ANNUAL REPORT
2018
COMPANY PROFILE
METRO INC. is a food and pharmacy leader in Québec and Ontario. As a retailer, franchisor, distributor, and manufacturer,
the company operates or services a network of 947 food stores under several banners including Metro, Metro Plus,
Super C, Food Basics, Adonis and Première Moisson, as well as 669 drugstores primarily under the Jean Coutu, Brunet,
Metro Pharmacy and Drug Basics banners, providing employment directly or indirectly to almost 90,000 people.
2018 HIGHLIGHTS
• 52-week fiscal year versus 53 weeks in 2017
• Sales of $14,383.4 million, up 9.2% and up 2.4% when excluding the Jean Coutu Group and the 53rd week of 2017
• Net earnings of $1,718.5 million
• Adjusted net earnings(1) of $605.9 million, up 13.0% based on 52 weeks in 2017
• Fully diluted net earnings per share of $7.16
• Adjusted fully diluted net earnings per share(1) of $2.52, up 11.5% based on 52 weeks in 2017
• Return on equity of 40.1%, exceeding 14% for the 25th consecutive year
• Dividends per share increase of 12.0%, the 24th consecutive year of dividend growth
RETAIL NETWORK
Québec
Ontario
New Brunswick Total
Supermarkets
Metro
Metro Plus
Adonis
199 Metro
10 Adonis
Discount stores
Super C
97 Food Basics
134
2
131
Neighbourhood
stores
Marché Richelieu
Marché Ami
Marché Extra
57
250
40
Partner
Première Moisson
26 Première Moisson
1
Total food
Drugstores
Total drugstores
Brunet
Brunet Plus
Brunet Clinique
Clini Plus
PJC Jean Coutu
PJC Health
PJC Health & Beauty
679
268
Metro Pharmacy
Drug Basics
180
PJC Jean Coutu
PJC Health
380
560
72
9
81
333
12
228
347
27
947
252
PJC Jean Coutu
PJC Health
PJC Health & Beauty
28
28
417
669
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
Operating income*
Net earnings
Adjusted net earnings(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(1)
Book value
Dividends
FINANCIAL RATIOS
(%)
Operating income*/ Sales
Return on equity
Non-current debt/total capital
SHARE PRICE
(Dollars)
High
Low
Closing price (At year-end)
2018
2017
(53 weeks)
2016
2015
2014
14,383.4
13,175.3
12,787.9
12,223.8
11,590.4
1,011.1
1,718.5
605.9
750.4
10,922.2
2,630.4
5,656.0
7.20
7.16
2.52
22.12
0.7025
7.0
40.1
31.7
45.44
38.32
40.18
966.4
608.4
548.2
696.2
6,050.7
1,441.6
2,923.9
2.59
2.57
2.31
12.87
0.6275
7.3
21.7
33.0
47.41
38.00
42.91
931.3
586.2
586.2
707.4
5,606.1
1,231.0
2,693.2
2.41
2.39
2.39
11.52
0.5367
7.3
21.9
31.4
48.19
35.61
44.09
857.8
519.3
523.6
678.3
5,387.1
1,145.1
2,657.2
2.03
2.01
2.03
11.00
0.4500
7.0
19.4
30.1
38.10
24.27
35.73
781.5
456.2
460.9
433.1
5,279.5
1,044.7
2,684.1
1.70
1.69
1.71
10.59
0.3833
6.7
16.6
28.0
24.93
20.00
24.62
* Operating income before depreciation and amortization and associate's earnings (OI)
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
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MESSAGE FROM THE CHAIR OF THE BOARD
Dear Shareholders,
This past year METRO completed the acquisition of the Jean Coutu Group, the largest transaction in its history, achieving
one of the key elements of its strategic plan, which was to become the leader in pharmacy in Québec.
One quarter of the acquisition price was paid in shares, representing at the time of the transaction an aggregate interest
of approximately 11% of the company's equity, about 8% of which is now held by the Coutu family. I would like to welcome
all of our new shareholders and, on behalf of the Board, thank them for the choice that they made.
The Board welcomed two new members in 2018 following the acquisition of the Jean Coutu Group, Messrs. François J.
Coutu and Michel Coutu. I am convinced that their extensive knowledge of the pharmacy sector will be beneficial to the
Board.
METRO had another good year in 2018 as it achieved results that met expectations, despite intense competition and a
difficult economic context. These results serve to reaffirm our belief that the business plan implemented by management
and supported by the Board is proving to be effective for the company’s growth.
Our strong results reflect the commitment and competence of our employees, led by a strong and experienced
management team. I would like to congratulate our President and Chief Executive Officer, Eric La Flèche, as well as all
of the members of the METRO team for those results and, particularly, for all the work done to complete the acquisition
of the Jean Coutu Group.
Board of Directors
Once again this year, the Board of Directors reviewed and approved the company's strategic plan and supported
management in the various initiatives and projects underway, including an investment of $400 million(3) over six years
announced in October of 2017 to modernize our distribution network in Toronto. Following the acquisition of the Jean
Coutu Group, the Board also supported management in its efforts to consolidate the activities of the Jean Coutu Group
with those of METRO.
In 2016, the Board raised its gender representation minimum target from 25% to 30%. We are proud to have exceeded
that target for the fifth straight year, with five women directors, representing 36% of the Board.
In 2019, the Board will continue to support management in achieving the company's strategic priorities, particularly in
creating the value of the acquisition of the Jean Coutu Group.
The Board is functioning well and I would like to thank all of my colleagues for their commitment and their contribution
throughout the year. Thank you for your trust and I hope that we will be able to count on your support in 2019.
Réal Raymond
Chair of the Board
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
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MESSAGE FROM THE PRESIDENT AND CEO
Dear Shareholders,
Fiscal 2018 started off with a bang: in October of 2017, we announced the completion of two strategic projects, namely
the acquisition of the Jean Coutu Group, the largest in METRO’s history, and the modernization of our distribution network
in Toronto. And it ended on a strong note with solid growth of same-store sales and net earnings in the fourth quarter.
2018 results
Our 2018 fiscal year included 52 weeks compared to 53 weeks for 2017. Sales rose to $14.4 billion, up 9.2% and 2.4%
when excluding the Jean Coutu Group and the 53rd week of 2017. Food same-store sales were up 1.6%. Since the
acquisition, pharmacy same-store sales were up 1.8%, 0.6% for prescription drugs (2.5% for number of prescriptions)
and 3.9% for front store sales.
Net earnings for fiscal 2018 were $1,718.5 million compared to $608.4 million in 2017 and fully diluted net earnings per
share were $7.16 compared to $2.57. Taking into account the adjustments for fiscal 2018 and 2017, adjusted net
earnings(1) for 2018 were $605.9 million compared to $536.3 million in 2017 based on 52 weeks, and adjusted fully
diluted net earnings per share(1) were $2.52 compared to $2.26, up 13.0% and 11.5% respectively.
We are pleased with our 2018 results, which were achieved in a difficult environment, marked by intense competition,
very low food inflation and increased pressure on our operating costs, namely the minimum wage increase in Ontario.
Jean Coutu Group
It was with great pride that we welcomed our 20,000 new colleagues from the Jean Coutu Group into the METRO family
last May. Combining our two organizations, complementary from both a strategic and commercial standpoint, strengthens
our competitive position and provides us with a new growth opportunity.
Our new pharmacy division now comprises a network of 597 drugstores, operating in Québec, Ontario and
New Brunswick. The combined entity is working to develop the full potential of both of its main banners, Jean Coutu and
Brunet, in order to strengthen our market presence.
The combination of activities that will support our pharmacy banners will be carried out over several months. In time,
we intend to support the specific strategy of Jean Coutu and Brunet with a unified operational chain, meaning systems
and processes that will allow us to be agile and efficient. We anticipate that within three years, we will be able to deliver
synergies of $75 million(3), mainly with respect to procurement, warehousing, distribution and operating costs. Since the
closing of the transaction, $6.6 million in synergies have been achieved, representing $17.0 million(3) on an annualized
basis.
With the acquisition, our retail network includes over 1,600 establishments with sales that will exceed $16 billion(3).
Together, we create a new leader in food and pharmacy that will be better positioned to serve the everyday essential
needs of consumers.
Modernization of our Toronto distribution network
In October 2017, we announced a $400 million(3) investment over the next six years in our Ontario distribution network.
We will modernize our Toronto distribution network by building a new distribution centre for frozen products close to our
current centre (West Mall) and a new distribution centre for fresh products close to our current centre (Vickers). Both
new facilities will be fully or partially automated.
With a modernized supply chain and cutting-edge technology, we will be able to meet our customers’ needs with even
greater efficiency. The new distribution centres will offer a wider range of products, increased precision in order preparation
as well as more flexibility, allowing us to improve service to our network of stores and to our customers. They will also
enable us to respond to the constantly evolving preferences of our customers in the future and to position METRO as
the retailer providing the best customer experience in each of its banners.
The transformation began with the choice of our technology partner, Witron, a world leader that has carried out dozens
of automated warehouse implementation projects in the food sector. The transformation began in 2018 and will be
completed in 2023(3).
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
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Exceeding our customers’ expectations
Once again this year, we continued to invest in our retail network. We carried out 31 projects to modernize our network,
including opening 5 new stores. Our sustained investments over the last few years and the many initiatives that were
implemented in all of our banners contributed to increased sales and maintaining our market share.
The Metro banner performed particularly well with efficient marketing programs, such as the renewed “Tout prêt tout
frais” ready-to-eat program in Québec and the Instore Bakery program in Ontario. Our discount banners, Super C and
Food Basics continued to focus on the needs of the consumers for whom low prices are the priority.
Metro became the first food banner in Québec to offer same-day delivery for its online grocery shopping service. The
delivery service is accessible to 60% of Québec’s population and customers can also choose to pick-up their order at
the participating stores. We are pleased with the increase of our online sales from both new customers and additional
purchases from existing customers.
In the wake of the combination of METRO, Jean Coutu and Brunet, several of METRO’s private label products, Irresistibles
and Selection, are now being sold in the Jean Coutu network. Health and beauty products sold under the Personnelle
brand, Jean Coutu’s private label, will be introduced progressively over the coming months into the Brunet, Metro and
Super C network.
Our customer satisfaction measures continue to improve in all of our banners. Once again this year, our food banners
scored very high on the “WOW” index presented by the Léger polling firm in Québec last November. The Metro banner
maintained top spot among large food distributors and Super C ranked 4th. Brunet jumped to 1st place among pharmacy
banners for the first time and is in the top ten of all retailers in Québec, while Jean Coutu remained in 4th position.
Financial situation
Over the course of fiscal 2018, our share price traded within a range of $38.32 to $45.44 and closed the year at $40.18,
compared to $42.91 at the end of fiscal 2017. Our share price has increased since then, closing at $45.80 on
November 30, 2018, representing for shareholders a total return (including reinvestment of dividends) of 15.4 % over
one year, 139.6% over five years and 365.0% over ten years, ranking METRO 1st among the three major Canadian food
retailers for each of those periods.
We increased our dividend for a 24th consecutive year, to $0.7025 per share, up 12.0% compared to the previous year's
dividend.
Our financial situation remains solid with a balance sheet that enables our future growth. Since the acquisition of the
Jean Coutu Group last May, we reimbursed $850 million of debt, which allowed us to reinstate our share repurchase
program in November and thus provide us with an additional option for using excess funds.
Community investments
We actively take part in the economic and social well being of the communities in which we operate. Through our actions,
we want to make a positive contribution and increase the scope and the benefits of our programs on these communities.
Each year, METRO and Jean Coutu make important monetary and in-kind contributions, while also supporting local
suppliers in Québec and Ontario.
We take pride in the “Thanks a Million!” award that METRO received from Centraide United Way Canada. The award
is presented each year to Canadian businesses that donate one million dollars or more to the United Way, an amount
that METRO has exceeded more than once.
The first METRO Week of Caring was held last May. For the first time, our office employees volunteered for a half-day
in a community organization affiliated with the United Way. The METRO team answered the call in large numbers and
will continue to do so in 2019.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
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Outlook(3)
We are confident that we will continue to grow if we successfully execute on our strategic priorities for the coming years,
namely integrating the Jean Coutu Group, growing our sales while leveraging our costs, continuously improving the
customer experience in each of our banners, modernizing our distribution network and managing our talent.
We will of course put a great deal of effort into continuing the work involved with combining our pharmacy activities. The
emphasis will be placed on achieving synergies and deploying the technology-based solutions required to support the
unified operational chain.
Subject to obtaining the required permits, we plan to begin the construction of our first automated distribution centre in
Toronto in early 2019. Finally, we anticipate launching our online grocery service in Ontario during the 2019 fiscal year.
I would like to thank all of our employees, our retailers and my management colleagues for their great work and contribution
to our success. I would also like to thank our directors for their support of our strategic projects and for their sound advice.
Finally, thank you, dear shareholders, for your ongoing trust.
Eric R. La Flèche
President and Chief Executive Officer
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
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CORPORATE RESPONSIBILITY
We have now passed the midpoint of our 2016-2020 corporate responsibility plan and made considerable progress on
the implementation of the programs developed for our four pillars: delighted customers, respect for the environment,
strengthened communities and empowered employees.
In 2018, we continued to work diligently to execute our responsible procurement approach. In addition to developing
the tools required to monitor the steps we have taken toward meeting our commitments, we updated and released our
sustainable fisheries and aquaculture policy. We also signed an international ethical charter on responsible labour
practices for produce, an industry initiative complementary to our Supplier Code of Conduct.
To continue to meet the needs of our customers, METRO has also further developed its health program, making it an
even more holistic approach to the promotion of a healthy lifestyle in terms of its product offer, as well as the means to
promote it and support consumers. We increased the number of private brand products for healthy eating, in particular
under the Irresistibles Organics and Irresistibles Naturalia labels.
This past year, the scope of our local purchasing program grew significantly in Québec and Ontario. Indeed, the quantity
of regional products available in our stores rose by 50%, from 1,161 to 1,742, and the number of participating stores
and suppliers also increased.
Our food recovery program-Récupartage in Québec and One More Bite in Ontario-enjoyed very strong growth in 2018.
Over 3,000 tonnes of food were recovered: a 90% increase as compared to the previous year thanks to various factors
including the higher number of participating stores. Through the initiative, which aims to deliver to our partners the unsold
products fit for consumption that are recovered in our stores, we were able to provide the equivalent of more than 6 million
meals.
We demonstrated our commitment to our communities through a number of additional actions. We organized the very
first METRO Week of Caring, during which employees spent work hours taking part in food-related activities to support
14 organizations in Québec and Ontario. Our staff members also proved their generosity by donating a total of $1.5 million
to community associations. Our customers and suppliers lent a hand by participating in METRO events and in-store
fundraising campaigns, amassing $1.3 million for their local communities.
On the environmental front, we pursued the implementation of our strategies to improve our performance. For example,
following our 2016 initiative to integrate more efficient lighting and refrigeration systems in our new stores, our
2018 consumption data indicate that our current building standards are far more effective than those in use in 2010.
With regard to our waste management, the efforts to raise awareness, follow up on programs and research new collection
methodologies led to a substantial increase in our volumes of recovered food waste.
This past year was also marked by the acquisition of Groupe Jean Coutu. We have begun to implement our corporate
responsibility programs in the pharmacy sector. In 2019, we will continue this exercise and will pursue our efforts to
conduct the work required to attain the objectives set out for each of our pillars.
For more information on METRO’s strategies and achievements, please consult our corporate responsibility report for
the 2018 fiscal year (available as of January 29, 2019) and our supporting documentation available at https://
corpo.metro.ca/en/corporate-social-responsibility.html.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
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MANAGEMENT'S DISCUSSION AND ANALYSIS
AND CONSOLIDATED FINANCIAL STATEMENTS
For the year ended September 29, 2018
TABLE OF CONTENTS
Overview .......................................................................................................................................................
Goal, mission and strategy ............................................................................................................................
Key performance indicators ...........................................................................................................................
Key achievements in fiscal 2018 ...................................................................................................................
Event 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 standards ............................................................................................................................
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 ......................................................................................................
Page
11
11
12
12
14
14
15
16
19
21
22
25
26
26
26
28
29
29
30
30
31
32
36
37
39
The following Management's Discussion and Analysis sets out the financial position and consolidated results of METRO INC. for the
fiscal year ended September 29, 2018, and should be read in conjunction with the annual consolidated financial statements and the
accompanying notes as at September 29, 2018. This report is based upon information as at November 20, 2018 unless otherwise
indicated. Additional information, including the Annual Information Form and Certification Letters for fiscal 2018, is available on the
SEDAR website at www.sedar.com.
- 10 -
OVERVIEW
The Corporation is a leader in food and pharmaceutical industry in Québec and Ontario.
The Corporation, as a retailer, franchisor or distributor, operates under different grocery banners in the conventional
supermarket and discount segments. For consumers seeking a higher level of service and a greater variety of products,
we operate 333 supermarkets under the Metro and Metro Plus banners. The 228 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 12 stores, is specialized in fresh products and Mediterranean and Middle-Eastern
products. The majority of the 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 for independent neighborhood grocery stores throughout Québec. Their
purchases are included in the Corporation's sales. The Corporation also operates Première Moisson, a company
specialized in premium quality artisan bakery, pastry, and deli products. Première Moisson sells its products to the
Corporation’s stores, to restaurants and other chains as well as directly to consumers in its 27 stores. Finally, MissFresh
is our online meal-kit partner offering a subscription model with home delivery service or in-store pick-up.
The Corporation also acts as franchisor and distributor for 417 PJC Jean Coutu, PJC Health et PJC Health & Beauty
drugstores as well as 180 Brunet Plus, Brunet, Brunet Clinique, and Clini Plus drugstores, held by pharmacist owners.
The Corporation also operates 72 drugstores in Ontario under Metro Pharmacy and Drug Basics banners and their sales
are included in the Corporation's sales. Sales also include the supply of non-franchised drugstores and various health
centres. The Corporation is also active in generic drug manufacturing through its subsidiary Pro Doc Ltée.
GOAL, MISSION AND STRATEGY
The Corporation’s goal is to provide the best customer experience in each of its banners.
Our mission is to exceed our customers’ expectations every day to earn their long-term loyalty.
The four pillars of our business strategy are : customer focus, best team, operational excellence and efficiency.
We put the customer at the heart of every decision. 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.
Operational excellence and efficiency are achieved through high operating standards, 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 table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) 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;
average customer transaction size and number of transactions;
average weekly sales;
average weekly sales per square foot;
prescription count growth
percentage of sales represented by customers who are loyalty program members;
market share;
customer satisfaction;
• gross margin 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;
store square footage growth.
KEY ACHIEVEMENTS IN FISCAL 2018
Sales for fiscal 2018 were up 9.2% compared to 2017. Excluding of 2018 the increase from the Jean Coutu Group as
well as the 53rd week of fiscal 2017, sales were up 2.4%. Net earnings for fiscal 2018 were $1,718.5 million compared
to $608.4 million in fiscal 2017 and fully diluted net earnings per share were $7.16 compared to $2.57. Adjusted net
earnings(1) for fiscal 2018 totalled $605.9 million compared to $548.2 million for fiscal 2017, and adjusted fully diluted
net earnings per share(1) amounted to $2.52 versus $2.31, up 10.5% and 9.1%, respectively.
We realized several projects over the fiscal year, including the following major ones:
• On May 11, 2018, we closed the acquisition of the Jean Coutu Group, the #1 drugstore network in Québec. This
$4.5 billion acquisition is the largest in METRO’s history. The combination of the two companies will allow us to
develop the full potential of the Jean Coutu and Brunet banners, strengthen our presence in the pharmacy market
and better meet the needs of consumers. Under the agreement entered into with the Commissioner of Competition
of Canada, METRO is required to divest its rights in 10 drugstores. In Novembre 2018, the divestiture of 5 of these
drugstores was completed. The divestiture of the 5 other drugstores should take place in the first half of 2019.
•
•
•
To fund a portion of the Jean Coutu Group acquisition, during the first quarter, we disposed of most of our investment
in Alimentation Couche-Tard inc. (ACT) for proceeds net of the related fees and commissions of $1,534.0 million
and a gain of $1,107.4 million. The disposal triggered the loss of significant influence of the Corporation over ACT.
Our investment was then re-evaluated at fair value and considered to be an available-for-sale financial asset,
generating a $225.6 million gain on revaluation. In the fourth quarter, we disposed of the majority of the investment
at fair value and recorded a $15.5 million gain on the revaluation and disposal. A forward agreement was signed to
dispose of the remaining shares, and the disposal closed on November 5, 2018, completing the sale of all of our
ACT shares. Total sales proceeds from this investment amounted to $326.0 million.
The other portion of the Jean Coutu Group acquisition was funded by the issuance of Series F, G and H notes,
representing a total principal amount of $1,200.0 million, the use of a $500 million term credit facility and a $250 million
bridge loan. As at September 29, 2018 , the Corporation had fully repaid the credit term facility and the bridge loan.
In October 2017, we announced a $400.0 million(3) investment over six years in our Ontario distribution network.
With this investment, we will modernize our Toronto distribution network by building a new distribution centre for
frozen food close to our current West Mall facility and a new distribution centre for fresh food close to our current
Vickers facility. Work got underway in 2018, with completion scheduled for 2023. With a modernized supply chain
and advanced technology, we will be able to meet our customers’ needs more efficiently. The new distribution centres
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 12 -
will offer a wider variety of products, greater accuracy in order picking and more flexibility, allowing us to improve
service to our store network and customers. This major investment will position METRO to pursue further growth
and expansion in the Ontario market.
• We continued our investment plan in our stores. In Québec, we opened a new Adonis store, converted a Metro into
a Super C store and carried out major renovations at 14 other locations. The Adonis store opened in Gatineau was
the first location outside the greater Montréal and Toronto areas. In Ontario, we opened three new Food Basics
stores and carried out major renovations at 12 other Metro or Food Basics stores.
•
•
•
Première Moisson opened its 27th artisan bakery in Gatineau, a third foray outside the greater Montréal area.
The popularity of our online grocery service, available to 60% of the population of Québec, continued to grow, always
with the promise of guaranteed freshness. In June 2018, in an effort to better serve our customers, we became the
first banner in Québec to offer same-day delivery for all its online services. Online grocery shopping, as well as the
partnership with MissFresh, is part of the Corporation’s overall digital strategy, which aims to position METRO as
the retailer that offers the food experience that best meets consumers’ needs and behaviours. This service will be
launched in Ontario during 2019.
In early fall, the private labels Irresistibles and Selection made their debut at Jean Coutu. Personnelle brand health
and beauty products, under Jean Coutu’s private label, will gradually be introduced into the Brunet, Metro and
Super C network, and eventually into Ontario stores as well. Personnelle brand beauty products and over-the-
counter medications will also be added to Brunet’s product lineup. In this way, the value of all our brands will be
maximized in the best interests of customers across METRO’s various networks.
• On November 30, 2017, METRO, together with Tink, CGI and Publicis, won a Boomerang award for its
metro.ca My Online Grocery service in the Site or Application - Transactional, Large Business (e Commerce)
category. This competition, organized by Infopresse, recognizes excellence in interactive communications and new
technologies. Metro’s digital platform stands out for its ease of use and customization in an environment where
flexibility and speed feature prominently in consumers’ daily lives.
•
The Local Purchasing Program is now solidly established in Québec and Ontario. There is currently a total of more
than 300 regional suppliers in both provinces combined, offering more than 1,700 local products. Local food
purchasing helps build a strong agri-food system and also helps our economy grow by creating good jobs. In April
2018, METRO's Ontario division was honoured with the Foodland Ontario VISION Award in recognition of its
significant contribution to the promotion of local products throughout the year.
• Our private brands won four awards at the PLMA Salute to Excellence Awards 2018, a competition that recognizes
the best private label innovations in the Americas. As well, at the 25th Anniversary Gala of the Canadian Grand Prix
New Product Awards, METRO won five awards for its Irresistibles products. This is an annual competition for the
best new products available in grocery stores from coast to coast. The products were judged on presentation and
packaging, characteristics, taste or convenience, innovation, originality and overall consumer value.
• 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 United Way, the Red Cross, MIRA, Sainte Justine’s Tree of Lights,
and through the Metro Full Plate Program and Toonies for Tummies in Ontario. METRO won the “Thanks A Million”
award from United Way Canada. This award is presented annually to Canadian companies that donate $1 million
or more to United Way, an amount that METRO has already exceeded more than once. With this award, United
Way thanks us for helping them improve the quality of life of thousands of people and for supporting its daily work
in communities. In addition, in order to strengthen its community involvement, METRO continued its work with
Récupartage in Québec and One More Bite in Ontario with more than 3,000 tonnes of food donated, up 90% from
the previous year. In both provinces, these organizations collect unsold products and redistribute them to community
organizations.
•
A recent study on the reputation of companies doing business in Canada by the Reputation Institute and Argyle
Public Relationships ranked Jean Coutu #2 among Canadian companies. This showing reflects the outstanding
work and dedication to delivering top-notch customer service of our teams in place.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 13 -
EVENT AFTER THE REPORTING PERIOD
After a period of approximately one year during which the normal course issuer bid program was not renewed, in particular
because the Corporation chose, during this period, to allocate the surplus cash available to reimburse part of the debt
incurred for the Jean Coutu Group acquisition, the Board of Directors authorized, on November 20, 2018, the
reinstatement of the share repurchase program. The Corporation will be able to repurchase, in the normal course of
business, between November 23, 2018 and November 22, 2019 up to 7,000,000 of its Common Shares representing
approximately 2.7% of its issued and outstanding shares on November 13, 2018. Repurchases will be made through
the facilities of the Toronto Stock Exchange at market price, in accordance with its policies and regulations, as well as
by other means as may be permitted by the TSX and any other securities regulatory authorities, including by private
agreements. The Corporation considers that the normal course issuer bid program provides it with an additional option
for using its excess funds.
SELECTED ANNUAL INFORMATION
2018
2017
Change
2016
Change
(Millions of dollars, unless otherwise indicated)
Sales
(52 weeks)
(53 weeks)
14,383.4
13,175.3
%
9.2
(52 weeks)
12,787.9
Net earnings attributable to equity holders of the parent
1,716.5
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
2.0
1,718.5
7.20
7.16
605.9
2.52
40.1
0.7025
10,922.2
2,643.7
591.7
16.7
608.4
2.59
2.57
548.2
2.31
21.7
0.6275
6,050.7
1,454.5
190.1
(88.0)
182.5
178.0
178.6
10.5
9.1
—
12.0
80.5
81.8
571.5
14.7
586.2
2.41
2.39
586.2
2.39
21.9
0.5367
5,606.1
1,246.5
%
3.0
3.5
13.6
3.8
7.5
7.5
(6.5)
(3.3)
—
16.9
7.9
16.7
Sales for fiscal 2018 totalled $14,383.4 million versus $13,175.3 million for fiscal 2017, an increase of 9.2%. Excluding
$1,157.7 million in sales from fiscal 2018 resulting from the Jean Coutu Group as well as the 53rd week of fiscal 2017,
sales were up 2.4%. Sales for fiscal 2017 totalled $13,175.3 million versus $12,787.9 million for 2016, an increase of
3.0%. Excluding the extra 53rd week in 2017, sales were up 1.0%.
Net earnings for 2018 totalled $1,718.5 million, up 182.5% from the previous year, whereas fully diluted net earnings
per share amounted to $7.16, up 178.6%. Taking into account the items shown in the “Net earnings adjustments” table
in the “Operating results” section, adjusted net earnings(1) for fiscal 2018 stood at $605.9 million compared with $548.2
million for 2017, while adjusted fully diluted net earnings per share(1) were $2.52 compared with $2.31, up 10.5% and
9.1%, respectively. Net earnings for 2017 amounted to $608.4 million, up 3.8% from the previous year, whereas fully
diluted net earnings per share were $2.57, up 7.5%. The 53rd week of fiscal 2017 had a favourable impact of $11.9 million
on net earnings and $0.05 on fully diluted net earnings per share. Adjusted net earnings(1) and adjusted fully diluted net
earnings per share(1) for 2017 were $548.2 million and $2.31 respectively down by 6.5% and 3.3% versus 2016 due to
the adjustment, for comparison with 2018, of our share of earnings in an associate (ACT) for three quarters in 2017
representing $60.2 million.
The 2018 return on equity performed exceptionally well at 40.1% due to the gain on disposal of our investment in ACT
in order to pay part of the acquisition of the Jean Coutu Group. This acquisition and the financing required explain the
increase in assets as well as in the debt.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 14 -
OUTLOOK(3)
We are confident that we will continue to grow if we successfully execute on our strategic priorities for the coming years,
namely integrating the Jean Coutu Group, growing our sales while leveraging our costs, continuously improving the
customer experience in each of our banners, modernizing our distribution network and managing our talent.
We will of course put a great deal of effort into continuing the work involved with combining our pharmacy activities. The
emphasis will be placed on achieving synergies and deploying the technology-based solutions required to support the
unified operational chain.
Subject to obtaining the required permits, we plan to begin the construction of our first automated distribution centre in
Toronto in early 2019. Finally, we anticipate launching our online grocery service in Ontario during the 2019 fiscal year.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 15 -
OPERATING RESULTS
The Jean Coutu Group (PJC) Inc. (“Jean Coutu Group”) acquisition was completed on May 11, 2018. Consequently, the
results of the Jean Coutu Group were consolidated with the Corporation’s results for slightly more than 20 weeks. During
this period, synergies of $6.6 million were generated and we have now realized an annualized amount of $17.0 million(3).
SALES
Sales for fiscal 2018 totalled $14,383.4 million versus $13,175.3 million for fiscal 2017, an increase of 9.2%. Excluding
$1,157.7 million in sales from fiscal 2018 resulting from the Jean Coutu Group as well as the 53rd week of fiscal 2017,
sales were up 2.4%. Food same-store sales were up 1.6%. Since the acquisition, pharmacy same-store sales were
up 1.8%, 0.6% for prescription drugs (2.5% for number of prescriptions) and 3.9% for front store sales.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND ASSOCIATE'S EARNINGS
This earnings measurement excludes financial costs, taxes, depreciation and amortization, the share of earnings and
gain on disposal of our investment in an associate (Alimentation Couche-Tard "ACT") as well as the gain on revaluation
and disposal of an investment at fair value.
For fiscal 2018, operating income before depreciation and amortization and associate's earnings totalled $1,011.1 million,
or 7.0% of sales versus $966.4 million, or 7.3% of sales for fiscal 2017. In 2018, we recorded pharmacy network closure
and restructuring expenses of $31.4 million, expenses of $28.7 million related to the Jean Coutu Group acquisition and
a $11.4 million provision relating to our Ontario distribution network modernization project. Excluding these items,
adjusted operating income before depreciation and amortization and associate's earnings(2) totalled $1,082.6 million, or
7.5% of sales. Adjusted operating income before depreciation and amortization and associate’s earnings(2), excluding
the Jean Coutu Group, totalled $959.9 million, or 7.3% of sales, up 1.1% compared with $949.1 million or 7.3% of sales
in 2017, excluding the 53rd week.
Operating income before depreciation and amortization and associate's earnings adjustments (OI)(2)
(Millions of dollars, unless otherwise indicated)
OI
Sales
2018
52 weeks
Operating income before depreciation and
amortization and associate's earnings
Pharmacy network closure and restructuring
expenses
Business acquisition-related expenses
Distribution network modernization project
expenses
Adjusted operating income before depreciation
and amortization and associate's earnings(2)
Jean Coutu Group operating income before
depreciation and amortization
Adjusted operating income before depreciation
and amortization and associate's earnings(2),
excluding the Jean Coutu Group
Adjusted operating income before depreciation
and amortization and associate's earnings(2),
excluding the Jean Coutu Group, based on 52
weeks in 2017
Fiscal years
2017
53 weeks
OI
Sales
966.4
13,175.3
(%)
7.3
(%)
7.0
—
—
1,011.1
14,383.4
31.4
28.7
11.4
1,082.6
14,383.4
7.5
966.4
13,175.3
7.3
122.7
1,157.7
—
—
959.9
13,225.7
7.3
966.4
13,175.3
7.3
959.9
13,225.7
7.3
949.1
12,916.9
7.3
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 16 -
Gross margins on sales for fiscal 2018 and 2017 were 19.7%.
Operating expenses as a percentage of sales for fiscal 2018 were 12.6% versus 12.4% for fiscal 2017. Excluding
pharmacy network closure and restructuring expenses of $31.4 million, business acquisition-related expenses
of $28.7 million and distribution network modernization project expenses of $11.4 million recorded in 2018, operating
expenses as a percentage of sales was 12.1%.
DEPRECIATION AND AMORTIZATION AND NET FINANCIAL COSTS
Total depreciation and amortization expenses for fiscal 2018 were $233.5 million versus $194.2 million for 2017.
Amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition amounted to $15.0 million
for fiscal 2018.
Net financial costs for fiscal 2018 totalled $80.2 million compared to $63.9 million for fiscal 2017. Certain items are
specific to 2018. First, for the period prior to the Jean Coutu Group acquisition, we recognized $21.3 million in interest
income on the short-term investments and security deposits resulting from the proceeds of the sale of the majority of
our investment in ACT and the issuance of Series F, G and H notes to fund a portion of the Jean Coutu Group acquisition
and recorded $19.1 million in interest on those notes. Furthermore, we paid $1.8 million in financial costs on the balance
payable in connection with the settlement of the buyout of minority interests in Adonis and Phoenicia.
As of May 11, 2018, net financial costs were no longer subject to adjustment to net earnings. The increase in financial
costs was mainly due to the Jean Coutu Group acquisition.
SHARE OF EARNINGS, GAIN ON DISPOSAL OF AN INVESTMENT IN AN ASSOCIATE AND GAIN ON
REVALUATION AND DISPOSAL OF AN INVESTMENT AT FAIR VALUE
During the first quarter of 2018, to fund a portion of the Jean Coutu Group acquisition, we disposed of most of our
investment in ACT, for net proceeds of $1,534.0 million and a gain of $1,107.4 million. As a result of this disposal, the
Corporation no longer has significant influence over ACT. Our residual investment is therefore considered to be an
available-for-sale financial asset, reported as an investment at fair value. As a result, the investment was re-evaluated
at fair value on October 13, 2017, and the Corporation recorded a $225.6 million fair value revaluation gain in net
earnings. Subsequent fair value revaluations of this investment were recognized in accumulated other comprehensive
income.
During the fourth quarter of fiscal 2018, we disposed of the majority of the investment at fair value and recorded a net
gain of $15.5 million on revaluation and disposal. In addition, the Corporation signed an equity forward agreement with
a financial institution for the disposal of the remaining shares of this investment. The disposal was finalized on
November 5, 2018. Total proceeds in the quarter from the sales of this investment was $326.0 million.
For fiscal 2018, our share of an associate's earnings (ACT) was $30.8 million versus $93.5 million last year.
INCOME TAXES
The income tax expense of $358.2 million for fiscal 2018 and $193.4 million for fiscal 2017 represented an effective tax
rate of 17.2% and 24.1% respectively. The significant decline in the effective tax rate resulted from the gain on disposal
of the majority of our investment in ACT and the fair value revaluation and disposal of our residual investment.
NET EARNINGS
Net earnings for fiscal 2018 were $1,718.5 million, an increase of 182.5% from $608.4 million in fiscal 2017. Fully diluted
net earnings per share rose 178.6% to $7.16 from $2.57 last year. Excluding the specific items shown in the table below
as well as the 53rd week of fiscal 2017, adjusted net earnings(1) for fiscal 2018 totalled $605.9 million compared with
$536.3 million for fiscal 2017, and adjusted fully diluted net earnings per share(1) amounted to $2.52 versus $2.26, up
13.0% and 11.5%, respectively.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 17 -
Net earnings adjustments(1)
Net earnings
Pharmacy network closure and restructuring
expenses, after taxes
Business acquisition-related expenses, after
taxes
Distribution network modernization project
expenses, after taxes
Amortization of intangible assets acquired in
connection with the Jean Coutu Group
acquisition, after taxes
Income on business acquisition-related short-
term investments and security deposits,
after taxes
Interest on notes issued in connection with
the business acquisition, after taxes
Financial costs on the balance payable for
the buyout of minority interests, after taxes
Share of an associate's earnings, after taxes
Gain on the disposal of the majority of the
investment in an associate, after taxes
Gain on revaluation and disposal of an
investment at fair value, after taxes
Adjusted net earnings(1)
Adjusted net earnings(1) based on 52 weeks
in 2017
Fiscal years
2018
52 weeks
2017
53 weeks
Change (%)
(Millions of
dollars)
1,718.5
Fully
diluted EPS
(Dollars)
(Millions of
dollars)
Fully diluted
EPS
(Dollars)
Net
earnings
Fully
diluted
EPS
7.16
608.4
2.57
182.5
178.6
23.0
22.7
8.4
11.0
(15.6)
14.0
1.3
—
(968.1)
(209.3)
605.9
—
—
—
—
—
—
—
(60.2)
—
—
2.52
548.2
2.31
10.5
9.1
605.9
2.52
536.3
2.26
13.0
11.5
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 18 -
QUARTERLY HIGHLIGHTS
(Millions of dollars, unless otherwise indicated)
2018
2017 Change (%)
Sales
Q1(4)
Q2(4)
Q3(5)
Q4(6)
Fiscal
Net earnings
Q1(4)
Q2(4)
Q3(5)
Q4(6)
Fiscal
Adjusted net earnings(1)
Q1(4)
Q2(4)
Q3(5)
Q4(6)
Fiscal
Fully diluted net earnings per share (Dollars)
Q1(4)
Q2(4)
Q3(5)
Q4(6)
Fiscal
Adjusted fully diluted net earnings per share(1) (Dollars)
Q1(4)
Q2(4)
Q3(5)
Q4(6)
Fiscal
(4) 12 weeks
(5) 16 weeks
(6) 2018 - 12 weeks, 2017 - 13 weeks
3,111.8
2,899.0
4,636.4
3,736.2
2,971.3
2,902.4
4,073.2
3,228.4
14,383.4
13,175.3
1,299.1
106.9
167.5
145.0
1,718.5
153.4
108.1
183.4
161.0
605.9
5.67
0.47
0.69
0.56
7.16
0.67
0.47
0.75
0.63
2.52
138.1
132.4
183.0
154.9
608.4
138.1
113.9
165.1
131.1
548.2
0.58
0.56
0.78
0.66
2.57
0.58
0.48
0.70
0.56
2.31
4.7
(0.1)
13.8
15.7
9.2
840.7
(19.3)
(8.5)
(6.4)
182.5
11.1
(5.1)
11.1
22.8
10.5
877.6
(16.1)
(11.5)
(15.2)
178.6
15.5
(2.1)
7.1
12.5
9.1
Sales in the first quarter of 2018 reached $3,111.8 million, up 4.7% compared to $2,971.3 million in the first quarter of
2017. Same-store sales increased by 3.4% compared to an increase of 0.7% in the same quarter last year. Our food
basket experienced a slight inflation of about 0.5%, echoing the trend started in the fourth quarter of 2017. The increase
in sales was also driven in part by the shift of the week before Christmas which fell in the first quarter of 2018 while in
2017, it was included in the second quarter. We estimate that same-store sales would have been up 1.2% had it not
been for the Christmas week shift.
Sales in the second quarter of 2018 reached $2,899.0 million, down 0.1% compared to $2,902.4 million in the second
quarter of 2017. The small decrease in sales is due to the timing shift of the week before Christmas which fell in the first
quarter in 2018, whereas it fell in the second quarter in 2017. Same-store sales for the second quarter were down 1.2%
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 19 -
but would have been up 1.0% excluding the shift (increase of 0.3% in the same quarter last year). Our food basket
experienced an inflation of about 0.8%, echoing the trend started in the fourth quarter of 2017.
Sales in the third quarter of 2018 reached $4,636.4 million, up 13.8% compared to $4,073.2 million in the third quarter
of 2017. Excluding $467.0 million in sales for the third quarter of 2018 resulting from the Jean Coutu Group, sales were
up 2.4%. In the third quarter, food same-store sales were up 2.0% (down 0.2% in the same quarter last year) and our
food basket experienced inflation of approximately 0.5%. Pharmacy same-store sales were up 1.8%, 0.4% for prescription
drugs (2.4% for number of prescriptions) and 3.8% for front store sales.
Sales in the fourth quarter of 2018 reached $3,736.2 million, up 15.7% compared to $3,228.4 million in the fourth quarter
of 2017. Excluding $690.7 million in sales for 2018 resulting from the Jean Coutu Group and the 13th week of 2017,
sales were up 2.5%. In the fourth quarter, food same-store sales were up 2.1% (up 0.4% in the same quarter last year)
and our food basket experienced inflation of approximately 0.8%. Pharmacy same-store sales were up 1.8%, 0.7% for
prescription drugs (2.5% for number of prescriptions) and 3.9% for front store sales.
Net earnings for the first quarter of 2018 were $1,299.1 million, an increase of 840.7% from $138.1 million for the first
quarter of 2017. Fully diluted net earnings per share rose 877.6% to $5.67 from $0.58 last year. Excluding from 2018
first quarter results $11.4 million in distribution network modernization project expenses, $2.0 million in acquisition-related
expenses for the Jean Coutu Group, the $1,107.4 million gain on disposal of the majority of our investment in ACT, the
$225.6 million fair value revaluation gain on our residual investment in ACT, $5.3 million in interest income on the short-
term investments and security deposits related to the business acquisition, $2.2 million in interest expense on the notes
issued to complete the acquisition, financial costs of $1.8 million related to the buyout of minority interests in Adonis and
Phoenicia and income taxes on those items, adjusted net earnings(1) for the first quarter of 2018 totalled $153.4 million
compared with net earnings of $138.1 million for the corresponding quarter of 2017, and adjusted fully diluted net earnings
per share(1) amounted to $0.67 versus $0.58, up 11.1% and 15.5%, respectively.
Net earnings for the second quarter of 2018 were $106.9 million, a decrease of 19.3% from $132.4 million for the second
quarter of 2017. Fully diluted net earnings per share decreased by 16.1% to $0.47 from $0.56 last year. Excluding the
2018 second quarter Jean Coutu Group acquisition-related expenses of $1.6 million, interest income of $9.7 million on
short-term investments and security deposits related to the business acquisition, and interest expense of $9.8 million
on notes issued to complete the acquisition, and the 2017 second quarter $21.4 million share of an associate's earnings
and income tax on those items, adjusted net earnings(1) for the second quarter of 2018 totalled $108.1 million compared
with adjusted net earnings(1) of $113.9 million for the corresponding quarter of 2017, and adjusted fully diluted net earnings
per share(1) amounted to $0.47 versus $0.48, down 5.1% and 2.1%, respectively.
Net earnings for the third quarter of 2018 were $167.5 million, a decrease of 8.5% from $183.0 million for the third quarter
of 2017. Fully diluted net earnings per share decreased by 11.5% to $0.69 from $0.78 last year. Excluding from third
quarter 2018 results $25.1 million in expenses related to the Jean Coutu Group acquisition, $6.3 million in interest income
on temporary investments and security deposits related to the business acquisition, $7.1 million in interest expense on
the notes issued for this acquisition for the period prior to the acquisition, $6.0 million in amortization of intangible assets
acquired in connection with the Jean Coutu Group acquisition and, from the third quarter 2017 results, the $20.7 million
share of an associate’s earnings, as well as income taxes relating to all these items, in addition to, in 2018, the $9.2 million
tax gain on the disposal of our investment in ACT upon revaluation of the tax attributes, adjusted net earnings(1) for the
third quarter of 2018 amounted to $183.4 million compared with adjusted net earnings(1) of $165.1 million for the
corresponding quarter of 2017 and adjusted diluted net earnings per share(1) was $0.75 compared with $0.70, up 11.1%
and 7.1%, respectively.
Net earnings for the fourth quarter of 2018 were $145.0 million, a decrease of 6.4% from $154.9 million for the fourth
quarter of 2017. Fully diluted net earnings per share decreased by 15.2% to $0.56 from $0.66 last year. Excluding from
the fourth quarter of 2018, the pharmacy network closure and restructuring expenses of $31.4 million, the amortization
of intangible assets acquired in connection with the Jean Coutu Group acquisition of $9.0 million and the gain on
revaluation and disposal of an investment at fair value of $15.5 million, and excluding from the fourth quarter of 2017
the share of an associate’s earnings (ACT) of $27.5 million, as well as income taxes relating to all these items, adjusted
net earnings(1) for the fourth quarter of 2018 totalled $161.0 million compared with $131.1 million for the corresponding
quarter of 2017 and adjusted net diluted earnings per share(1) amounted to $0.63 compared with $0.56, up 22.8% and
12.5%, respectively. If net earnings related to the 13th week of the fourth quarter of 2017 are also excluded, adjusted
net earnings(1) for the fourth quarter of 2018 compares with $119.2 million for the corresponding quarter of 2017 and
adjusted net diluted earnings per share(1) compares with $0.51, up 35.1% and 23.5%, respectively.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 20 -
(Millions of dollars)
Net earnings
Pharmacy network closure and restructuring
expenses, after taxes
Business acquisition-related expenses, after
taxes
Distribution network modernization project
expenses, after taxes
Amortization of intangible assets acquired in
connection with the Jean Coutu Group
acquisition, after taxes
Income on business acquisition-related short-
term investments and security deposits, after
taxes
Interest on notes issued in connection with a
business acquisition, after taxes
Financial costs on the balance payable for the
buyout of minority interests, after taxes
Share of an associate's earnings, after taxes
Gain on the disposal of the majority of the
investment in an associate, after taxes
Gain on revaluation and disposal of an
investment at fair value, after taxes
Adjusted net earnings(1)
2018
2017
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
1,299.1 106.9 167.5 145.0
138.1 132.4 183.0 154.9
—
—
— 23.0
1.5
8.4
1.1
20.1
—
—
—
—
—
—
4.4
6.6
(3.9)
(7.1)
(4.6)
1.6
7.2
5.2
1.3
—
—
—
—
—
(958.9)
— (9.2)
—
—
—
—
—
(195.7)
—
— (13.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— (18.5)
(17.9)
(23.8)
—
—
—
—
—
—
—
—
153.4 108.1 183.4 161.0
138.1 113.9 165.1 131.1
(Dollars)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Fully diluted net earnings per share
Adjustments impact
Adjusted fully diluted net earnings per share(1)
5.67
0.47
0.69
(5.00)
— 0.06
0.67
0.47
0.75
0.56
0.07
0.63
0.58
0.56
0.78
0.66
— (0.08)
(0.08)
(0.10)
0.58
0.48
0.70
0.56
2018
2017
CASH POSITION
OPERATING ACTIVITIES
Operating activities generated cash flows of $750.4 million over fiscal 2018 compared to $696.2 million in 2017.
INVESTING ACTIVITIES
During fiscal 2018, investing activities required outflows of $1,677.5 million compared to $333.0 million in 2017. This
difference resulted in large part from the $3,033.0 million business acquisition, net of cash acquired, and the settlement
of the purchase of the $221.2 million minority interests in Adonis and Phoenicia, offset by $1,791.6 million in net proceeds
from the disposal of the majority of our interest in ACT and the forward agreement entered into for the remaining shares
of ACT in the amount of $68.4 million. The remainder of the difference was mostly attributable to additions to fixed and
intangible assets being $51.5 million lower in 2018 than in 2017.
During fiscal 2018, we and our retailers opened 5 new stores, carried out major expansions and renovations of 26 stores
and closed 4 stores for a net increase of 60,200 square feet or 0.3% of our retail network.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 21 -
FINANCING ACTIVITIES
For fiscal 2018, financing activities generated cash of $1,005.1 million whereas they used cash of $241.8 million in 2017.
The difference resulted primarily from a $1,173.6 million net increase in debt in 2018 from the issuance of Series F, G
and H notes to fund a portion of the Jean Coutu Group acquisition, compared to $200.7 million in 2017 from the issuance
of Series E notes. Additionally, in 2017, share repurchases required cash outflows of $302.6 million, while no share
repurchases were made in 2018.
FINANCIAL POSITION
We do not anticipate(3) any liquidity risk and consider our financial position at the end of fiscal 2018 as very solid. We
had an unused authorized revolving credit facility of $600.0 million. Our non-current debt represented 31.7% of the
combined total of non-current debt and equity (non-current debt/total capital).
At the end of fiscal 2018, the main elements of our non-current debt were as follows:
Revolving Credit Facility
Interest Rate
Rates fluctuate with changes in bankers'
Maturity
Balance
(Millions of dollars)
Series E Notes
Rates fluctuate with changes in bankers'
acceptance rates
Series C Notes
Series F Notes
Series G Notes
Series B Notes
Series D Notes
Series H Notes
acceptance rates
3.20% fixed rate
2.68% fixed rate
3.39% fixed rate
5.97% fixed rate
5.03% fixed rate
4.27% fixed rate
Our main financial ratios were as follows:
Financial structure
Non-current debt (Millions of dollars)
Equity (Millions of dollars)
Non-current debt/total capital (%)
November 3, 2023
February 27, 2020
December 1, 2021
December 5, 2022
December 6, 2027
October 15, 2035
December 1, 2044
December 4, 2047
—
400.0
300.0
300.0
450.0
400.0
300.0
450.0
As at
September 29, 2018
As at
September 30, 2017
2,630.4
5,656.0
31.7
2018
(52 weeks)
1,441.6
2,923.9
33.0
2017
(53 weeks)
Results
Operating income before depreciation and amortization and
associate's earnings/Financial costs (Times)
12.6
15.1
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 22 -
CAPITAL STOCK
(Thousands)
Balance – beginning of year
Share issue
Share redemption
Stock options exercised
Balance – end of year
Balance as at November 30, 2018 and November 24, 2017
(Thousands)
Balance – beginning of year
Acquisition
Release
Balance – end of year
Balance as at November 30, 2018 and November 24, 2017
Common Shares issued
2018
227,719
28,031
—
503
256,253
256,272
Treasury shares
2018
579
250
(226)
603
603
2017
234,511
—
(7,433)
641
227,719
227,719
2017
665
170
(256)
579
519
STOCK OPTIONS PLAN
Stock options (Thousands)
Exercise prices (Dollars)
As at
November 30, 2018
As at
September 29, 2018
As at
September 30, 2017
3,043
17.72 to 44.73
3,067
3,180
17.72 to 44.73
15.09 to 44.73
Weighted average exercise price (Dollars)
30.34
30.30
26.94
PERFORMANCE SHARE UNIT PLAN
Performance share units (Thousands)
575
579
547
As at
November 30, 2018
As at
September 29, 2018
As at
September 30, 2017
BUSINESS ACQUISITION
On May 11, 2018, the Corporation completed the acquisition of all the outstanding Class A subordinate voting shares of
The Jean Coutu Group (PJC) Inc. (”Jean Coutu Group”) and all of the outstanding Class B shares of the Jean Coutu
Group for a total consideration of $4,525.1 million. The Jean Coutu Group operates a network of 417 franchised
drugstores in Québec, New Brunswick and Ontario under the PJC Jean Coutu, PJC Santé and PJC Santé Beauté
banners which employ over 20,000 people. Under the terms of the acquisition, the aggregate consideration transferred
to the Jean Coutu Group shareholders consisted of $3,377.2 million in cash and the issuance of approximately 28 million
common shares of the Corporation representing $1,147.9 million.
To finance the cash element of the purchase price, the Corporation completed the sale of the majority of its interest in
Alimentation Couche-Tard inc. for proceeds, net of the related fees and commissions, of $1,534.0 million, issued through
a private placement $1,200.0 million aggregate principal amount of Series F, G and H unsecured senior notes, and drew
down its $500.0 million term loan facility and used its $250.0 million bridge loan.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 23 -
BUYOUT OF NON-CONTROLLING INTERESTS
In accordance with the shareholder agreement, the Corporation acquired the minority interests in Adonis and Phoenicia
during the first quarter of the year for a cash consideration of $221.2 million. Additionally, financial costs of $1.8 million,
calculated on the balance payable as at September 30, 2017 until payment in December 2017, were recognized in net
earnings.
DIVIDEND
For the 24th consecutive year, the Corporation paid quarterly dividends to its shareholders. The annual dividend increased
by 12.0%, to $0.7025 per share compared to $0.6275 in 2017, for total dividends of $164.8 million in 2018 compared
to $143.5 million in 2017.
SHARE TRADING
The value of METRO shares remained in the $38.32 to $45.44 range throughout fiscal 2018 ($38.00 to $47.41 in 2017).
A total of 120.4 million shares traded on the TSX during this fiscal year (153.3 million in 2017). The closing price on
Friday, September 28, 2018 was $40.18, compared to $42.91 at the end of fiscal 2017. Since fiscal year-end, the value
of METRO shares has remained in the $39.04 to $46.19 range. The closing price on November 30, 2018 was $45.80.
METRO shares have maintained sustained growth over the last 10 years.
COMPARATIVE SHARE PERFORMANCE (10 YEARS)*
CONTINGENCY
During the 2016 fiscal year, an application for authorization to institute a class action was served on the Jean Coutu
Group by Sopropharm, an association incorporated under the Professional Syndicates Act of which certain franchised
drugstore owners of the Jean Coutu Group are members. The application seeks to have the class action authorized in
the form of a declaratory action seeking amongst others (i) to set aside certain contractual provisions of the Jean Coutu
Group’s standard franchise agreements, including the clause providing for the payment of royalties on sales of medication
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 24 -
by franchised establishments; (ii) to restore certain benefits; and (iii) to reduce certain contractual obligations. On
November 1, 2018, the Court granted the application for authorization to institute a class action, the authorization process
being merely a procedural step and the judgment in no way decides the case on the merits. The Corporation intends to
contest this action on the merits. However, since any litigation involves uncertainty, it is not possible to predict the outcome
of this litigation or the amount of potential losses. No provision for contingent losses has been recognized in the
Corporation’s annual consolidated financial statements.
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 continues to fully
cooperate with the Competition Bureau. Class actions lawsuits have also been filed against the Corporation, suppliers
and other retailers. Based on the information available to date, the Corporation does not believe that it or any of its
employees have violated the Competition Act. At this stage, the Corporation does not believe that these matters will
have a material adverse effect on the Corporation’s business, results of operations or financial condition.
SOURCES OF FINANCING
In 2018, cash inflows consisted primarily of $750.4 million in cash flows from operating activities, $1,791.6 million in net
proceeds on disposal of the majority of our investment in ACT and $68.4 million from the equity forward agreement on
the remaining ACT shares, as well as a $1,173.6 million net increase in debt. These cash flows were used to fund the
$3,033.0 million business acquisition, $317.4 million in additions to property, plant and equipment and intangible assets,
the $221.2 million settlement related to the buyout of the minority interests in Adonis and Phoenicia, and $164.8 million
in dividend payouts.
On December 4, 2017 the Corporation issued through a private placement $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.
To close the Jean Coutu Group acquisition, the Corporation also used a $500.0 million term credit facility, 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, and a 1-
month $250.0 million bridge loan. As at September 29, 2018, the Corporation had fully repaid the bridge loan and the
term credit facility totalling $750 million.
At 2018 fiscal year-end, our financial position mainly consisted of cash and cash equivalents in the amount of
$226.9 million, an unused authorized Revolving Credit Facility of $600.0 million maturing in 2023, 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 F
Notes in the amount of $300.0 million maturing in 2022, Series G Notes in the amount of $450.0 million maturing in
2027, Series B Notes in the amount of $400.0 million maturing in 2035, Series D Notes in the amount of $300.0 million
maturing in 2044 and Series H Notes in the amount of $450.0 million maturing in 2047.
We believe(3) that cash flows from next year's operating activities will be sufficient to finance the Corporation's current
investing activities.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 25 -
CONTRACTUAL OBLIGATIONS
Payment commitments by fiscal year (capital and interest)
(Millions of dollars)
2019
2020
2021
2022
2023
Facility
and
loans
9.5
4.3
2.0
2.0
1.5
Notes
99.7
494.7
91.1
383.1
374.8
2024 and thereafter
25.6
44.9
2,733.8
4,177.2
Finance
lease
commitments
Service
contract
commitments
Operating
lease
commitments
6.2
4.9
3.4
2.3
1.9
16.1
34.8
121.4
86.4
29.1
26.7
19.2
27.4
188.4
173.8
158.5
139.9
117.1
522.0
310.2
1,299.7
Lease and
sublease
commitments(7)
100.5
96.0
86.1
76.6
67.8
Total
525.7
860.1
370.2
630.6
582.3
308.7
735.7
3,633.6
6,602.5
(7) The Corporation has lease commitments with varying terms through 2037, to lease premises which it sublets to clients, generally under the same
conditions.
RELATED PARTY TRANSACTIONS
During fiscal 2018, we supplied drugstores held by a member of the Board of Directors 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 26 to the consolidated financial
statements.
FOURTH QUARTER
(Millions of dollars, except for net earnings per share)
Sales
Operating income before depreciation
and amortization and associate's earnings
Net earnings
Adjusted net earnings(1)
Fully diluted net earnings per share
Adjusted fully diluted net earnings per share(1)
Cash flows from:
Operating activities
Investing activities
Financing activities
SALES
2018
12 weeks
3,736.2
266.5
145.0
161.0
0.56
0.63
250.9
207.1
(350.8)
2017
Change
13 weeks
3,228.4
236.1
154.9
131.1
0.66
0.56
236.8
(112.0)
(37.8)
%
15.7
12.9
(6.4)
22.8
(15.2)
12.5
—
—
—
Sales in the fourth quarter of 2018 reached $3,736.2 million, up 15.7% compared to $3,228.4 million in the fourth quarter
of 2017. Excluding $690.7 million in sales for 2018 resulting from the Jean Coutu Group and the 13th week of 2017,
sales were up 2.5%. In the fourth quarter, food same-store sales were up 2.1% (up 0.4% in the same quarter last year)
and our food basket experienced inflation of approximately 0.8%. Pharmacy same-store sales were up 1.8%, 0.7% for
prescription drugs (2.5% for number of prescriptions) and 3.9% for front store sales.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND ASSOCIATE'S EARNINGS
Operating income before depreciation and amortization and associate's earnings for the fourth quarter of 2018 totalled
$266.5 million, or 7.1% of sales versus $236.1 million, or 7.3% of sales for the same quarter last year. In the fourth
quarter of 2018, $31.4 million in pharmacy network closure and restructuring expenses were recognized. Excluding this
item, adjusted operating income before depreciation and amortization and associate’s earnings(2) totalled $297.9 million,
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 26 -
or 8.0% of sales. Adjusted operating income before depreciation and amortization and associate’s earnings(2), excluding
the Jean Coutu Group, totalled $223.7 million, or 7.3% of sales, up 2.2% from $218.8 million or 7.4 % of sales in 2017,
excluding the 13th week.
Operating income before depreciation and amortization and associate's earnings adjustments (OI)(2)
(Millions of dollars, unless otherwise indicated)
OI
2018
12 weeks
Sales
Operating income before depreciation and
amortization and associate's earnings
Pharmacy network closure and restructuring
expenses
Adjusted operating income before depreciation
and amortization and associate's earnings(2)
Jean Coutu Group operating income before
depreciation and amortization
Adjusted operating income before depreciation
and amortization and associate's earnings(2),
excluding the Jean Coutu Group
Adjusted operating income before depreciation
and amortization and associate's earnings(2),
excluding the Jean Coutu Group, based on 12
weeks in 2017
Fiscal years
2017
13 weeks
Sales
OI
236.1
3,228.4
(%)
7.3
(%)
7.1
266.5
3,736.2
31.4
—
297.9
3,736.2
8.0
236.1
3,228.4
7.3
74.2
690.7
—
—
223.7
3,045.5
7.3
236.1
3,228.4
7.3
223.7
3,045.5
7.3
218.8
2,970.0
7.4
Gross margins on sales for the fourth quarter of 2018 were 19.7% versus 19.6% for the corresponding period of 2017.
Operating expenses as a percentage of sales for the fourth quarter of 2018 were 12.6% versus 12.3% for the
corresponding quarter of 2017. Excluding pharmacy network closure and restructuring expenses of $31.4 million
recorded in the fourth quarter of 2018, operating expenses as a percentage of sales stood at 11.7%.
DEPRECIATION AND AMORTIZATION AND NET FINANCIAL COSTS
Total depreciation and amortization expenses for the fourth quarter of 2018 was $65.0 million versus $46.0 million for
the corresponding quarter of 2017. Amortization of intangible assets acquired in connection with the Jean Coutu Group
acquisition amounted to $9.0 million for the fourth quarter of 2018.
Net financial costs for the fourth quarter of 2018 totalled $23.9 million compared to $15.5 million for the same quarter
last year. This increase stemmed primarily from the notes issued for the Jean Coutu Group acquisition.
SHARE OF EARNINGS AND GAIN ON REVALUATION AND DISPOSAL OF AN INVESTMENT AT FAIR VALUE
During the fourth quarter of fiscal 2018, we disposed of the majority of the investment at fair value and recorded a net
gain of $15.5 million on revaluation and disposal. In addition, the Corporation signed an equity forward agreement with
a financial institution for the disposal of the remaining shares of this investment. The disposal was finalized on
November 5, 2018. Total proceeds in the quarter from the sales of this investment was $326.0 million.
No share of an associate's earnings (ACT) was recorded in the fourth quarter of fiscal 2018 in comparison with a
$27.5 million share recorded in the corresponding quarter of fiscal 2017.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 27 -
INCOME TAXES
The income tax expense of $48.1 million for the fourth quarter of 2018 represented an effective tax rate of 24.9%
compared to an income tax expense of $47.2 million in the fourth quarter of 2017 which represented an effective tax
rate of 23.4%.
NET EARNINGS
Net earnings for the fourth quarter of 2018 were $145.0 million, a decrease of 6.4% from $154.9 million for the fourth
quarter of 2017. Fully diluted net earnings per share decreased by 15.2% to $0.56 from $0.66 last year. Excluding the
specific items shown in the table below as well as the 13th week of the fourth quarter of 2017, adjusted net earnings(1)
for the fourth quarter of 2018 totalled $161.0 million compared with $119.2 million for the corresponding quarter of 2017,
and adjusted fully diluted net earnings per share(1) amounted to $0.63 versus $0.51, up 35.1% and 23.5%, respectively.
Net earnings adjustments(1)
Fiscal years
2018
12 weeks
2017
13 weeks
Change (%)
(Millions of
dollars)
Fully
diluted EPS
(Dollars)
(Millions of
dollars)
Fully diluted
EPS
(Dollars)
Net
earnings
Fully
diluted
EPS
Net earnings
145.0
0.56
154.9
0.66
(6.4)
(15.2)
Pharmacy network closure and restructuring
expenses, after taxes
Amortization of intangible assets acquired in
connection with the Jean Coutu Group
acquisition, after taxes
Share of an associate's earnings, after taxes
Gain on revaluation and disposal of an
investment at fair value, after taxes
Adjusted net earnings(1)
Adjusted net earnings(1) based on 12 weeks
in 2017
CASH POSITION
Operating activities
23.0
6.6
—
(13.6)
161.0
0.63
—
—
(23.8)
—
131.1
0.56
22.8
12.5
161.0
0.63
119.2
0.51
35.1
23.5
Operating activities generated cash flows of $250.9 million in the fourth quarter of 2018 compared to $236.8 million for
the corresponding period of 2017.
Investing activities
In the fourth quarter of 2018, investment activities generated funds of $207.1 million compared to a use of funds of
$112.0 million in the corresponding quarter of 2017. The difference is due to the disposal of a portion of the investment
at fair value in ACT and the equity forward agreement entered into for the remaining shares of this investment.
Financing activities
In the fourth quarter of 2018, financing activities required cash outflows of $350.8 million compared to $37.8 million in
the corresponding quarter of 2017. These additional funds were used primarily for repayment of the debt.
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation adopted a financial 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 2018, the Corporation used derivative financial instruments as described in notes 2
and 28 to the consolidated financial statements.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 28 -
NEW ACCOUNTING STANDARDS
FUTURE ACCOUNTING STANDARDS
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 applies to fiscal years beginning on or after January 1, 2018, therefore, for the Corporation fiscal year beginning
on Septembre 30, 2018. 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 applies to fiscal years beginning on or after January 1, 2018,
therefore, for the Corporation fiscal year beginning on September 30, 2018. The Corporation has completed an
assessment of the adoption of this new standard on its consolidated financial statements and the 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.
Given that the Corporation is committed under multiple operating leases under IAS 17 (note 24), 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 "annualized", "continue", “anticipate”, "believe", "expect", "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 2019 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.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 29 -
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 OPERATING
EARNINGS, ADJUSTED NET EARNINGS AND ADJUSTED FULLY DILUTED NET EARNINGS PER SHARE
INCOME BEFORE DEPRECIATION AND AMORTIZATION AND ASSOCIATE'S
Adjusted operating income before depreciation and amortization and associate's earnings, adjusted net earnings and
adjusted fully diluted net earnings per share are earnings measurements that exclude some items that must be recognized
under IFRS. They are non-IFRS measurements. We believe that presenting earnings without these items, that are not
necessarily reflective of the Corporation's performance, leaves readers of financial statements better informed as to the
current period and corresponding prior year's period's operating earnings, thus enabling them to better perform trend
analysis, evaluate the Corporation's financial performance and judge its future outlook. The exclusion of these items
does not imply that they are non-recurring.
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 29, 2018.
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.
For fiscal 2018, we exclude the Jean Coutu Group from our evaluation of DC&P and ICFR, as permitted by National
Instrument 52-109 of the Canadian Securities Administrators for a period of 365 days following an acquisition. Given
the size and timing of the Jean Coutu Group acquisition, the limitation of the scope is primarily due to the time required
to assess the Jean Coutu Group’s DC&P and ICFR in accordance with the Corporation’s other activities. We expect to
finalize our assessment by the second quarter of 2019.
Since the acquisition date, the Jean Coutu Group’s results have been included in our consolidated financial statements.
For fiscal 2018, the Jean Coutu Group’s sales and net earnings represented approximately 8% and 5% of consolidated
sales and consolidated net earnings, respectively. As percentages of total consolidated current assets and liabilities, the
Jean Coutu Group’s current assets and liabilities as at September 29, 2018 represented approximately 27% and 16%
respectively, and its non-current assets and liabilities represented approximately 52% and 20% of total consolidated
non-current assets and liabilities.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 30 -
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 and control the plant's main activities. For these reasons,
the Corporation consolidates it in the Corporation's financial statements.
Determination of the aggregation of operating segments
The Corporation uses judgment in determining the aggregation of business segments. The reportable operating segment
comprises the food operations segment and the pharmaceutical operations segment. The Corporation has aggregated
these two business segments due to the similar nature of their goods and services and similar economic characteristics:
operations are carried on primarily in Québec and Ontario and are therefore subject to the same regulatory environment
and competitive and economic market pressures, use the same product distribution methods and serve the same
customers.
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 13 and 14 to the annual consolidated financial statements.
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 23 to the annual consolidated financial
statements.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 31 -
Non-controlling interests
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 28 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 the drugstores affiliated to one of our banners. Furthermore, the online shopping sites
represent 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.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 32 -
In order to mitigate these risks, management deployed various technological security measures, which include a high-
availability environment for all of its critical systems, and has set up processes, 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 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 or detect 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 and 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(3) 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.
HIRING, EMPLOYEE RETENTION , AND ORGANIZATION STRUCTURE
Our recruitment program, salary structure, performance evaluation programs, succession, and training plans all entail
risks which could negatively impact our capacity to execute our strategic plan as well as our ability to attract and retain
necessary qualified resources to sustain the Corporation's growth and success. We have proven practices to attract the
professionals necessary for our operations. We use performance evaluation practices supervised by our human
resources department. Our salary structure is regularly reviewed in order to ensure that we remain competitive on the
market. We have a succession plan in place to ensure we have well-identified resources for the key positions in the
Corporation.
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. 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.
With the acquisition of Jean Coutu Group, the Corporation is relying on prescription drug sales for a more significant
portion of its sales and operating income. The pharmacy activities are exposed to risks related to the regulated nature
of some of our activities and the activities of our pharmacist/owner franchisees.
Any changes to laws and regulations or policies regarding the Corporation's activities could have a material adverse
effect on its performance and on the sales growth. Processes are in place to ensure our compliance as well as to monitor
any and all changes to the laws and regulations in effect and any new laws and regulations.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 33 -
MARKET AND COMPETITION
Intensifying competition, the possible arrival of new competitors and changing consumer needs are constant concerns
for us.
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 drugstores under
the Jean Coutu, Brunet, Metro Pharmacy, and Drug Basics banners.
In 2018, we acquired the Jean Coutu Group which operates a network of 417 franchised drugstores in Québec, New
Brunswick and Ontario under the PJC Jean Coutu, PJC Santé and PJC Santé Beauté banners.With the Jean Coutu
Group acquisition, the Corporation has become a leading Canadian food and pharmacy distributor.
With the metro&moi and Air Miles® loyalty programs in our Metro and Metro Plus supermarkets, our Jean Coutu drugstores
network 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 be in breach of certain provisions in the franchise or affiliation contracts,
such as purchasing policies and marketing plans. Non-compliance with such contracts 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 financial 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(3) that cash flows generated by our operating activities are sufficient to provide for all outflows
required by our financing activities.
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 34 -
JEAN COUTU GROUP ACQUISITION
The successful combination of the Jean Coutu Group's activities requires significant efforts on the part of management
of the Corporation. Ineffective change management and poor integration decisions could cause disruptions to the
pharmacy activities of the Corporation. Management attention will be required in order to successfully achieve the growth
opportunities and cost efficiencies expected as a result of this acquisition. Failure to successfully execute enterprise
integration, to realize the anticipated strategic benefits or the synergies associated with this acquisition could adversely
affect the reputation, operations or financial performance of the Corporation. A project management office, under the
leadership of the Corporation’s management, ensures that all directions and decisions are aligned with the realization
of anticipated strategic benefits.
Montréal, Canada, December 13, 2018
(1) See table on "Net earnings adjustments" and section on "Non-IFRS measurements"
(2) See table on "Operating income before depreciation and amortization and associate's earnings adjustments" and section on "Non-IFRS measurements"
(3) See section on "Forward-looking information"
- 35 -
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
November 20, 2018
François Thibault
Executive Vice President,
Chief Financial Officer and Treasurer
- 36 -
INDEPENDENT AUDITORS' REPORT
To the shareholders of METRO INC.
We have audited the accompanying consolidated financial statements of METRO INC., which comprise the consolidated
statements of financial position as at September 29, 2018 and September 30, 2017, 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 29, 2018 and September 30, 2017 and its financial performance and its cash flows for
the years then ended in accordance with International Financial Reporting Standards.
Montréal, Canada
November 20, 2018
1 CPA auditor, CA, public accountancy permit no. A112005
- 37 -
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- 38 -
Annual Consolidated Financial Statements
METRO INC.
September 29, 2018
- 39 -
Table of contents
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 standards ......................................................................................................................
4- Significant judgements and estimates .....................................................................................................
5- Business acquisition ................................................................................................................................
6- Additional information on the nature of earnings components ..................................................................
7- Income taxes ...........................................................................................................................................
8- Net earnings per share ............................................................................................................................
9- Inventories ...............................................................................................................................................
10- Investment in an associate ......................................................................................................................
11- Fixed assets ............................................................................................................................................
12- Investment properties ..............................................................................................................................
13- Intangible assets .....................................................................................................................................
14- Goodwill
..................................................................................................................................................
15- Other assets ............................................................................................................................................
16- Bank loans ..............................................................................................................................................
17- Offsetting .................................................................................................................................................
18- Provisions
...............................................................................................................................................
19- Debt
........................................................................................................................................................
20- Other liabilities .........................................................................................................................................
21- Capital stock
...........................................................................................................................................
22- Dividends ................................................................................................................................................
23- Employee benefits ...................................................................................................................................
24- Commitments ..........................................................................................................................................
25- Contingencies .........................................................................................................................................
26- Related party transactions .......................................................................................................................
27- Management of capital
............................................................................................................................
28- Financial instruments ..............................................................................................................................
29- Event after the reporting period ...............................................................................................................
30- Approval of financial statements ..............................................................................................................
Page
41
42
43
44
46
47
47
47
52
53
54
56
57
58
59
59
60
61
62
63
64
64
64
65
66
67
68
70
71
75
76
77
78
79
81
81
- 40 -
Consolidated statements of income
Years ended September 29, 2018 and September 30, 2017
(Millions of dollars, except for net earnings per share)
Sales (notes 6 and 26)
Cost of sales and operating expenses (notes 6 and 26)
Pharmacy network closure and restructuring expenses (notes 6 and 18)
Distribution network modernization project expenses (notes 6 and 18)
Operating income before depreciation and amortization and
associate's earnings
Depreciation and amortization (note 6)
Financial costs, net (note 6)
Share of an associate's earnings (notes 6 and 10)
Gain on disposal of the majority of the investment in an associate (notes 6 and 10)
Gain on revaluation and disposal of an investment at fair value (notes 6 and 10)
Earnings before income taxes
Income taxes (note 7)
Net earnings
Attributable to:
Equity holders of the parent
Non-controlling interests
Net earnings per share (Dollars) (notes 8 and 21)
Basic
Fully diluted
See accompanying notes
2018
2017
(52 weeks)
(53 weeks)
14,383.4
13,175.3
(13,329.5)
(12,208.9)
(31.4)
(11.4)
1,011.1
(233.5)
(80.2)
30.8
1,107.4
241.1
2,076.7
(358.2)
1,718.5
1,716.5
2.0
1,718.5
7.20
7.16
—
—
966.4
(194.2)
(63.9)
93.5
—
—
801.8
(193.4)
608.4
591.7
16.7
608.4
2.59
2.57
- 41 -
Consolidated statements of comprehensive income
Years ended September 29, 2018 and September 30, 2017
(Millions of dollars)
Net earnings
Other comprehensive income
Items that will not be reclassified to net earnings
Changes in defined benefit plans
Actuarial gains
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
Fair value revaluation of investment (note 10)
Reclassification of the change in investment at fair value to net earnings
following the disposal of a portion of the investment (note 10)
Reclassification of shares of an associate's other comprehensive income to net
earnings (note 10)
Corresponding income taxes
Comprehensive income
Attributable to:
Equity holders of the parent
Non-controlling interests
See accompanying notes
2018
2017
(52 weeks)
(53 weeks)
1,718.5
608.4
37.2
(2.1)
(0.2)
—
(9.2)
25.7
22.8
(17.1)
(3.9)
(0.4)
1.4
27.1
1,745.6
1,743.6
2.0
1,745.6
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
- 42 -
Consolidated statements of financial position
As at September 29, 2018 and September 30, 2017
(Millions of dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable (notes 15 and 26)
Inventories (note 9)
Prepaid expenses
Current taxes
Non-current assets
Investment in an associate (note 10)
Fixed assets (note 11)
Investment properties (note 12)
Intangible assets (note 13)
Goodwill (note 14)
Deferred taxes (note 7)
Defined benefit assets (note 23)
Investment at fair value (note 10)
Other assets (note 15)
LIABILITIES AND EQUITY
Current liabilities
Bank loans (note 16)
Accounts payable (notes 17 and 26)
Current taxes
Provisions (note 18)
Current portion of debt (note 19)
Non-controlling interests (note 28)
Non-current liabilities
Debt (note 19)
Defined benefit liabilities (note 23)
Provisions (note 18)
Deferred taxes (note 7)
Other liabilities (note 20)
Non-controlling interests (note 28)
Equity
Attributable to equity holders of the parent
Attributable to non-controlling interests
Commitments and contingencies (notes 24 and 25)
Event after the reporting period (note 29)
See accompanying notes
On behalf of the Board
2018
2017
226.9
538.1
1,099.1
32.1
20.6
1,916.8
—
2,523.4
46.1
2,914.4
3,302.2
4.5
55.1
66.9
92.8
10,922.2
0.1
1,358.5
254.8
8.0
13.3
—
1,634.7
2,630.4
81.3
22.3
846.5
11.7
39.3
5,266.2
5,642.8
13.2
5,656.0
10,922.2
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
ERIC R. LA FLÈCHE
Director
RUSSELL GOODMAN
Director
- 43 -
Consolidated statements of changes in equity
Years ended September 29, 2018 and September 30, 2017
(Millions of dollars)
Attributable to the equity holders of the parent
Capital
stock
(note 21)
Treasury
shares
(note 21)
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
income
Non-
controlling
interests
Total
Total
equity
565.8
(21.9)
19.8
2,343.9
3.5
2,911.1
12.8
2,923.9
— 1,716.5
— 1,716.5
2.0
1,718.5
—
25.7
— 1,742.2
1.4
1.4
27.1
—
27.1
1,743.6
2.0
1,745.6
(0.2)
— 1,147.7
— 1,147.7
—
(1.6)
—
9.1
—
—
—
(7.0)
(0.2)
—
(164.8)
—
—
0.5
(2.5)
—
(167.7)
—
—
—
—
—
—
—
—
8.8
(10.2)
9.1
—
—
—
—
—
8.8
(10.2)
9.1
—
(164.8)
(4.8)
(169.6)
(2.5)
—
988.1
2.9
0.3
0.4
0.3
(1.6)
986.5
Balance as at
September 30, 2017
Net earnings
Other comprehensive
income
Comprehensive income
Shares issued (note 5)
Stock options exercised
Acquisition of treasury shares
Share-based compensation
cost
Performance share units
settlement
Dividends
Change in fair value of non-
controlling interests liability
(note 28)
Sale of shares in joint
ventures
Balance as at September
29, 2018
See accompanying notes
—
—
—
1,147.9
10.4
—
—
—
—
—
—
—
—
—
—
—
(10.2)
—
7.2
—
—
—
1,158.3
(3.0)
1,724.1
(24.9)
20.3
3,918.4
4.9
5,642.8
13.2
5,656.0
- 44 -
Consolidated statements of changes in equity
Years ended September 29, 2018 and September 30, 2017
(Millions of dollars)
Attributable to the equity holders of the parent
Capital
stock
(note 21)
Treasury
shares
(note 21)
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
Share of an associate's
equity
Change in fair value of non-
controlling interests liability
(note 28)
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
(5.4)
—
—
—
—
0.5
591.7
73.4
665.1
—
—
(284.5)
—
—
(0.1)
(143.5)
(0.2)
1.0
—
(427.3)
Total
equity
2,693.2
608.4
72.2
680.6
10.7
(18.1)
12.6
16.7
—
16.7
—
—
— (284.5)
—
—
—
(6.9)
8.1
—
(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
- 45 -
Consolidated statements of cash flows
Years ended September 29, 2018 and September 30, 2017
(Millions of dollars)
Operating activities
Earnings before income taxes
Non-cash items
Share of an associate's earnings (note 10)
Gain on disposal of a portion of the investment in an associate (note 10)
Gain on revaluation and disposal of an investment at fair value (note 10)
Depreciation and amortization
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
Pharmacy network closure and restructuring expenses (note 18)
Distribution network modernization project expenses (note 18)
Financial costs, net
Net change in non-cash working capital items
Interest paid
Income taxes paid
Investing activities
Business acquisition (note 5)
Sale of shares in joint ventures
Proceeds on disposal of a portion of the investment in an associate and the
investment at fair value (note 10)
Equity forward transaction on the investment at fair value (note 10)
Buyout of minority interests (note 28)
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 21)
Shares redeemed (note 21)
Acquisition of treasury shares (note 21)
Increase in debt
Repayment of debt
Net change in other liabilities
Dividends (note 22)
Net change in cash and cash equivalents
Cash and cash equivalents – beginning of year
Cash and cash equivalents – end of year
See accompanying notes
- 46 -
2018
(52 weeks)
2017
(53 weeks)
2,076.7
801.8
(30.8)
(1,107.4)
(241.1)
233.5
(15.7)
7.8
(1.9)
9.1
4.2
31.4
11.4
80.2
1,057.4
(54.3)
(90.5)
(162.2)
750.4
(3,033.0)
0.1
1,791.6
68.4
(221.2)
(0.6)
—
(286.1)
34.6
(31.3)
(1,677.5)
(1.0)
8.8
—
(10.2)
2,168.8
(995.2)
(1.3)
(164.8)
1,005.1
78.0
148.9
226.9
(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
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
1. DESCRIPTION OF BUSINESS
METRO INC. (the Corporation) is a company incorporated under the laws of Québec. One of Canada’s leading food
and pharmacy retailers and distributors, the Corporation 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 two
business segments, food operations and pharmaceutical operations, are combined into one reportable operating segment
due to the similar nature of their operations (see note 4).
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.
- 47 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(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.
Investments in joint ventures and associates
The Corporation has interests in joint ventures, whereby the venturers have a contractual agreement that establishes
joint control over the economic activities of the entity. These investments are accounted for using the equity method and
are presented in other assets. The Corporation's share in the joint ventures' earnings is recorded in cost of sales and
operating expenses.
- 48 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
The Corporation also has interests in associates where it exercises significant influence over the financial and operating
policies of these entities, but does not control them. These investments are accounted for using the equity method.
Fixed assets
Fixed assets are initially 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 to 27 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.
- 49 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(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. Impairment testing of common assets is conducted at the level of the smallest
CGU. Impairment testing of goodwill resulting from a business acquisition is conducted at the level of the smallest CGU.
Impairment testing of investment properties, 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.
- 50 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(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 excluding deferred revenues, 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.
Non-controlling interests
Non-controlIing interests are generally recognized in equity. However, with respect to its interests in 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.
The Corporation could use foreign exchange forward contracts, cross currency interest rate swaps and equity forward
transaction. Given their short-term maturity, the Corporation elected not to apply hedge accounting.
- 51 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
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 29, 2018 included
52 weeks of operations and the fiscal year ended September 30, 2017 included 53 weeks of operations.
3. NEW ACCOUNTING STANDARDS
FUTURE ACCOUNTING STANDARDS
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 applies to fiscal years beginning on or after January 1, 2018, therefore, for the Corporation fiscal year beginning
on Septembre 30, 2018. 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 applies to fiscal years beginning on or after January 1, 2018,
therefore, for the Corporation fiscal year beginning on September 30, 2018. The Corporation has completed an
assessment of the adoption of this new standard on its consolidated financial statements and 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.
Given that the Corporation is committed under multiple operating leases under IAS 17 (note 24), 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.
- 52 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
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 and control the plant's main activities. For these reasons,
the Corporation consolidates it in the Corporation's financial statements.
Determination of the aggregation of operating segments
The Corporation uses judgment in determining the aggregation of business segments. The reportable operating segment
comprises the food operations segment and the pharmaceutical operations segment. The Corporation has aggregated
these two business segments due to the similar nature of their goods and services and similar economic characteristics:
operations are carried on primarily in Québec and Ontario and are therefore subject to the same regulatory environment
and competitive and economic market pressures, use the same product distribution methods and serve the same
customers.
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 13 and 14.
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 23.
- 53 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
Non-controlling interests
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 28.
5. BUSINESS ACQUISITION
On May 11, 2018, the Corporation completed the acquisition of all the outstanding Class A subordinate voting shares of
The Jean Coutu Group (PJC) Inc. (”Jean Coutu Group”) and all of the outstanding Class B shares of the Jean Coutu
Group for a total consideration of $4,525.1. The Jean Coutu Group operates a network of 417 franchised drugstores in
Québec, New Brunswick and Ontario under the PJC Jean Coutu, PJC Santé and PJC Santé Beauté banners. Under
the terms of the acquisition, the aggregate consideration transferred to the Jean Coutu Group shareholders consisted
of $3,377.2 in cash and the issuance of approximately 28 million common shares of the Corporation representing
$1,147.9.
To finance the cash element of the purchase price, the Corporation completed the sale of the majority of its interest in
Alimentation Couche-Tard Inc. for total proceeds, net of the related fees and commissions, of $1,534.0 (see note 10),
issued through a private placement $1,200.0 aggregate principal amount of Series F, G and H unsecured senior notes
(see note 19), and drew down its $500,0 term credit facility and used its $250.0 bridge loan (see note 19).
The final purchase price allocation was based on management’s best estimate of the fair value of the identifiable net
assets, taking into consideration information available on the date the consolidated financial statements were approved
for issuance. The following table shows the final fair values of identifiable assets acquired and liabilities assumed at the
acquisition date:
Net assets acquired at their value
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses
Other assets
Fixed assets
Investment properties
Intangible assets
Goodwill
Accounts payable
Deferred taxes
Other liabilities
Cash consideration
Share consideration
344.2
219.3
228.3
13.5
55.4
687.4
31.4
2,544.8
1,323.5
(277.9)
(642.0)
(2.8)
4,525.1
3,377.2
1,147.9
4,525.1
The goodwill resulting from the acquisition is mainly attributable to the synergies expected through the combination of
the Jean Coutu Group into the Corporation’s businesses considering the complementary strategic and commercial nature
of the two companies, through a better competitive positioning resulting from an extensive retail network and through
the future growth of our customer base following the strengthening of our position as a destination of choice for professional
services and food, health, beauty and wellness products. The goodwill is not deductible for tax purposes.
- 54 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
Details regarding the intangible assets are as follows:
Banner
Private labels
Customer relationships
Loyalty program
Software
Intangible assets
Estimated
useful life
Indefinite
Indefinite
27 years
Indefinite
3 to 7 years
1,340.0
82.0
1,040.0
60.0
22.8
2,544.8
Pursuant to the agreement reached with the Commissioner of Competition of Canada on April 23, 2018, the Corporation
is required to divest its rights in 10 locations where drugstores are operated. By the end of the fourth quarter of 2018,
the Corporation had not yet divested its rights in these locations where drugstores are operated. Divestiture transactions
are ongoing and are expected to occur in the first half of 2019.
For fiscal 2018, expenses related to the Jean Coutu Group acquisition of $28.7 were recorded in operating expenses.
Since the acquisition date, the Jean Coutu Group results are included in the consolidated financial statement. For fiscal
2018, sales and net earnings of the Jean Coutu Group were $1,157.7 $ and $80.8 respectively, excluding the amortization
of intangible assets resulting from the purchase price allocation.
On a pro forma basis, assuming the acquisition had occurred at the beginning of the year, the Corporation’s sales would
have amounted to approximately $16,191 and the Corporation’s net earnings would have amounted to approximately
$1,829 for fiscal year 2018. These amounts were determined assuming that the final purchase price allocation was
effective October 1, 2017.
- 55 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
6. ADDITIONAL INFORMATION ON THE NATURE OF EARNINGS COMPONENTS
Sales
Cost of sales
Gross margins
Operating expenses
Wages and fringe benefits
Employee benefits expense (note 23)
Rents and occupancy charges
Pharmacy network closure and restructuring expenses
Distribution network modernization project expenses
Others
Operating income before depreciation and amortization
and associate's earnings
Depreciation and amortization
Fixed assets (note 11)
Investment properties (note 12)
Intangible assets (note 13)
Financial costs, net
Current interest (note 28)
Non-current interest (note 19)
Interests on defined benefit obligations net of plan assets (note 23)
Amortization of deferred financing costs
Interest income (notes 10 and 19)
Passage of time
Share of an associate’s earnings (note 10)
Gain on disposal of a portion of the investment in an associate
(note 10)
Gain on revaluation and disposal of an investment at fair value
(note 10)
Earnings before income taxes
2018
2017
(52 weeks)
%
(53 weeks)
%
14,383.4
(11,556.5)
13,175.3
(10,579.6)
2,826.9
19.7
2,595.7
19.7
(779.3)
(83.6)
(475.8)
(31.4)
(11.4)
(434.3)
(711.0)
(80.8)
(441.4)
—
—
(396.1)
(1,815.8)
12.6
(1,629.3)
12.4
1,011.1
7.0
966.4
7.3
(185.0)
(0.2)
(48.3)
(233.5)
(4.3)
(99.0)
(3.2)
(2.2)
28.8
(0.3)
(80.2)
30.8
1,107.4
241.1
2,076.7
(163.8)
—
(30.4)
(194.2)
(3.0)
(57.4)
(4.6)
(0.9)
2.4
(0.4)
(63.9)
93.5
—
—
801.8
- 56 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
7.
INCOME TAXES
The effective income tax rates were as follows:
(Percentage)
Combined statutory income tax rate
Changes
Share of an associate's earnings
Gain on disposal of a portion of the investment in an associate (note 10)
Gain on revaluation and disposal of an investment at fair value (note 10)
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
Asset ceiling effect
Minimum funding requirement
Fair value revaluation of investment
Reclassification of the change in investment at fair value to net earnings
following the disposal of a portion of the investment
Reclassification of shares of an associate's other comprehensive income to net
earnings
2018
2017
(52 weeks)
(53 weeks)
26.7
(0.2)
(7.5)
(1.6)
(0.2)
17.2
26.8
(1.8)
—
—
(0.9)
24.1
2018
2017
(52 weeks)
(53 weeks)
421.6
151.0
(63.4)
358.2
42.4
193.4
2018
2017
(52 weeks)
(53 weeks)
9.9
(0.6)
(0.1)
3.0
(2.1)
(0.5)
9.6
28.8
(2.2)
0.1
—
—
(0.3)
26.4
- 57 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(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 29, 2018
As at
September 30, 2017
2018
2017
(52 weeks)
(53 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
18.5
3.1
—
3.0
54.1
(15.2)
0.7
2.9
(3.7)
63.4
(7.2)
(4.3)
(0.7)
(0.2)
(10.0)
(16.6)
(0.4)
0.3
(3.3)
(42.4)
17.7
4.1
(11.2)
6.0
(8.7)
(166.5)
0.1
(636.4)
(47.1)
(842.0)
4.5
(846.5)
(842.0)
(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)
8. 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
2018
2017
(52 weeks)
(53 weeks)
238.3
228.7
0.9
0.6
239.8
1.3
0.6
230.6
- 58 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
9.
INVENTORIES
Wholesale inventories
Retail inventories
2018
642.9
456.2
1,099.1
2017
397.1
459.5
856.6
10.
INVESTMENT IN AN ASSOCIATE
As at Septembre 30, 2017, the Corporation had a 5.7% interest in Alimentation Couche-Tard ("ACT"), a publicly traded
associate in the convenience store industry.
The Corporation completed the sale of the majority of its holding in ACT on October 13, 2017 and October 17, 2017 for
a total cash consideration of $1,550.0 and proceeds net of the related fees and commissions amounting to $1,534.0
and use the proceed of such sale to finance in part the acquisition of the Jean Coutu Group (see note 5). As a result,
the proceeds of disposal were used to acquire short-term investments until the acquisition, which generated interest
income of $14.5 included in financial costs. Subsequent to this disposal, the Corporation held an interest of less than
1% in ACT.
Consequently, a gain before income taxes of $1,107.4 ($968.1 after income taxes) on disposal of the majority of the
investment in an associate was recorded during the first quarter. The disposal triggered the loss of significant influence
of the Corporation over ACT. The residual investment is therefore considered an available-for-sale financial asset which
is classified as an investment at fair value. The investment was re-evaluated at fair value on October 13, 2017, and the
Corporation recorded a gain on revaluation of $225.6 in net earnings. All subsequent fair value revaluation of this
investment was recorded in accumulated other comprehensive income. Also, accumulated other comprehensive income
of ACT included in the Corporation equity totaling $4.2 was reclassified to net earnings in line item gain on revaluation
of an investment at fair value.
In the fourth quarter of fiscal 2018, the Corporation disposed of approximately 4 million shares of the investment
accounted for at fair value for a cash consideration of $257.6 and a gain on disposal before income taxes of $17.1. The
gain, included within the gain on revaluation and disposal of an investment at fair value in net earnings, resulted from
a reclassification of changes in the investment previously recorded in other comprehensive income.
In addition, on September 20, 2018, the Corporation signed an equity forward agreement with a financial institution for
the remaining shares of this investment. The Corporation received an amount of $68.4 following this agreement which
was recorded as a liability within accounts payable given the current maturity. The disposal was finalized on
November 5, 2018. The revaluation of this agreement at year-end gave rise to the recording of a loss and a financial
liability in the amount of $1.6. This impairment loss was presented as a reduction of the gain on revaluation and disposal
of an investment at fair value. The remaining shares were revaluated as at September 29, 2018 using the selling price
formula in the agreement and a $5.7 gain was recorded in accumulated other comprehensive income during fiscal 2018.
- 59 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
11. FIXED ASSETS
Land
Buildings
Equipment
Leasehold
improvements
Buildings
under
finance
leases
Total
Cost
Balance as at September 24, 2016
250.8
Acquisitions
Transfers from investment properties
Disposals and write-offs
Balance as at September 30, 2017
Acquisitions
Acquisitions through business
combinations (note 5)
Disposals and write-offs
7.0
5.8
(1.8)
261.8
7.8
210.7
(6.6)
685.4
45.4
1.5
(9.8)
722.5
57.7
422.1
(13.6)
1,275.0
155.0
—
(94.0)
1,336.0
157.3
50.2
(35.9)
Balance as at September 29, 2018
473.7
1,188.7
1,507.6
Accumulated depreciation and
impairment
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
Depreciation
Disposals and write-offs
Impairment losses
Impairment loss reversals
Balance as at September 29, 2018
Net carrying value
—
—
—
—
—
—
—
—
—
—
—
—
(188.4)
(19.8)
(0.5)
4.2
—
—
(204.5)
(28.2)
4.3
—
0.6
(760.4)
(90.9)
—
92.7
(0.6)
1.4
(757.8)
(100.7)
32.1
(3.5)
0.4
703.3
120.5
—
(36.4)
787.4
59.4
3.9
(14.0)
836.7
50.6
2,965.1
1.6
—
(1.5)
50.7
4.6
0.5
—
329.5
7.3
(143.5)
3,158.4
286.8
687.4
(70.1)
55.8
4,062.5
(391.7)
(50.1)
(29.8)
(1,370.3)
(3.0)
(163.8)
—
36.3
(0.2)
2.4
—
1.5
—
—
(0.5)
134.7
(0.8)
3.8
(403.3)
(31.3)
(1,396.9)
(52.2)
12.7
(4.3)
0.5
(3.9)
(185.0)
49.1
(7.8)
1.5
—
—
(227.8)
(829.5)
(446.6)
(35.2)
(1,539.1)
Balance as at September 30, 2017
Balance as at September 29, 2018
261.8
473.7
518.0
960.9
578.2
678.1
384.1
390.1
19.4
20.6
1,761.5
2,523.4
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 $5.0 ($1.6 in 2017).
- 60 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
12.
INVESTMENT PROPERTIES
Balance as at September 24, 2016
Acquisitions
Transfers to fixed assets
Disposals and write-offs
Balance as at September 30, 2017
Acquisitions
Acquisitions through business combinations (note 5)
Disposals and write-offs
Depreciation
Balance as at September 29, 2018
Cost
36.9
0.4
(7.3)
(5.7)
24.3
4.3
31.4
(13.1)
—
46.9
Accumulated
depreciation
Net carrying
value
(11.2)
—
0.5
1.4
(9.3)
—
—
8.7
(0.2)
(0.8)
25.7
0.4
(6.8)
(4.3)
15.0
4.3
31.4
(4.4)
(0.2)
46.1
The fair value of investment properties was $50.8 as at September 29, 2018 ($19.8 as at September 30, 2017). 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.
- 61 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
13.
INTANGIBLE ASSETS
Intangible assets with finite useful lives were as follows:
Leasehold
rights
Software
Retail network
retention
premiums
Customer
relationships
Cost
Balance as at September 24, 2016
Acquisitions
Disposals and write-offs
Balance as at September 30, 2017
Acquisitions
Acquisitions through business
combinations (note 5)
Disposals and write-offs
Balance as at September 29, 2018
Accumulated amortization
and impairment
Balance as at September 24, 2016
Amortization
Disposals and write-offs
Impairment loss reversals (note 11)
Balance as at September 30, 2017
Amortization
Disposals and write-offs
Impairment loss reversals (note 11)
58.4
—
(0.3)
58.1
—
—
0.4
58.5
(41.1)
(1.9)
0.2
1.5
(41.3)
(2.1)
—
0.4
187.4
10.6
(2.1)
195.9
15.0
22.8
(2.6)
231.1
(157.0)
(7.0)
2.1
—
(161.9)
(10.1)
1.7
—
Total
518.2
27.0
(16.4)
528.8
34.3
245.0
16.4
(14.0)
247.4
19.3
27.4
—
—
27.4
—
—
1,040.0
1,062.8
(19.5)
247.2
—
(21.7)
1,067.4
1,604.2
(110.8)
(19.4)
13.4
—
(116.8)
(19.1)
14.1
—
(13.9)
(2.1)
—
—
(16.0)
(17.0)
—
—
(322.8)
(30.4)
15.7
1.5
(336.0)
(48.3)
15.8
0.4
Balance as at September 29, 2018
(43.0)
(170.3)
(121.8)
(33.0)
(368.1)
Net carrying value
Balance as at September 30, 2017
Balance as at September 29, 2018
16.8
15.5
34.0
60.8
130.6
125.4
11.4
1,034.4
192.8
1,236.1
Net additions of intangible assets excluded from the consolidated statement of cash flows amounted to $8.4 in 2018
($4.8 in 2017).
Intangible assets with indefinite useful lives were as follows:
Banners
Private labels
Loyalty programs
Total
Balance as at September 24, 2016 and
September 30, 2017
Adjustments following the business acquisitions
final purchase price allocation (note 5)
Balance as at September 29, 2018
133.3
1,340.0
1,473.3
39.5
82.0
121.5
23.5
196.3
60.0
83.5
1,482.0
1,678.3
- 62 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
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 13.6 (12.2 in 2017) considering a growth rate of 2.0% (2.0% in 2017) corresponding to the
consumer price index. For these private labels, the earnings multiples used were 12.8 and 15.4 (14.3 in 2017) considering
a growth rate of 2.0% (2.0% in 2017) 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 2017) and the multiples used were between
13.3 and 15.4 (13.3 and 14.3 in 2017) considering growth rate of 2.0% (2.0% in 2017) 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.
14. GOODWILL
Balance – beginning of year
Acquisitions through business combinations (note 5)
Disposals
Balance – end of year
2018
2017
1,973.8
1,328.9
(0.5)
1,955.4
18.4
—
3,302.2
1,973.8
For impairment testing, goodwill with a carrying amount of $1,976.9 was attributed to the operating segment related to
food operations. 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 11.6% (12.0% in 2017) 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.
For impairment testing, goodwill with a carrying amount of $1,325.3 was attributed to the operating segment related to
pharmaceutical operations. The recoverable amount was determined based on its fair value less costs of disposal, which
was calculated using the capitalized EBITDA method. The estimated EBITDA directly allocated to the CGU related to
pharmaceutical operations was based on historical data reflecting past experience. The earnings multiple used was 14.0
considering a growth rate of 2.0% 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.
- 63 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
15. OTHER ASSETS
Loans to certain customers, bearing interest at floating rates,
repayable in monthly instalments, maturing through 2031
Investments in joint ventures and associates acquired through business
combinations (note 5)
Other assets
Current portion included in accounts receivable
2018
2017
64.5
35.7
4.3
104.5
11.7
92.8
40.3
—
3.8
44.1
6.2
37.9
16. BANK LOANS
As at September 29, 2018 and September 30, 2017, the Corporation's bank loans were the credit margins of structured
entities. The consolidated structured entities have credit margins totaling $8.3 ($8.4 as at September 30, 2017), bearing
interest at prime plus 0.5%, unsecured and maturing on various dates through 2019. As at September 29, 2018, $0.1
($1.1 as at September 30, 2017) had been drawn down under credit margins at an interest rate of 4.2% (3.7% as at
September 30, 2017).
17. OFFSETTING
Accounts payable (gross)
Vendor rebate receivables
Accounts payable (net)
2018
2017
1,411.1
(52.6)
1,358.5
1,082.8
(46.7)
1,036.1
- 64 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
18. PROVISIONS
Onerous leases
Pharmacy network
closure and
restructuring
expenses
Distribution
network
modernization
project expenses
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
Balance as at September 30, 2017
Acquisitions through business
combinations (note 5)
Additional provisions
Amounts used
Passage of time
Balance as at September 29, 2018
Current provisions
Non-current provisions
Balance as at September 29, 2018
5.4
2.1
(2.8)
4.7
2.7
2.0
4.7
4.7
2.9
0.4
(3.3)
—
4.7
2.4
2.3
4.7
—
—
—
—
—
—
—
—
—
13.9
—
—
13.9
5.6
8.3
13.9
—
—
—
—
—
—
—
—
—
11.4
—
0.3
11.7
—
11.7
11.7
Total
5.4
2.1
(2.8)
4.7
2.7
2.0
4.7
4.7
2.9
25.7
(3.3)
0.3
30.3
8.0
22.3
30.3
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 9 years.
The Corporation announced in October 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. During the first quarter of the year, the Corporation recorded a $11.4 before
taxes provision related to termination and retirement benefits in connection with the modernization of the Ontario
distribution network.
During the fourth quarter of the year, the Corporation recorded store closure and restructuring expenses of $31.4 before
taxes, comprising a $13.9 provision for severance and occupancy costs and a $17.5 provision, netted against assets,
for asset and inventory write-offs resulting from the future transfer of pharmaceutical operations from the McMahon
warehouse to the Jean Coutu Group warehouse, the reduction of administrative positions, the closure of 3 Brunet
drugstores and the divestiture of 10 drugstores.
- 65 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
19. DEBT
Series E Notes, bearing interest at a floating rate equal to the 3-month bankers'
acceptance rate plus 0.57%, 2.16% in 2018 (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 F Notes, bearing interest at a fixed nominal rate of 2.68 %, maturing on
December 5, 2022 and redeemable at the issuer's option at fair value at any
time prior to maturity
Series G Notes bearing interest at a fixed nominal rate of 3.39 %, maturing on
December 6, 2027 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
Series H Notes, bearing interest at a fixed nominal rate of 4,27%, maturing on
December 4, 2047 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 2.64% (2.41% in 2017)
Obligations under finance leases, bearing interest at an effective rate of 7.71%
(8.0% in 2017)
Deferred financing costs
Current portion
2018
2017
400.0
400.0
300.0
300.0
300.0
450.0
—
—
400.0
400.0
300.0
300.0
450.0
35.2
25.7
(17.2)
2,643.7
13.3
2,630.4
—
35.6
25.7
(6.8)
1,454.5
12.9
1,441.6
On December 4, 2017 the Corporation issued through a private placement Series F, G and H unsecured senior notes,
which are described in the table above. The proceeds of these issues were placed in escrow as security deposits until
the Jean Coutu Group acquisition (see note 5). These security deposits generated $6.8 in interest income since their
issuance to the acquisition date, which were included in financial costs. An interest expense totaling $34.9 on these new
notes were also recorded since their issuance in the non-current interest of the financial costs.
The Corporation also used its $500.0 term credit facility, available for the Jean Coutu Group acquisition (see note 5),
consisting of a 1-year $100.0 Tranche A, a 2-year $200.0 Tranche B and a 3-year $200.0 Tranche C and a 1-month
$250.0 bridge loan. On May 11 2018, the Corporation reimbursed the $100,0 Tranche A and the $250.0 bridge loan,
and on June 11 2018 the Corporation reimbursed an amount of $100.0 of the Tranche B. During the fourth quarter, the
Corporation reimbursed the $100.0 balance on the Tranche B and the total amount of the $200.0 Tranche C. This term
credit facility was terminated on September 10, 2018.
The Corporation has access to an unsecured revolving credit facility with a maximum of $600.0 bearing interest at rates
that fluctuate with changes in bankers' acceptance rates. As at September 29, 2018 and September 30, 2017, the
authorized revolving credit facility was unused. 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. On September 19, 2018, the maturity of the revolving credit facility was extended to
November 3, 2023.
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 $15.6 in 2018 ($7.3 in 2017).
- 66 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
Repayments of debt in the upcoming fiscal years will be as follows:
2019
2020
2021
2022
2023
2024 and thereafter
Facility and loans
8.7
3.6
1.4
1.3
0.9
19.3
35.2
Notes
—
400.0
—
300.0
300.0
1,600.0
2,600.0
Obligations under
finance leases
6.2
4.9
3.4
2.3
1.9
16.1
34.8
Total
14.9
408.5
4.8
303.6
302.8
1,635.4
2,670.0
The minimum payments in respect of the obligations under finance leases included interest amounting to $9.1 on these
obligations in 2018 ($10.3 in 2017).
20. OTHER LIABILITIES
Lease liabilities
Other liabilities
2018
9.6
2.1
11.7
2017
10.5
1.8
12.3
- 67 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
21. CAPITAL STOCK
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 24, 2016
Shares redeemed for cash, excluding premium of $284.5
Stock options exercised
Balance as at September 30, 2017
Shares issued (note 5)
Stock options exercised
Balance as at September 29, 2018
Treasury shares
The treasury shares changes during the year were summarized as follows:
Balance as at September 24, 2016
Acquisition
Release
Balance as at September 30, 2017
Acquisition
Release
Balance as at September 29, 2018
Number
(Thousands)
234,511
(7,433)
641
227,719
28,031
503
256,253
Number
(Thousands)
665
170
(256)
579
250
(226)
603
571.0
(18.1)
12.9
565.8
1,147.9
10.4
1,724.1
(20.5)
(6.9)
5.5
(21.9)
(10.2)
7.2
(24.9)
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.
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 29, 2018, a balance of 5,300,796 shares could be issued following
the exercise of stock options (5,803,816 as at September 30, 2017). 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.
- 68 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
The outstanding options and the changes during the year were summarized as follows:
Balance as at September 24, 2016
Granted
Exercised
Cancelled
Balance as at September 30, 2017
Granted
Exercised
Balance as at September 29, 2018
Weighted
average
exercise
price
Number
(Thousands)
(Dollars)
3,483
394
(641)
(56)
3,180
390
(503)
3,067
23.67
40.23
16.76
33.31
26.94
41.16
17.49
30.30
The information regarding the stock options outstanding and exercisable as at September 29, 2018 was summarized
as below:
Range of exercise prices
(Dollars)
17.72 to 24.69
35.42 to 44.73
Outstanding options
Exercisable options
Weighted
average
remaining
period
(Months)
Weighted
average
exercise
price
(Dollars)
19.8
57.9
39.4
20.86
39.18
30.30
Number
(Thousands)
1,486
1,581
3,067
Weighted
average
exercise
price
(Dollars)
20.47
36.96
23.49
Number
(Thousands)
1,117
251
1,368
The weighted average fair value of $5.73 per option ($5.19 in 2017) for stock options granted during fiscal 2018 was
determined at the time of grant using the Black-Scholes model and the following weighted average assumptions: risk-
free interest rate of 2.2% (1.3% in 2017), expected life of 5.4 years (5.4 years in 2017), expected volatility of 15.7%
(16.1% in 2017) and expected dividend yield of 1.8% (1.6% in 2017). 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 $2.0 for fiscal 2018 ($2.1 in 2017).
- 69 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(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 24, 2016
Granted
Settled
Cancelled
Balance as at September 30, 2017
Granted
Settled
Cancelled
Balance as at September 29, 2018
Number
(Thousands)
664
186
(257)
(46)
547
230
(193)
(5)
579
The weighted average fair value of $41.16 per PSU ($40.23 in 2017) for PSUs granted during fiscal 2018 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 $7.1 for fiscal 2018 ($6.0 in 2017).
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 $0.7 for fiscal 2018 ($0.6 in 2017). As at September 29, 2018, the DSU liability amounted
to $13.4 ($14.2 as at September 30, 2017).
22. DIVIDENDS
In fiscal 2018, the Corporation paid $164.8 in dividends to holders of Common Shares ($143.5 in 2017), or $0.7025 per
share ($0.6275 in 2017). On October 1, 2018, the Corporation's Board of Directors declared a quarterly dividend of
$0.1800 per Common Share payable on November 13, 2018.
- 70 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
23. 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
provides for 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:
2018
2017
Pension
plans
Other
plans
Pension
plans
Other
plans
Balance – beginning of year
1,170.9
34.1
1,229.1
Acquisitions through business combinations (note 5)
Participant contributions
Benefits paid
Items in net earnings
Current service cost
Interest cost
Past service cost
Actuarial losses (gains)
Items in comprehensive income
Actuarial gains from demographic assumptions
Actuarial gains from financial assumptions
Adjustments due to experience
47.5
7.1
(47.6)
40.2
47.3
1.7
—
89.2
(1.2)
(2.1)
(1.1)
(4.4)
Balance – end of year
1,262.7
The present value of the defined benefit obligation may be reflected as follows:
—
—
(3.3)
2.0
1.3
0.2
0.9
4.4
(0.5)
(0.1)
0.4
(0.2)
35.0
—
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
(Percentage)
Active plan participants
Deferred plan participants
Retirees
2018
2017
Pension
plans
Other
plans
Pension
plans
Other
plans
61
4
35
71
—
29
60
4
36
70
—
30
- 71 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
The changes in the fair value of plan assets were as follows:
Fair value – beginning of year
Acquisitions through business combinations (note 5)
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
2018
2017
Pension
plans
Other
plans
1,167.8
47.2
39.2
7.1
—
—
3.3
—
Pension
plans
1,123.7
—
44.0
6.9
Other
plans
—
—
3.4
—
(47.6)
(3.3)
(44.4)
(3.4)
46.0
(1.7)
44.3
32.6
1,290.6
—
—
—
—
—
37.8
(2.1)
35.7
1.9
1,167.8
—
—
—
—
—
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
2018
2017
Asset
ceiling
Minimum
funding
requirement
Asset
ceiling
Minimum
funding
requirement
(16.2)
(0.6)
(2.1)
—
(18.9)
—
—
—
(0.2)
(0.2)
(7.8)
(0.3)
(8.1)
—
(16.2)
(0.7)
—
—
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.
- 72 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
The changes in the defined benefit plans' funding status were as follows:
2018
2017
Pension
plans
Other
plans
Pension
plans
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
(1,262.7)
1,290.6
27.9
(18.9)
(0.2)
8.8
55.1
(46.3)
8.8
Other
plans
(34.1)
—
(34.1)
—
—
(35.0)
(1,170.9)
—
(35.0)
—
—
1,167.8
(3.1)
(16.2)
—
(35.0)
(19.3)
(34.1)
—
(35.0)
(35.0)
39.3
(58.6)
(19.3)
—
(34.1)
(34.1)
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 losses (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
2018
(52 weeks)
2017
(53 weeks)
Pension
plans
Other
plans
Pension
plans
36.3
40.2
1.7
—
1.7
43.6
79.9
1.9
81.8
0.6
2.0
0.2
0.9
—
3.1
3.7
1.3
5.0
36.3
40.8
—
—
2.1
42.9
79.2
3.2
82.4
Other
plans
0.6
2.1
—
(1.1)
—
1.0
1.6
1.4
3.0
The remeasurements recognized as other comprehensive income were as follows:
Actuarial gains on obligations incurred
Return on plan assets
Change in the effect of the asset ceiling
Change in the minimum funding requirement
2018
2017
Pension
plans
Other
plans
Pension
plans
Other
plans
(4.4)
(32.6)
2.1
0.2
(0.2)
(102.2)
(4.2)
—
—
—
(1.9)
8.1
(0.7)
—
—
—
(34.7)
(0.2)
(96.7)
(4.2)
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 $42.5 in 2018 ($47.4 in
2017). The Corporation plans to contribute $42.6 to the defined benefit plans during the next fiscal year and $27,1 to
multi-employer plans.
- 73 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
Weighted average duration of defined benefit obligations was 15 years as at September 29, 2018 and
September 30, 2017).
The most recent actuarial valuations for funding purposes in respect of the Corporation's pension plans were performed
on various dates between December 2014 and September 2018. The next valuations will be performed in
December 2018.
Plan assets, evaluated at level 1 as it is based on quoted market prices in an active market for the shares and at level
2 for bonds and others as it is derived from observable market inputs, 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
2018
2017
21
24
48
7
21
27
45
7
Pension plan assets included shares issued by the Corporation with a fair value of $4.3 as at September 29, 2018
($5.0 as at September 30, 2017).
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
2018
2017
Discount rate on defined benefit obligation
Discount rate on service costs
Rate of compensation increase
3.90
4.00
3.0
3.90
4.00
3.0
3.90
3.50
3.0
3.90
3.50
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
(176.7)
211.6
(2.8)
3.3
The assumed annual health care cost trend rate per participant was set at 5.6% (5.7% in 2017). Under the assumption
used, this rate should gradually decline to 4.0% in 2040 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)
- 74 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
24. 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
2018
188.4
589.3
522.0
2017
186.4
565.9
548.8
1,299.7
1,301.1
In addition, the Corporation has committed to leases for premises, with varying terms through 2037 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
2018
100.5
326.5
308.7
735.7
2017
44.9
152.1
169.1
366.1
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 equipment. 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
2018
6.2
12.5
16.1
34.8
(9.1)
25.7
2017
5.4
12.5
18.1
36.0
(10.3)
25.7
Present value of
minimum lease payments
2018
2017
4.6
8.8
12.3
25.7
—
25.7
3.7
8.4
13.6
25.7
—
25.7
The Corporation has service contract commitments essentially for transportation and IT, with varying terms through 2030
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
- 75 -
2018
121.4
161.4
27.4
310.2
2017
73.3
95.2
7.3
175.8
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
25. CONTINGENCIES
Guarantees
The Corporation has guaranteed loans granted to certain customers by financial institutions, with varying terms through
2030. The balance of these loans amounted to $22.1 as at September 29, 2018 ($27.1 as at September 30, 2017). No
liability has been recorded in respect of these guarantees for the years ended September 29, 2018 and
September 30, 2017.
Buyback agreements
Under inventory repurchase agreements, the Corporation has undertaken with respect to financial institutions to
repurchase the inventories of certain customers, when they are in default, up to the amount drawn on lines of credit
granted to these same customers by the financial institutions. As at September 29, 2018, inventory financing amounted
to $201.9. However, under these agreements, the Corporation has not undertaken to make up for any deficit created if
the value of inventories falls below the amount of the advances.
Under buyback agreements, the Corporation is committed to financial institutions to purchase equipment held by
customers and financed by finance leases not exceeding 5 years and loans not exceeding 15 years. For finance leases,
the buyback value is linked to the net balance of the lease at the date of the buyback. For equipment financed by bank
loans, the minimum buyback value is either set by contract with the financial institutions, or linked to the loan balance
at the buyback date. As at September 29, 2018, financing related to the equipment amounted to $50.7.
No liability has been recorded in respect of these guarantees for the years ended September 29, 2018 and
September 30, 2017 and historically, the Corporation has not made any indemnification payments under such
agreements.
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.
During the 2016 fiscal year, an application for authorization to institute a class action was served on the Jean Coutu
Group by Sopropharm, an association incorporated under the Professional Syndicates Act of which certain franchised
drugstore owners of the Jean Coutu Group are members. The application seeks to have the class action authorized in
the form of a declaratory action seeking amongst others (i) to set aside certain contractual provisions of the Jean Coutu
Group’s standard franchise agreements, including the clause providing for the payment of royalties on sales of medication
by franchised establishments; (ii) to restore certain benefits; and (iii) to reduce certain contractual obligations. On
November 1, 2018, the Court granted the application for authorization to institute a class action, the authorization process
being merely a procedural step and the judgment in no way decides the case on the merits. The Corporation intends to
contest this action on the merits. However, since any litigation involves uncertainty, it is not possible to predict the outcome
of this litigation or the amount of potential losses. No provision for contingent losses has been recognized in the
Corporation’s annual consolidated financial statements.
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 continues to fully
cooperate with the Competition Bureau. Class actions lawsuits have also been filed against the Corporation, suppliers
and other retailers. Based on the information available to date, the Corporation does not believe that it or any of its
employees have violated the Competition Act. At this stage, the Corporation does not believe that these matters will
have a material adverse effect on the Corporation’s business, results of operations or financial condition.
- 76 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
26. RELATED PARTY TRANSACTIONS
The Corporation has significant interest in the following subsidiaries, joint venture and associate:
Names
Subsidiaries
Metro Richelieu Inc.
Metro Ontario Inc.
Groupe Jean Coutu Inc.
McMahon Distributeur pharmaceutique Inc.
Pro Doc Ltée
RX Information Centre Ltd.
Metro Québec Immobilier Inc.
Metro Ontario Real Estate Limited
Metro Ontario Pharmacies Limited
Groupe Adonis Inc.
Groupe Phoenicia Inc.
Groupe Première Moisson Inc.
MissFresh Inc.
Joint ventures and Associates
Dunnhumby Canada Limited
Medicus Group Inc.
Colo-D Inc.
Country of
incorporation
Percentage of
interest in the capital
Percentage of
voting rights
Canada
Canada
Canada
Canada
Canada
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
100.0
100.0
100.0
100.0
75.0
70.0
50.0
46.5
23.1
100.0
100.0
100.0
100.0
100.0
100,0
100.0
100.0
100.0
100.0
100.0
75.0
70.0
50.0
46.5
23.1
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
2018
(52 weeks)
Sales
Services
received
—
25.1
25.1
9.6
—
9.6
2017
(53 weeks)
Sales
—
10.1
10.1
Services
received
9.7
—
9.7
2018
2017
Accounts
receivable
Accounts
payable
Accounts
receivable
Accounts
payable
—
5.1
5.1
(2.6)
—
(2.6)
—
—
—
(1.1)
—
(1.1)
- 77 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
Compensation for the principal officers and directors was as follows:
Compensation and current benefits
Post-employment benefits
Share-based payment
2018
2017
(52 weeks)
(53 weeks)
5.7
2.7
6.0
14.4
5.6
0.4
4.4
10.4
27. 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 2018 annual results regarding its capital management objectives were as follows:
•
•
•
a non-current debt/total capital ratio of 31.7% (33.0% as at September 30, 2017);
a BBB credit rating confirmed by S&P and DBRS (same rating in 2017);
a dividend representing 27.1% of net earnings, excluding non recurring items, for the previous fiscal year (24.5%
in 2017).
The capital management objectives remain the same as for the previous fiscal year.
- 78 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
28. FINANCIAL INSTRUMENTS
FAIR VALUE
The non current financial instruments' book and fair values were as follows:
2018
2017
Book value
Fair value
Book value
Fair value
Investment at fair value
Available for sale financial asset (note 10)
66.9
66.9
—
—
Other assets
Loans and receivables
Loans to certain customers (note 15)
64.5
64.5
40.3
40.3
Non-controlling interests
Financial liability held for trading
Debt (note 19)
Other financial liabilities
Series E Notes
Series C Notes
Series F Notes
Series G Notes
Series B Notes
Series D Notes
Series H Notes
Loans
39.3
39.3
36.6
36.6
400.0
300.0
300.0
450.0
400.0
300.0
450.0
35.2
401.2
300.6
292.9
432.8
474.7
323.5
432.5
35.2
400.0
300.0
—
—
400.0
300.0
—
35.6
400.9
308.1
—
—
477.8
322.4
—
35.6
2,635.2
2,693.4
1,435.6
1,544.8
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 investment’s fair value was measured using the closing quoted bid price of the shares of ACT which are listed on
the TSX. The Corporation categorized the fair value measurement in Level 1, as it is derived from quoted prices in active
markets.
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, 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.
- 79 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
The changes of the non-controlling interest-related liability were as follows:
Balance – beginning of year
Buyout of minority interests
Issuance through business combinations
Change in fair value
Balance – end of year
Current portion
Non-current portion
Balance – end of year
2018
260.9
(221.2)
—
(0.4)
39.3
—
39.3
39.3
2017
244.8
—
3.2
12.9
260.9
224.3
36.6
260.9
In accordance with the shareholder agreement, the Corporation acquired the minority interests in Adonis and Phoenicia
during the first quarter of the year for a cash consideration of $221.2. Additionally, financial costs of $1.8, calculated on
the balance payable as at September 30, 2017 until payment in December 2017, were recognized in net earnings and
reported in the current interest of the financial costs.
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 29, 2018 and September 30, 2017, 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 29, 2018 and
September 30, 2017, 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 29, 2018, the maximum potential liability under guarantees provided amounted to $22.1 ($27.1 as at
September 30, 2017) 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 financial risk management policy, the Corporation entered into these agreements with major
Canadian financial institutions to reduce its credit risk.
- 80 -
Notes to consolidated financial statements
September 29, 2018 and September 30, 2017
(Millions of dollars, unless otherwise indicated)
As at September 29, 2018, the maximum exposure to credit risk for the foreign exchange forward contracts was equal
to their carrying amount. 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.
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, F,
G, B, D and H Notes mature only in 2023, 2020, 2021, 2022, 2027, 2035, 2044 and 2047, 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
1,358.5
Maturing in 1 to 10 years
Maturing in 11 to 20 years
Maturing over 20 years
—
—
—
1,358.5
9.5
14.3
3.9
17.2
44.9
99.7
2,148.1
910.2
1,019.2
4,177.2
6.2
26.1
2.5
—
34.8
Non-
controlling
interests
—
39.3
—
—
39.3
Total
1,473.9
2,227.8
916.6
1,036.4
5,654.7
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 financial 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 29, 2018 and September 30, 2017, the fair value of foreign exchange forward contracts
was insignificant.
29. EVENT AFTER THE REPORTING PERIOD
After a period of approximately one year during which the normal course issuer bid program was not renewed, in particular
because the Corporation intended, during this period, to allocate the surplus cash available to reimburse part of the debt
incurred for the Jean Coutu Group acquisition, the Board of Directors authorized, on November 20, 2018, the
reinstatement of the share repurchase program. The Corporation will be able to repurchase, in the normal course of
business, between November 23, 2018 and November 22, 2019 up to 7,000,000 of its Common Shares representing
approximately 2.7% of its issued and outstanding shares on November 13, 2018. Repurchases will be made through
the facilities of the Toronto Stock Exchange at market price, in accordance with its policies and regulations, as well as
by other means as may be permitted by the TSX and any other securities regulatory authorities, including by private
agreements. The Corporation considers that the normal course issuer bid program provides it with an additional option
for using its excess funds.
30. APPROVAL OF FINANCIAL STATEMENTS
The consolidated financial statements of fiscal year ended September 29, 2018 (including comparative figures) were
approved for issue by the Board of Directors on November 20, 2018.
- 81 -
DIRECTORS AND OFFICERS
Board of Directors
Maryse Bertrand(1)(3)
Montréal, Québec
François J. Coutu
Montréal, Québec
Michel Coutu
Montréal, Québec
Marc DeSerres(2)
Montréal, Québec
Claude Dussault(2)(3)
Québec, Québec
Russell Goodman(1)(3)
Mont-Tremblant, Québec
Stephanie Coyles(1)
Toronto, Ontario
Marc Guay(1)
Oakville, Ontario
Christian W.E. Haub(2)
Greenwich, Connecticut
Eric R. La Flèche
Town of Mount-Royal, Québec
President and Chief Executive
Officer
Réal Raymond
Montréal, Québec
Chair of the Board
Line Rivard(1)(2)
Montréal, Québec
Christine Magee(3)
Oakville, Ontario
Marie-José Nadeau(2)(3)
Montréal, Québec
(1) Member of the Audit Committee
(2) Member of the Human Resources
Committee
(3) Member of the Corporate
Governance and Nominating
Committee
Management of METRO INC.
Eric R. La Flèche
President and Chief Executive
Officer
François Thibault
Executive Vice President,
Chief Financial Officer and
Treasurer
Christian Bourbonnière
Executive Vice President and
Quebec Division Head
Carmine Fortino
Executive Vice President and
Ontario Division Head
Serge Boulanger
Senior Vice President,
National Procurement and
Corporate Brands
François J. Coutu
President
The Jean Coutu Group
(PJC) Inc.
Gino Plevano
Vice President,
Digital Strategy and Online
Shopping
Martin Allaire
Vice President,
Real Estate and Engineering
Mireille Desjarlais
Vice President,
Corporate Controller
Marie-Claude Bacon
Vice President,
Public Affairs and
Communications
Geneviève Bich
Vice President,
Human Resources
Dan Gabbard
Vice President,
Supply Chain
Frédéric Legault
Vice President,
Information Systems
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
SHAREHOLDER INFORMATION
The corporate information, annual and quarterly reports, the annual information form, and press releases are available
on the Internet at the following address: www.metro.ca
Les renseignements sur la Société, les rapports annuels et trimestriels, la notice annuelle et les communiqués de presse sont disponibles sur Internet à
l’adresse suivante : www.metro.ca
Head Office
11011 Maurice-Duplessis Blvd.
Montréal, Québec H1C 1V6
Tel: (514) 643-1000
Transfer agent and
registrar
AST Trust Company
(Canada)
Auditors
Ernst & Young LLP
Stock listing
Toronto Stock Exchange
Ticker Symbol: MRU
Annual meeting
The Annual General Meeting
of Shareholders will be held
on January 29, 2019 at
10:00 a.m. at:
Centre Mont-Royal
2200 Mansfield Street
Montréal, Québec H3A 3R8
DIVIDENDS*
2019 FISCAL YEAR
Declaration Date
January 28, 2019
April 16, 2019
August 13, 2019
September 30, 2019
Record Date
February 14, 2019
May 16, 2019
September 4, 2019
October 25, 2019
Payment Date
March 12, 2019
June 7, 2019
September 25, 2019
November 12, 2019
* Subject to approval by the Board of Directors
- 82 -