Acquisition.
The Corporation revised the terms of the $500.0 term loan facility, from now consisting of a 1-year $100.0 tranche A,
2-year $200.0 tranche B and a 3-year $200.0 tranche C.
The Corporation also announced on October 11, 2017, a projected $400.0 investment over six years in its Ontario
distribution network. The Corporation will modernize its Toronto operations between 2018 and 2023, building a new fresh
distribution centre and a new frozen distribution centre.
7. ADDITIONAL INFORMATION ON THE NATURE OF EARNINGS COMPONENTS
Sales
Cost of sales
Gross margins
Operating expenses
Wages and fringe benefits
Employee benefits expense (note 24)
Rents and occupancy charges
Others
Operating income before depreciation and amortization
and associate's earnings
Depreciation and amortization
Fixed assets (note 12)
Intangible assets (note 14)
Financial costs, net
Current interest
Non-current interest
Interests on defined benefit obligations net of plan assets (note 24)
Amortization of deferred financing costs
Interest income
Passage of time
Share of an associate’s earnings
Earnings before income taxes
2017
2016
(53 weeks)
%
(52 weeks)
%
13,175.3
(10,579.6)
12,787.9
(10,271.1)
2,595.7
19.7
2,516.8
19.7
(711.0)
(80.8)
(441.4)
(396.1)
(697.8)
(77.8)
(420.7)
(389.2)
(1,629.3)
12.4
(1,585.5)
12.4
966.4
7.3
931.3
7.3
(163.8)
(30.4)
(194.2)
(3.0)
(57.4)
(4.6)
(0.9)
2.4
(0.4)
(63.9)
93.5
801.8
(156.3)
(26.5)
(182.8)
(5.8)
(54.4)
(3.7)
(0.9)
3.7
(0.3)
(61.4)
91.1
778.2
- 49 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
8.
INCOME TAXES
The effective income tax rates were as follows:
(Percentage)
Combined statutory income tax rate
Changes
Share of an associate's earnings
Others
The main components of the income tax expense were as follows:
Consolidated income statements
Current
Current tax expense
Deferred
Adjustment related to temporary differences
Consolidated comprehensive income statements
Deferred tax related to items reported directly in other
comprehensive income during the year
Changes in defined benefit plans
Actuarial gains (losses)
Asset ceiling effect
Minimum funding requirement
Share of an associate's other comprehensive income
- 50 -
2017
2016
(53 weeks)
(52 weeks)
26.8
(1.8)
(0.9)
24.1
26.8
(1.7)
(0.4)
24.7
2017
2016
(53 weeks)
(52 weeks)
151.0
139.6
42.4
193.4
52.4
192.0
2017
2016
(53 weeks)
(52 weeks)
28.8
(2.2)
0.1
(0.3)
26.4
(24.1)
(0.2)
0.1
(0.2)
(24.4)
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Deferred income taxes reflect the net tax impact of temporary differences between the value of assets and liabilities for
accounting and tax purposes. The main components of the deferred tax expense and deferred tax assets and liabilities
were as follows:
Consolidated statements
of financial position
Consolidated statements
of income
As at
September 30, 2017
As at
September 24, 2016
2017
2016
(53 weeks)
(52 weeks)
Accrued expenses, provisions and
other reserves that are tax-
deductible only at the time of
disbursement
Deferred tax losses
Inventories
Employee benefits
Investment in an associate
Difference between net carrying value
and tax value
Fixed assets
Investment properties
Intangible assets
Goodwill
Deferred tax assets
Deferred tax liabilities
(7.2)
(4.3)
(0.7)
(0.2)
(2.1)
4.2
(0.8)
(2.4)
(10.0)
(10.9)
(16.6)
(0.4)
0.3
(3.3)
(42.4)
(35.7)
—
(1.7)
(3.0)
(52.4)
(0.8)
1.0
(11.2)
12.2
(62.4)
(91.6)
0.2
(57.8)
(43.4)
(253.8)
1.9
(255.7)
(253.8)
6.4
5.3
(10.5)
39.1
(52.7)
(75.0)
0.6
(57.6)
(40.1)
(184.5)
9.4
(193.9)
(184.5)
9. NET EARNINGS PER SHARE
Basic net earnings per share and fully diluted net earnings per share were calculated using the following number of
shares:
(Millions)
Weighted average number of shares outstanding – Basic
Dilutive effect under:
Stock option plan
Performance share unit plan
Weighted average number of shares outstanding – Fully diluted
10.
INVENTORIES
Wholesale inventories
Retail inventories
- 51 -
2017
2016
(53 weeks)
(52 weeks)
228.7
237.1
1.3
0.6
230.6
2017
397.1
459.5
856.6
1.5
0.7
239.3
2016
380.4
447.1
827.5
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
11.
INVESTMENT IN AN ASSOCIATE
The Corporation has a 5.7% (5.7% in 2016) interest in a publicly traded associate in the convenience store industry,
which is Alimentation Couche-Tard. The investment associate's fair value, corresponding to its quoted market value,
was $1,850.2 as at September 30, 2017 ($2,114.7 as at September 24, 2016). The Corporation categorized the fair
value measurement in Level 1, as it is derived from quoted prices in active markets.
The associate's consolidated financial statements reporting date is the last Sunday of April of every year. The Corporation
applied the equity method, using the associate’s most recent condensed consolidated financial statements in US$ as
at July 23, 2017 (July 17, 2016).
The summarized financial information, according to the associate’s consolidated statements of financial position
converted at the exchange rate at the reporting date, was as follows:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets of the associate
As at July 23, 2017 As at July 17, 2016
4,999.9
20,335.9
(5,265.5)
(11,663.9)
8,406.4
3,812.4
12,373.2
(3,439.8)
(5,922.1)
6,823.7
The summarized financial information, according to the associate’s consolidated statements of income converted at the
average exchange rate, was as follows:
Sales
Net earnings
Other comprehensive income
Comprehensive income
2017
52,131.3
1,654.2
184.6
1,838.8
2016
44,512.1
1,604.6
(48.7)
1,555.9
These amounts are the total of the associate’s previous fiscal year second, third and fourth quarters and current fiscal
year first quarter.
The reconciliation of the summarized financial information and the carrying amount of the Corporation's investment in
the associate was as follows:
Net assets of the associate
Corporation's share of the associate
Other adjustments
Investment in an associate
2017
2016
8,406.4
5.7%
479.2
(3.3)
475.9
6,823.7
5.7%
389.0
7.5
396.5
- 52 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
12. FIXED ASSETS
Land
Buildings
Equipment
Leasehold
improvements
Buildings
under
finance
leases
Total
Cost
Balance as at September 26, 2015
Acquisitions
Acquisitions through business
combinations
Disposals and write-offs
229.7
22.5
1.2
(2.6)
644.9
43.6
4.3
(7.4)
Balance as at September 24, 2016
250.8
685.4
Acquisitions
Transfers from Investment properties
Disposals and write-offs
Balance as at September 30, 2017
7.0
5.8
(1.8)
261.8
Accumulated depreciation and
impairment
Balance as at September 26, 2015
(0.1)
Depreciation
Disposals and write-offs
Impairment losses
Impairment loss reversals
Balance as at September 24, 2016
Depreciation
Transfers from investment properties
Disposals and write-offs
Impairment losses
Impairment loss reversals
Balance as at September 30, 2017
Net carrying value
—
—
—
0.1
—
—
—
—
—
—
—
1,267.6
130.6
2.9
(126.1)
1,275.0
155.0
—
(94.0)
45.4
1.5
(9.8)
722.5
1,336.0
(171.3)
(18.7)
1.2
—
0.4
(188.4)
(19.8)
(0.5)
4.2
—
—
(799.4)
(85.8)
123.7
(0.5)
1.6
(760.4)
(90.9)
—
92.7
(0.6)
1.4
657.0
81.3
0.7
(35.7)
703.3
120.5
—
(36.4)
787.4
50.6
2,849.8
—
—
—
278.0
9.1
(171.8)
50.6
2,965.1
1.6
—
(1.5)
50.7
329.5
7.3
(143.5)
3,158.4
(379.0)
(26.8)
(1,376.6)
(48.8)
33.7
(0.3)
2.7
(391.7)
(50.1)
—
36.3
(0.2)
2.4
(3.0)
(156.3)
—
—
—
158.6
(0.8)
4.8
(29.8)
(1,370.3)
(3.0)
(163.8)
—
1.5
—
—
(0.5)
134.7
(0.8)
3.8
(204.5)
(757.8)
(403.3)
(31.3)
(1,396.9)
Balance as at September 24, 2016
Balance as at September 30, 2017
250.8
261.8
497.0
518.0
514.6
578.2
311.6
384.1
20.8
19.4
1,594.8
1,761.5
Impairment losses were on food store assets where cash flows decreased due to local competition. As food stores'
profitability improved, impairment loss reversals were posted on previously impaired food store assets.
Net additions of fixed assets excluded from the consolidated statements of cash flow was $1.6 (nil in 2016).
- 53 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
13.
INVESTMENT PROPERTIES
Balance as at September 26, 2015 and September 24, 2016
Acquisitions
Transfers to fixed assets
Disposals and write-offs
Balance as at September 30, 2017
Cost
36.9
0.4
(7.3)
(5.7)
24.3
Accumulated
depreciation
Net carrying
value
(11.2)
—
0.5
1.4
(9.3)
25.7
0.4
(6.8)
(4.3)
15.0
The fair value of investment properties was $19.8 as at September 30, 2017 ($36.0 as at September 24, 2016). The
Corporation categorized the fair value measurement in Level 2, as it is derived from observable market inputs, i.e. recent
transactions on these assets or similar assets.
14.
INTANGIBLE ASSETS
Intangible assets with finite useful lives were as follows:
Cost
Balance as at September 26, 2015
Acquisitions
Disposals and write-offs
Balance as at September 24, 2016
Acquisitions
Disposals and write-offs
Balance as at September 30, 2017
Accumulated amortization
and impairment
Balance as at September 26, 2015
Amortization
Disposals and write-offs
Impairment loss reversals (note 12)
Balance as at September 24, 2016
Amortization
Disposals and write-offs
Impairment loss reversals (note 12)
Leasehold
rights
Software
Retail network
retention
premiums
Customer
relationships
58.6
—
(0.2)
58.4
—
(0.3)
58.1
(39.7)
(1.7)
0.1
0.2
(41.1)
(1.9)
0.2
1.5
168.8
18.8
(0.2)
187.4
10.6
(2.1)
195.9
(153.1)
(4.1)
0.2
—
(157.0)
(7.0)
2.1
—
235.6
20.7
(11.3)
245.0
16.4
(14.0)
247.4
(103.2)
(18.3)
10.7
—
(110.8)
(19.4)
13.4
—
27.4
—
—
27.4
—
—
27.4
(11.5)
(2.4)
—
—
(13.9)
(2.1)
—
—
Total
490.4
39.5
(11.7)
518.2
27.0
(16.4)
528.8
(307.5)
(26.5)
11.0
0.2
(322.8)
(30.4)
15.7
1.5
Balance as at September 30, 2017
(41.3)
(161.9)
(116.8)
(16.0)
(336.0)
Net carrying value
Balance as at September 24, 2016
Balance as at September 30, 2017
17.3
16.8
30.4
34.0
134.2
130.6
13.5
11.4
195.4
192.8
Net additions of intangible assets excluded from the consolidated statement of cash flows amounted to $4.8 in 2017
($4.3 in 2016).
- 54 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Intangible assets with indefinite useful lives were as follows:
Banners
Private labels
Loyalty programs
Total
Balance as at September 26, 2015,
September 24, 2016 and September 30, 2017
133.3
39.5
23.5
196.3
Impairment testing of loyalty programs and exclusive private labels was conducted at the level of the asset itself. The
recoverable amount was determined based on its fair value less costs of disposal, which was calculated using the
capitalized excess EBIT method. The estimated EBIT directly allocated to the programs and private labels, after deduction
of the return on contributory assets, was based on historical data reflecting past experience. For loyalty programs, the
earnings multiple used was 12.2 (12.2 in 2016) considering a growth rate of 2.0% (2.0% in 2016) corresponding to the
consumer price index. For these private labels, the earnings multiple used was 14.3 (14.3 in 2016) considering a growth
rate of 2.0% (2.0% in 2016) corresponding to the consumer price index. The Corporation categorized the fair value
measurement in Level 3, as it is derived from unobservable market inputs.
Impairment testing of banners and other private labels were conducted at the level of the asset itself. The recoverable
amount was determined based on its fair value calculated using the royalty-free licence method. The estimated royalty
rate was based on information from external sources and historical data reflecting past experience. For the banners and
these private labels, the royalty rate used was 1.0% to 3.0% (1.0% to 3.0% in 2016) and the multiple used was 14.3 and
13.3 (14.3 and 13.3 in 2016) considering growth rate of 2.0% (2.0% in 2016) corresponding to the consumer price index.
The Corporation categorized the fair value measurement in Level 3, as it is derived from unobservable market inputs.
No reasonably possible change of any of these assumptions would result in a carrying amount higher than the recoverable
amount.
15. GOODWILL
Balance – beginning of year
Acquisitions through business combinations
Balance – end of year
2017
2016
1,955.4
18.4
1,973.8
1,931.5
23.9
1,955.4
For impairment testing, the carrying amount of goodwill was allocated to the unique operating segment of the Corporation.
The recoverable amount was determined based on its value in use, which was calculated using pre-tax cash flow
forecasts from the management-approved budgets for the next fiscal year. The forecasts reflected past experience. A
pre-tax discount rate of 12.0% (12.1% in 2016) was used and any growth rate was taken into consideration. No reasonably
possible change of any of these assumptions would result in a carrying amount higher than the recoverable amount.
16. OTHER ASSETS
Loans to certain customers, bearing interest at floating rates,
repayable in monthly instalments, maturing through 2031
Other assets
Current portion included in accounts receivable
- 55 -
2017
2016
40.3
3.8
44.1
6.2
37.9
31.4
4.7
36.1
4.0
32.1
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
17. BANK LOANS
As at September 30, 2017 and September 24, 2016, the Corporation's bank loans were the credit margins of structured
entities. The consolidated structured entities have credit margins totaling $8.4 ($8.3 as at September 24, 2016), bearing
interest at prime plus 0.5%, unsecured and maturing on various dates through 2018. As at September 30, 2017, $1.1
($1.4 as at September 24, 2016) had been drawn down under credit margins at an interest rate of 3.7% (3.2% as at
September 24, 2016).
18. OFFSETTING
Accounts payable (gross)
Vendor rebate receivables
Accounts payable (net)
19. PROVISIONS
Balance as at September 26, 2015
Additional provisions
Amounts used
Balance as at September 24, 2016
Current provisions
Non-current provisions
Balance as at September 24, 2016
Balance as at September 24, 2016
Additional provisions
Amounts used
Balance as at September 30, 2017
Current provisions
Non-current provisions
Balance as at September 30, 2017
2017
2016
1,082.8
(46.7)
1,036.1
1,076.3
(63.5)
1,012.8
Onerous
leases
8.0
0.4
(3.0)
5.4
2.6
2.8
5.4
5.4
2.1
(2.8)
4.7
2.7
2.0
4.7
Onerous leases correspond to leases for premises that are no longer used for the Corporation's operations. The amount
of the provision for these leases equals the discounted present value of the future lease payments less the estimated
future sublease income. The estimate may vary with the sublease assumptions. The remaining terms of these leases
are from one to 12 years.
- 56 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
20. DEBT
Revolving Credit Facility, bearing interest at a weighted average rate of 1.74%
(2.18% in 2016), repayable on November 3, 2022 or earlier
Series E Notes, bearing interest at a floating rate equal to the 3-month bankers'
acceptance rate plus 0.57%, 1.54% in 2017, maturing on February 27, 2020 and
redeemable at the issuer's option at fair value at any time prior to maturity
Series C Notes, bearing interest at a fixed nominal rate of 3.20%, maturing on
December 1, 2021 and redeemable at the issuer's option at fair value at any
time prior to maturity
Series B Notes, bearing interest at a fixed nominal rate of 5.97%, maturing on
October 15, 2035 and redeemable at the issuer's option at fair value at any time
prior to maturity
Series D Notes, bearing interest at a fixed nominal rate of 5.03%, maturing on
December 1, 2044 and redeemable at the issuer's option at fair value at any
time prior to maturity
Loans, maturing on various dates through 2027, bearing interest at an average
rate of 2.41% (2.72% in 2016)
Obligations under finance leases, bearing interest at an effective rate of 8.0%
(8.3% in 2016)
Deferred financing costs
Current portion
2017
2016
—
184.6
400.0
—
300.0
300.0
400.0
400.0
300.0
300.0
35.6
25.7
(6.8)
1,454.5
12.9
1,441.6
39.0
28.9
(6.0)
1,246.5
15.5
1,231.0
The revolving credit facility with a maximum of $600.0 bears interest at rates that fluctuate with changes in bankers'
acceptance rates and is unsecured. As at September 30, 2017, the unused authorized revolving credit facility was $600.0
($415.4 as at September 24, 2016). Given that the Corporation frequently increases and decreases this credit facility
through bankers' acceptances with a minimum of 30 days and to simplify its presentation, the Corporation found that it
is preferable for the understanding of its financing activities to present the consolidated statement of cash flows solely
with net annual changes. As at September 24, 2016, the revolving credit facility included loans of $95.0 US. On
October 1, 2017, the maturity of the revolving credit facility was extended to November 3, 2022.
The amortization of deferred financing fees and the debt related to the acquisition of intangible assets, excluded from
the consolidated statements of cash flows, totalled $7.3 in 2017 ($5.2 in 2016).
Repayments of debt in the upcoming fiscal years will be as follows:
2018
2019
2020
2021
2022
2023 and thereafter
Facility and loans
9.2
2.7
3.5
1.1
1.0
18.1
35.6
Notes
—
—
400.0
—
300.0
700.0
1,400.0
Obligations under
finance leases
5.4
4.9
3.6
2.1
1.9
18.1
36.0
Total
14.6
7.6
407.1
3.2
302.9
736.2
1,471.6
The minimum payments in respect of the obligations under finance leases included interest amounting to $10.3 on these
obligations in 2017 ($12.5 in 2016).
- 57 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
21. OTHER LIABILITIES
Lease liabilities
Other liabilities
22. CAPITAL STOCK
2017
10.5
1.8
12.3
2016
8.1
4.1
12.2
The authorized capital stock of the Corporation was summarized as follows:
• unlimited number of Common Shares, bearing one voting right per share, participating, without par value;
• unlimited number of Preferred Shares, non-voting, without par value, issuable in series.
Common Shares issued
The Common Shares issued and the changes during the year were summarized as follows:
Balance as at September 26, 2015
Shares redeemed for cash, excluding premium of $310.9
Stock options exercised
Balance as at September 24, 2016
Shares redeemed for cash, excluding premium of $284.5
Stock options exercised
Balance as at September 30, 2017
Treasury shares
The treasury shares changes during the year were summarized as follows:
Balance as at September 26, 2015
Acquisition
Release
Balance as at September 24, 2016
Acquisition
Release
Balance as at September 30, 2017
Number
(Thousands)
242,285
(8,477)
703
234,511
(7,433)
641
227,719
Number
(Thousands)
743
165
(243)
665
170
(256)
579
579.0
(20.4)
12.4
571.0
(18.1)
12.9
565.8
(18.5)
(7.1)
5.1
(20.5)
(6.9)
5.5
(21.9)
Treasury shares are held in trust for the PSU plan. They will be released into circulation when the PSUs settle. The trust,
considered a structured entity, is consolidated in the Corporation's financial statements.
- 58 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Stock option plan
The Corporation has a stock option plan for certain Corporation employees providing for the grant of options to purchase
up to 30,000,000 Common Shares. As at September 30, 2017, a balance of 5,803,816 shares could be issued following
the exercise of stock options (6,444,996 as at September 24, 2016). The subscription price of each Common Share
under an option granted pursuant to the plan is equal to the market price of the shares on the day prior to option grant
date and must be paid in full at the time the option is exercised. While the Board of Directors determines other terms
and conditions for the exercise of options, no options may have a term of more than five years from the date the option
may initially be exercised, in whole or in part, and the total term may in no circumstances exceed ten years from the
option grant date. Options may generally be exercised two years after their grant date and vest at the rate of 20% per
year.
The outstanding options and the changes during the year were summarized as follows:
Balance as at September 26, 2015
Granted
Exercised
Cancelled
Balance as at September 24, 2016
Granted
Exercised
Cancelled
Balance as at September 30, 2017
Weighted
average
exercise
price
Number
(Thousands)
(Dollars)
3,838
392
(703)
(44)
3,483
394
(641)
(56)
3,180
20.34
40.40
14.59
27.35
23.67
40.23
16.76
33.31
26.94
The information regarding the stock options outstanding and exercisable as at September 30, 2017 was summarized
as below :
Outstanding options
Exercisable options
Range of exercise prices
(Dollars)
Number
(Thousands)
Weighted
average
remaining
period
(Months)
Weighted
average
exercise
price
(Dollars)
15.09 to 17.72
19.47 to 24.69
35.42 to 44.73
754
1,228
1,198
3,180
13.6
35.4
63.9
41.0
16.87
21.83
38.52
26.94
Weighted
average
exercise
price
(Dollars)
16.70
21.68
35.42
20.17
Number
(Thousands)
628
576
85
1,289
The weighted average fair value of $5.19 per option ($4.65 in 2016) for stock options granted during fiscal 2017 was
determined at the time of grant using the Black-Scholes model and the following weighted average assumptions: risk-
free interest rate of 1.3% (0.7% in 2016), expected life of 5.4 years (5.3 years in 2016), expected volatility of 16.1%
(15.0% in 2016) and expected dividend yield of 1.6% (1.3% in 2016). The expected volatility is based on the historic
share price volatility over a period similar to the life of the options.
Compensation expense for these options amounted to $2.1 for fiscal 2017 ($2.2 in 2016).
- 59 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Performance share unit plan
The Corporation has a PSU plan. Under this program, senior executives and other key employees (participants)
periodically receive a given number of PSUs which may increase if the Corporation meets certain financial performance
indicators. The PSUs entitle the participant to Common Shares of the Corporation, or at the latter's discretion, the cash
equivalent. PSUs vest at the end of a period of three years.
PSUs outstanding and changes during the year were summarized as follows:
Balance as at September 26, 2015
Granted
Settled
Cancelled
Balance as at September 24, 2016
Granted
Settled
Cancelled
Balance as at September 30, 2017
Number
(Units)
741
184
(247)
(14)
664
186
(257)
(46)
547
The weighted average fair value of $40.23 per PSU ($40.38 in 2016) for PSUs granted during fiscal 2017 was the stock
market valuation of a Common Share of the Corporation at grant date.
The compensation expense comprising all of these PSUs amounted to $6.0 for fiscal 2017 ($6.3 in 2016).
Deferred Share Unit Plan
The Corporation has a DSU plan designed to encourage stock ownership by directors who are not Corporation officers.
Under this program, directors who meet the stock ownership guidelines may choose to receive all or part of their
compensation in DSUs. DSUs vest when granted. On leaving, a director receives a lump-sum cash payout from the
Corporation.
The DSU expense totalled $0.6 for fiscal 2017 ($4.5 in 2016).
As at September 30, 2017, the DSU liability amounted to $14.2 ($14.4 as at September 24, 2016).
23. DIVIDENDS
In fiscal 2017, the Corporation paid $143.5 in dividends to holders of Common Shares ($127.1 in 2016), or $0.6275 per
share ($0.5366667 in 2016). On October 2, 2017, the Corporation's Board of Directors declared a quarterly dividend of
$0.1625 per Common Share payable on November 14, 2017.
- 60 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
24. EMPLOYEE BENEFITS
The Corporation maintains several defined benefit and defined contribution plans for eligible employees, which provide
most participants with pension, ancillary retirement benefits, and other long-term employee benefits which in certain
cases are based on the number of years of service or final average salary. The defined benefit plans are funded by the
Corporation's contributions, with some plans also funded by participants' contributions. The Corporation also provides
eligible employees and retirees with health care, life insurance and other long-term benefits. Ancillary retirement benefits
plans and other long-term employee benefits are not funded and are presented in other plans. Pension committees
made up of employer and employee representatives are responsible for all administrative decisions concerning certain
plans.
Defined benefit pension plans and ancillary retirement benefit plans expose the Corporation to actuarial risks such as
interest-rate risk, longevity risk, investment risk and inflation risk. Consequently, the Corporation’s investment policy
prescribes a diversified portfolio whose bond component matches the expected timing and payments of benefits.
The changes in present value of the defined benefit obligation were as follows:
Balance – beginning of year
Participant contributions
Benefits paid
Items in net earnings
Current service cost
Interest cost
Past service cost
Actuarial gains
Items in comprehensive income
Actuarial gains from demographic assumptions
Actuarial losses (gains) from financial assumptions
Adjustments due to experience
Balance – end of year
2017
2016
Pension
plans
Other
plans
Pension
plans
Other
plans
1,229.1
6.9
(44.4)
40.8
40.7
—
—
81.5
—
(99.8)
(2.4)
(102.2)
1,170.9
39.3
—
(3.4)
2.1
1.4
—
(1.1)
2.4
(1.1)
(1.5)
(1.6)
(4.2)
34.1
1,027.3
6.7
(43.0)
37.9
44.2
(0.1)
—
82.0
—
157.6
(1.5)
156.1
1,229.1
38.5
—
(3.4)
2.0
1.7
—
(0.4)
3.3
(1.2)
2.3
(0.2)
0.9
39.3
The present value of the defined benefit obligation may be reflected as follows:
(Percentage)
Active plan participants
Deferred plan participants
Retirees
2017
2016
Pension
plans
Other
plans
Pension
plans
Other
plans
60
4
36
70
—
30
63
4
33
73
—
27
- 61 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
The changes in the fair value of plan assets were as follows:
Fair value – beginning of year
Employer contributions
Participant contributions
Benefits paid
Items in net earnings
Interest income
Administration costs
Items in comprehensive income
Return on plan assets, excluding the amounts included in
interest income
Fair value – end of year
2017
2016
Pension
plans
Other
plans
1,123.7
44.0
6.9
(44.4)
37.8
(2.1)
35.7
1.9
1,167.8
—
3.4
—
(3.4)
—
—
—
—
—
Pension
plans
1,001.7
51.0
6.7
(43.0)
42.5
(1.5)
41.0
66.3
1,123.7
Other
plans
—
3.4
—
(3.4)
—
—
—
—
—
The changes in the asset ceiling and the minimum funding requirement for pension plans were as follows:
Balance - beginning of year
Interests
Change in defined benefit assets
Change in defined benefit liabilities
Balance - end of year
2017
2016
Asset
ceiling
Minimum
funding
requirement
Asset
ceiling
Minimum
funding
requirement
(7.8)
(0.3)
(8.1)
—
(16.2)
(0.7)
—
—
0.7
—
(6.7)
(0.2)
(0.9)
—
(7.8)
(1.2)
(0.1)
—
0.6
(0.7)
The value of the economic benefit that determined the asset ceiling represents the present value of future contribution
holidays, and the minimum funding requirement represents the present value of required contributions under the law,
which do not result, once made, in an economic benefit for the Corporation.
The changes in the defined benefit plans' funding status were as follows:
Balance of defined benefit obligation – end of year
Fair value of plan assets – end of year
Funding position
Asset ceiling effect
Minimum funding requirement
Defined benefit assets
Defined benefit liabilities
2017
2016
Pension
plans
Other
plans
Pension
plans
Other
plans
(1,170.9)
1,167.8
(3.1)
(16.2)
—
(34.1)
(1,229.1)
—
(34.1)
—
—
1,123.7
(105.4)
(7.8)
(0.7)
(39.3)
—
(39.3)
—
—
(19.3)
(34.1)
(113.9)
(39.3)
39.3
(58.6)
(19.3)
—
(34.1)
(34.1)
7.5
(121.4)
(113.9)
—
(39.3)
(39.3)
- 62 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
The defined contribution and defined benefit plans expense recorded in net earnings was as follows:
Defined contribution plans, including multi-employer plans
Defined benefit plans
Current service cost
Past service cost
Actuarial gains
Administration costs
Employee benefits expense
Interest on obligations, asset ceiling effect and minimum
funding requirement net of plans assets, presented in
financial costs
Net total expense
2017
(53 weeks)
2016
(52 weeks)
Pension
plans
Other
plans
Pension
plans
Other
plans
36.3
40.8
—
—
2.1
42.9
79.2
3.2
82.4
0.6
36.3
0.6
2.1
—
(1.1)
—
1.0
1.6
1.4
3.0
37.9
(0.1)
—
1.5
39.3
75.6
2.0
77.6
2.0
—
(0.4)
—
1.6
2.2
1.7
3.9
The remeasurements recognized as other comprehensive income were as follows:
2017
2016
Pension
plans
Other
plans
Pension
plans
Other
plans
Actuarial losses (gains) on obligations incurred
(102.2)
(4.2)
Return on plan assets
Change in the effect of the asset ceiling
Change in the minimum funding requirement
(1.9)
8.1
(0.7)
—
—
—
(96.7)
(4.2)
156.1
(66.3)
0.9
(0.6)
90.1
0.9
—
—
—
0.9
Total cash payments for employee benefits, consisting of cash contributed by the Corporation to its funded pension plans
and cash payments directly to beneficiaries for its unfunded other benefit plans, amounted to $47.4 in 2017 ($54.4 in
2016). The Corporation plans to contribute $45.7 to the defined benefit plans during the next fiscal year and $28.3 to
multi-employer plans.
Weighted average duration of defined benefit obligations was 15 years as at September 30, 2017 (15.5 years as at
September 24, 2016).
The most recent actuarial valuations for funding purposes in respect of the Corporation's pension plans were performed
on various dates between December 2015 and September 2017. The next valuations will be performed between
December 2017 and December 2018.
Plan assets, primarily based on quoted market prices in an active market, held in trust and their weighted average
allocation as at the measurement dates were as follows:
Asset categories (Percentage)
Shares in Canadian corporations
Shares in foreign corporations
Government and corporation bonds
Others
- 63 -
2017
2016
21
27
45
7
24
29
40
7
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
Pension plan assets included shares issued by the Corporation with a fair value of $5.0 as at September 30, 2017
($5.0 as at September 24, 2016).
The principal actuarial assumptions used in determining the defined benefit obligation and service costs were the
following:
(Percentage)
Pension plans
Other plans
Pension plans
Other plans
2017
2016
Discount rate on defined benefit obligation
Discount rate on service costs
Rate of compensation increase
3.90
3.50
3.0
3.90
3.50
3.0
3.35
4.35
3.0
3.35
4.35
3.0
Mortality table
CPM2014Priv CPM2014Priv
CPM2014Priv CPM2014Priv
To determine the most suitable discount rate, management considers the interest rates for high-quality bonds issued by
entities operating in Canada with cash flows that match the timing and amount of expected benefit payments. The
mortality rate is based on available mortality tables. Projected inflation rates are taken into account in establishing future
wage and pension increases.
A 1% change in the discount rate, taking into consideration any modifications to other assumptions, would have the
following effects:
Pension plans
Other plans
1% increase
1% decrease
1% increase
1% decrease
Effect on defined benefit obligation
(164.9)
197.3
(2.8)
3.3
The assumed annual health care cost trend rate per participant was set at 5.7% (5.8% in 2016). Under the assumption
used, this rate should gradually decline to 4.5% in 2034 and remain at that level thereafter. A 1% change in this rate
would have the following effects:
Effect on defined benefit obligation
1% increase
1% decrease
1.7
(1.5)
- 64 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
25. COMMITMENTS
Operating leases
The Corporation has operating lease commitments, with varying terms through 2041 and one to 14 five-year renewal
options, to lease premises and equipment used for business purposes. The Corporation does not have an option to
purchase the leased assets when the leases expire, but it has the right of first refusal in certain cases. Future minimum
lease payments under these operating leases will be as follows:
Under 1 year
Between 1 and 5 years
Over 5 years
2017
186.4
565.9
548.8
2016
182.5
543.8
495.9
1,301.1
1,222.2
In addition, the Corporation has committed to leases for premises, with varying terms through 2035 and one to 17 five-
year lease renewal options, which it sublets to clients generally under the same terms and conditions. Future minimum
lease payments under these operating leases will be as follows:
Under 1 year
Between 1 and 5 years
Over 5 years
Finance leases
2017
44.9
152.1
169.1
366.1
2016
44.4
149.7
196.8
390.9
The Corporation has finance lease commitments, with varying terms through 2036 and three to seven five-year renewal
options, to lease premises used for business purposes and IT equipments. The Corporation does not have an option to
purchase the leased assets when the leases expire. Future minimum lease payments under these finance leases and
the present value of net minimum lease payments will be as follows:
Under 1 year
Between 1 and 5 years
Over 5 years
Minimum lease payments
Future financial costs
Present value of minimum lease payments
Service contracts
Minimum lease payments
2017
5.4
12.5
18.1
36.0
(10.3)
25.7
2016
5.9
15.5
20.0
41.4
(12.5)
28.9
Present value of
minimum lease payments
2017
2016
3.7
8.4
13.6
25.7
—
25.7
3.7
10.5
14.7
28.9
—
28.9
The Corporation has service contract commitments essentially for transportation and IT, with varying terms through 2024
and no renewal option. Future minimum payments under these service contracts will be as follows:
Under 1 year
Between 1 and 5 years
Over 5 years
- 65 -
2017
73.3
95.2
7.3
175.8
2016
73.3
152.3
—
225.6
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
26. CONTINGENCIES
Guarantees
For certain customers with established business relationships, the Corporation is contingently liable as guarantor in
connection with lease agreements with varying terms through 2026 for which the average annual minimum lease
payments for the next five years will be $0.2 ($0.2 in 2016). The maximum contingent liability under these guarantees
as at September 30, 2017 was $1.2 ($1.6 as at September 24, 2016). In addition, the Corporation has guaranteed loans
granted to certain customers by financial institutions, with varying terms through 2028. The balance of these loans
amounted to $27.1 as at September 30, 2017 ($27.5 as at September 24, 2016). No liability has been recorded in respect
of these guarantees for the years ended September 30, 2017 and September 24, 2016.
Claims
In the normal course of business, various proceedings and claims are instituted against the Corporation. The Corporation
contests the validity of these claims and proceedings and management believes that any forthcoming settlement in
respect of these claims will not have a material effect on the Corporation's financial position or on consolidated earnings.
In October 2017, the Canadian Competition Bureau began an investigation into the supply and sale of commercial bread
which involves certain Canadian suppliers and retailers, including the Corporation. The Corporation fully cooperates
with the authorities. Since the investigation is in its early stages, the Corporation is unable to assess what further action,
if any, the Competition Bureau may take or the possible impact of the inquiry on the Corporation. However, based on
the very limited information currently available, the Corporation does not believe that this matter will have a material
adverse effect on the Corporation’s business, results of operations or financial condition.
27. RELATED PARTY TRANSACTIONS
The Corporation has significant interest in the following subsidiaries, joint venture and associate:
Names
Subsidiaries
Metro Richelieu Inc.
McMahon Distributeur pharmaceutique Inc.
Metro Ontario Inc.
Metro Québec Immobilier Inc.
Metro Ontario Real Estate Limited
Metro Ontario Pharmacies Limited
Metro Canada Holdings Inc.
Groupe Adonis Inc.
Groupe Phoenicia Inc.
Groupe Première Moisson Inc.
MissFresh Inc.
Joint venture
Country of
incorporation
Percentage of
interest in the capital
Percentage of
voting rights
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
100.0
100.0
100.0
100.0
100.0
100.0
100.0
55.0
55.0
75.0
70.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
55.0
55.0
75.0
70.0
Dunnhumby Canada Limitée
Canada
50.0
50.0
Associate
Alimentation Couche-Tard Inc.
Canada
5.7
17.0
- 66 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
In the normal course of business, the following transactions have been entered into with related parties:
Joint venture
Companies controlled by a member of
the Board of Directors
Joint venture
Companies controlled by a member of
the Board of Directors
2017
(53 weeks)
Sales
Services
received
—
10.1
10.1
9.7
—
9.7
2016
(52 weeks)
Sales
—
30.3
30.3
Services
received
9.8
—
9.8
2017
2016
Accounts
receivable
Accounts
payable
Accounts
receivable
Accounts
payable
—
—
—
(1.1)
—
(1.1)
—
0.9
0.9
(1.8)
—
(1.8)
Compensation for the principal officers and directors was as follows:
Compensation and current benefits
Post-employment benefits
Share-based payment
2017
2016
(53 weeks)
(52 weeks)
5.6
0.4
4.4
10.4
6.1
0.7
4.3
11.1
28. MANAGEMENT OF CAPITAL
The Corporation aims to maintain a capital level that enables it to meet several objectives, namely:
• Striving for a percentage of non-current debt to total combined non-current debt and equity (non-current debt/total
capital ratio) of less than 50%.
• Maintaining an adequate credit rating to obtain an investment grade rating for its term notes.
• Paying total annual dividends representing a range of 20% to 30% of the prior fiscal year's net earnings, excluding
non recurring items, with a target of 25%.
In its capital structure, the Corporation considers its stock option and PSU plans for key employees and officers. In
addition, the Corporation's stock redemption plan is one of the tools it uses to achieve its objectives.
The Corporation is not subject to any capital requirements imposed by a regulator.
The Corporation's fiscal 2017 annual results regarding its capital management objectives were as follows:
•
•
•
a non-current debt/total capital ratio of 33.0% (31.4% as at September 24, 2016);
a BBB credit rating confirmed by S&P and DBRS (same rating in 2016);
a dividend representing 24.5% of net earnings, excluding non recurring items, for the previous fiscal year (24.3%
in 2016).
The capital management objectives remain the same as for the previous fiscal year.
- 67 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
29. FINANCIAL INSTRUMENTS
FAIR VALUE
The non current financial instruments' book and fair values were as follows:
2017
2016
Book value
Fair value
Book value
Fair value
Other assets
Loans and receivables
Loans to certain customers (note 16)
40.3
40.3
31.4
31.4
Non-controlling interests
Financial liability held for trading
Debt (note 20)
Other financial liabilities
Revolving Credit Facility
Series E Notes
Series C Notes
Series B Notes
Series D Notes
Loans
36.6
36.6
244.8
244.8
—
400.0
300.0
400.0
300.0
35.6
—
400.9
308.1
477.8
322.4
35.6
184.6
—
300.0
400.0
300.0
39.0
184.6
—
317.9
494.2
343.4
39.0
1,435.6
1,544.8
1,223.6
1,379.1
The fair value of loans to certain customers, revolving credit facility and loans payable is equivalent to their carrying
value since their interest rates are comparable to market rates. The Corporation categorized the fair value measurement
in Level 2, as it is derived from observable market inputs.
The fair value of notes represents the obligations that the Corporation would have to meet in the event of the negotiation
of similar notes under current market conditions. The Corporation categorized the fair value measurement in Level 2,
as it is derived from observable market inputs.
The fair value of the non-controlling interest-related non-current liability is equivalent to the estimated price to be paid,
which is based mainly on the discounted value of the projected future earnings of Première Moisson and MissFresh
(Adonis, Phoenicia and Première Moisson as at September 24, 2016), as of the date the options will become exercisable.
The Corporation categorized the fair value measurement in Level 3, as it is derived from data that is not observable.
The projected future earnings of these entities are measured again at each period using a strategic development plan
with a weighted annual growth rate of 7.4% as at September 30, 2017 (7.1% as at September 24, 2016). A 1% increase
in these earnings would not result in a significant increase in the fair value of the non-controlling interest-related liability.
- 68 -
Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
The changes of the non-controlling interest-related liability were as follows:
Balance – beginning of year
Issuance through business combinations
Change in fair value
Balance – end of year
Current portion
Non-current portion
Balance – end of year
2017
244.8
3.2
12.9
260.9
224.3
36.6
260.9
2016
221.3
—
23.5
244.8
—
244.8
244.8
In accordance with the shareholder agreement, the Corporation will acquire the minority interests in Adonis and Phoenicia
shortly after this fiscal year. Consequently, the Corporation has reclassified the liability for these non-controlling interests
as current liabilities. The fair value of the current liability for these non-controlling interests corresponds to an estimation
of the price to be paid based on Adonis and Phoenicia’s fiscal 2017 results in accordance with the agreements between
the parties.
INTEREST RATE RISK
In the normal course of business, the Corporation is exposed primarily to interest rate fluctuations risk as a result of
loans and receivables that it grants, as well as revolving credit facility and loans payable that it contracts at variable
interest rates.
The Corporation keeps a close watch on interest rate fluctuations and, if warranted, uses derivative financial instruments
such as interest rate swap contracts. As at September 30, 2017 and September 24, 2016, there were no outstanding
interest rate swap contracts.
CREDIT RISK
Loans and receivables / Guarantees
The Corporation sells products to consumers and merchants in Canada. When it sells products, it gives merchants
credit. In addition, to help certain merchants finance business acquisitions, the Corporation grants them long-term loans
or guarantees loans obtained by them from financial institutions. Hence, the Corporation is subject to credit risk.
To mitigate such risk, the Corporation performs ongoing credit evaluations of its customers and has adopted a credit
policy that defines the credit conditions to be met and the required guarantees. As at September 30, 2017 and
September 24, 2016, no customer accounted for over 10% of total loans and receivables.
To cover its credit risk, the Corporation holds guarantees over its clients' assets in the form of deposits, movable hypothecs
on the Corporation stock and/or second hypothecs on their inventories, movable property, intangible assets and
receivables.
In recent years, the Corporation has not suffered any material losses related to credit risk.
As at September 30, 2017, the maximum potential liability under guarantees provided amounted to $27.1 ($27.5 as at
September 24, 2016) and no liability had been recognized as at that date.
Financial assets at fair value through net earnings
With regard to its financial assets at fair value through net earnings, consisting of foreign exchange forward contracts
and cross currency interest rate swaps, the Corporation is subject to credit risk when these contracts result in receivables
from financial institutions.
In accordance with its risk management policy, the Corporation entered into these agreements with major Canadian
financial institutions to reduce its credit risk.
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Notes to consolidated financial statements
September 30, 2017 and September 24, 2016
(Millions of dollars, unless otherwise indicated)
As at September 30, 2017, the Corporation was not exposed to credit risk in respect of its foreign exchange forward
contracts, as they resulted in amounts payable. As at September 24, 2016, the maximum exposure to credit risk for the
foreign exchange forward contracts was equal to their carrying amount.
LIQUIDITY RISK
The Corporation is exposed to liquidity risk primarily as a result of its debt, non-controlling interest-related liabilities and
trade accounts payable.
The Corporation regularly assesses its cash position and feels that its cash flows from operating activities are sufficient
to fully cover its cash requirements as regards its financing activities. Its revolving credit facility and its Series E, C, B
and D Notes mature only in 2022, 2020, 2021, 2035 and 2044, respectively. The Corporation also has an unused
authorized balance of $600.0 on its revolving credit facility.
Undiscounted cash flows (capital and interest)
Accounts
payable
Facility and
loans
Notes
Finance lease
commitments
Maturing under 1 year
1,036.1
Maturing in 1 to 10 years
Maturing in 11 to 20 years
Maturing over 20 years
—
—
—
1,036.1
10.0
14.5
3.1
16.1
43.7
54.7
1,089.9
741.9
408.1
2,294.6
5.4
20.3
10.3
—
36.0
Non-
controlling
interests
224.3
36.6
—
—
Total
1,330.5
1,161.3
755.3
424.2
260.9
3,671.3
FOREIGN EXCHANGE RISK
Given that some of its purchases are denominated in foreign currencies and that it has, depending on market conditions,
US borrowings on its revolving credit facility, the Corporation is exposed to foreign exchange risk.
In accordance with its risk management policy, the Corporation could use derivative financial instruments, consisting of
foreign exchange forward contracts and cross currency interest rate swaps, to hedge against the effect of foreign
exchange rate fluctuations on its future foreign-denominated purchases of goods and services and on its US borrowings.
As at September 30, 2017 and September 24, 2016, the fair value of foreign exchange forward contracts was
insignificant.
30. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements of fiscal year ended September 30, 2017 (including comparative figures) were
approved for issue by the Board of Directors on December 11, 2017.
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DIRECTORS AND OFFICERS
Board of Directors
Maryse Bertrand(3)
Montréal, Québec
Stephanie Coyles(1)
Toronto, Ontario
Marc DeSerres(2)(3)
Montréal, Québec
Claude Dussault(2)
Québec City, Québec
Russel Goodman(1)(3)
Mont-Tremblant, Québec
Marc Guay(3)
Oakville, Ontario
Christian W.E. Haub(2)
Greenwich (Connecticut)
Michel Labonté(1)(2)
Montréal, Québec
Eric R. La Flèche
Town of Mount-Royal, Québec
President and Chief Executive
Officer
Christine Magee(1)
Oakville, Ontario
Marie-José Nadeau(2)(3)
Montréal, Québec
Réal Raymond
Montréal, Québec
Chair of the Board
Line Rivard(1)
Montréal, Québec
Carmine Fortino
Executive Vice-President and
Ontario Division Head
Serge Boulanger
Senior Vice-President,
National Procurement and
Corporate Brands
Martin Allaire
Vice-President,
Real Estate & Engineering
Management of METRO INC.
Eric R. La Flèche
President and Chief Executive
Officer
François Thibault
Executive Vice-President,
Chief Financial Officer and
Treasurer
Geneviève Bich
Vice-President,
Human Resources
Mireille Desjarlais
Vice-President,
Corporate Controller
Dan Gabbard
Vice-President,
Supply Chain
Christian Bourbonnière
Executive Vice-President and
Québec Division Head
Frédéric Legault
Vice-President,
Information Systems
Luc Martinovitch
Vice-President and General
Manager
McMahon distributeur
pharmaceutique Inc.
Gino Plevano
Vice-President,
Digital Strategy and Online
Shopping
Simon Rivet
Vice-President,
General Counsel and
Corporate Secretary
Roberto Sbrugnera
Vice-President,
Treasury, Risk and
Investor Relations
Yves Vézina
National Vice-President,
Logistics and Distribution
(1) Member of the Audit Committee
(2) Member of the Human Resources
Committee
(3) Member of the Corporate
Governance and Nominating
Committee
SHAREHOLDER INFORMATION
Transfer agent and
registrar
AST Trust Company
(Canada)
Head Office
11011 Maurice-Duplessis Blvd.
Montréal, Québec H1C 1V6
Stock listing
Toronto Stock Exchange
Ticker Symbol: MRU
The Annual Information Form may
be obtained from the Investor
Relations Department:
Tel: (514) 643-1000
Vous pouvez vous procurer
la version française de ce
rapport auprès du service
des relations avec les
investisseurs:
Tel: (514) 643-1000
METRO INC.’s corporate
information and press
releases are available on the
Internet at the following
address: www.metro.ca
Annual meeting
The Annual General Meeting
of Shareholders will be held
on January 30, 2018 at 10:00
a.m. at:
Centre Mont-Royal
2200 Mansfield Street
Montréal, Québec H3A 3R8
Auditors
Ernst & Young LLP
DIVIDENDS*
2018 FISCAL YEAR
Declaration Date
January 29, 2018
April 24, 2018
August 14, 2018
October 1, 2018
Record Date
February 15, 2018
May 24, 2018
September 5, 2018
October 26, 2018
Payment Date
March 13, 2018
June 15, 2018
September 26, 2018
November 13, 2018
* Subject to approval by the Board of Directors
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