Thank you, Silvie. Good morning, everyone, and thank you for joining us today.

Our comments today will focus on the financial results of Metro’s second quarter, which ended March 11, 2017. With me today are Mr.

Eric La Flèche, President and Chief Executive Officer, and Mr. François Thibault, Executive Vice President and Chief Financial Officer.

During this call, we will present our second quarter financial results and comment on second quarter highlights. We’ll then be happy to answer your questions.

Before we begin, I’d like to remind you that we will use in today’s discussions different statements that could be construed as being forward-looking information. In general, any statement, which does not constitute a historical fact, may be deemed a forward-looking statement.

Expressions such as expect, intend, are confident that, will and other similar expression are generally indicative of forward-looking statements. The forward-looking statements are based upon certain assumptions regarding the Canadian food industry, the general economy and our annual budget as well as our 2016/2017 action plan.

These forward-looking statements do not provide any guarantees as to the future performance of the company and are subject to potential risks, known and unknown, as well as uncertainties that could cause the outcome to differ significantly. A description of the risks, which could have an impact on these statements, can be found under the Risk Management section of our 2016 annual report.

We believe these statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking statements except as required by applicable law.

I’d now like to turn the conference to François.

Thank you, Roberto. And good morning, everyone.

Sales for the second quarter totaled 2.902 billion. That’s an increase of 0.7% versus the same quarter last year.

Our internal measured food basket deflation was approximately 2%. Note that we were comping same-store sales of plus 5% and internal inflation of plus 3% in the second quarter last year.

Gross margin in Q2 increased by 20 basis points to 20.1%. This increase was mostly achieved through our efforts in effectively managing our sales mix and lowering shrink.

Operating expenses as a percentage of sales stood at 12.8% versus 12.9% for the same quarter as we continue to exercise good cost control. EBITDA totaled CAD 212 million.

That’s up 5% from last year’s level and it came in at 7.2% of sales versus 7% last year. Our depreciation expense was CAD 44.7 million.

That’s CAD 2.5 million higher than last year, reflecting the higher level of capital investments we made in 2016. Our share of earnings from our investment in Alimentation Couche-Tard was CAD 21.4 million in second quarter versus CAD 21.2 million for last year.

Income tax expense of CAD 40.8 million represented an effective tax rate of 23.6% compared with last year's figure of CAD 41.4 million for an effective tax rate of 24.9%. The low tax rate results in part from the 40 basis points reduction in the corporate income tax rate over four years announced by the Government of Québec.

Net earnings were CAD 132.4 million, up 6% from the second quarter of 2016 and our fully diluted net earnings per share increased from CAD 0.51 a share to CAD 0.56 a share. That’s a 9.8% increase.

Under the normal course issuer bid program, we may repurchase up to 12 million of our common shares between September 12, 2016 and September 11, 2017. And as at April 7, we have repurchased over 7.2 million shares for a total consideration of CAD 295 million, representing an average share price of CAD 40.66.

Yesterday, the Board of Directors approved a quarterly dividend of CAD 0.1625 a share, which represents a 16.1% increase from last year. Finally, we continue to maintain a sound balance sheet.

On February 27, we issued a private placement offering for an amount of CAD 400 million at the floating bankers’ acceptance rate of plus 57 basis points, which was used to reimburse our revolving facility. The floating rate spread of 57 basis points is significantly lower than what we pay under the revolving facility.

At the end of the quarter, the company had an unused authorized revolving credit facility of over CAD 540 million and the ratio of non-recurring debt to total capital now stands at 35.8% and that's up from a figure of 34.2% at the end of Q1 and 31.4% at year-end. Our adjusted debt-to-EBITDA ratio was 2.3.

That concludes my comments for now. I’d like to turn it over to Eric La Flèche.

Thank you, François. And good morning everyone.

We are pleased with our second quarter results that show sales, net earnings and tonnage growth in a deflationary environment with competition that remains intense. Our teams executed well to deliver same-store sales growth, especially considering that we were recycling our strongest quarter last year.

Food deflation of about 2% was clearly the highlight of Q2, double what we experienced in the first quarter. Produce mostly, but also meat and dairy prices, were down versus last year.

Our basket deflated less than CPI because of the mix of products sold. We are currently still experiencing deflation, but the worst appears to be behind us.

Note also that we will be comping lower levels of inflation in the second half. Our retail store investment plan is on track.

For the first 24 weeks, CapEx totaled approximately CAD 150 million as we opened four new stores and expanded and remodeled 14 stores for a net expansion of 84,000 ft.² or 0.4%. We expect to open another six stores this year for a total of 10.

Finally, we announced today that shortly after this fiscal year, we will acquire the minority interests of Adonis, as planned in the 2011 agreement. Adonis will continue to operate as a separate division.

They have a good succession plan in place and it is business as usual. We look forward to the continued growth of the Adonis banner and to them helping our main banners differentiate their product offer.

So, to conclude, we are confident that we can continue to perform well in the current environment and that we will continue to create value for our shareholders through our disciplined capital allocation, our investments in our network, and our differentiated merchandising strategies. That concludes my comments and we will be happy to take your questions.

Thank you.

Good morning. If you look at your operating costs, essentially on a dollars basis, you kept wages and rent essentially flattish year-over-year.

So, can you just explain, Eric, how you accomplish that? Because I would think that wages and rents are probably contractually inflating at about 1.5% for you.

I think that's a fair comment. So, it's good cost control and we focus on productivity and scheduling at store level.

In a deflationary environment, when there’s pressure on the top line, cost control is a big focus and I think our teams did overall an excellent job to control those expenses. On the rent side, well, there’s timing of rent increases.

It doesn't go up every year. Taxes and common area costs do go up every year.

So, I can't give you more details on that. We didn't close many stores.

We opened a few more stores than we closed.

So, yeah, rent is up slightly, but we made it up in other items. And then wages, obviously, with volume increase, you get a negative on the volume increased, but we made up in terms of labor rate.

So, I think that's how we managed it.

Okay. And then my other question is, in this deflationary backdrop that you experienced during the quarter, how did you find industry promotional competitive intensity?

Was there any change in industry behavior in this deflationary environment that was experienced the quarter?

No, I wouldn't say so. Promotional activity remains extremely aggressive.

We get rational prices, but again the promotional weights are heavy and quite intense. So, I’d say there's no change there.

Okay, thank you.

Yeah. Just two questions.

First of all, on the deflation side, you mentioned that you’re seeing some easing. Have you seen a return to inflation yet in any of the sort of core buckets that have been dragging inflation rate down?

Not really. Produce is coming back up a little bit these days, Jim.

But, overall, we’re still experiencing deflation. So, we'll have to see how long that will last.

As I said in my opening comments, we think the worst is behind us, but we’re still deflating, as we speak. We expect by the time we get to our fourth quarter, we should get hopefully to flat or positive territory there, but we don't have that crystal ball.

No. Nor do we.

On the meat side, are you continuing to see a bit of a trade up as prices come down?

Yeah. There's been some of that.

We were able to mix. That’s one of the reasons we get the deflation number that is “better than the CPI index” that's reported.

And on the meat side, we do see that. Some cuts, we sell a few more high-value cuts and we promote them more often.

So, it’s still sold a lot on promotion. It’s still aggressive pricing, but they're different cuts.

So that's where you see some trading up and it’s driven by our promotional and merchandising strategies.

Okay. And in the quarter – and I know this is a flawed measure, but your real comp store sales number was quite impressive.

Would you say that you're gaining market share in the Québec market?

Well, we don't like to comment too much on that. I think we’re holding pretty well.

On the market side, I think we’re holding to our market share, I think, is the way I would put it.

Okay. And then last question, just on your e-commerce test, how's that going?

And how long do you expect to test it before you might make a rollout decision?

Well, it’s not a test. It’s a phase one.

And we’re going to be expanding it in the next few months to a few more stores to cover the Montréal area and to eventually cover the larger cities in Québec. So, we’re going gradually.

So, in the course of the rest of this fiscal year and first part of the next fiscal year, we will cover most of the population of the large cities of Québec – Montréal, Québec City and the Ottawa, with more stores covering those regions and, hopefully, go to Ontario at some point later. So, step-by-step.

Happy with the results so far. It's very small and we’re fine-tuning the model.

We’re offering both delivery and click and collect and we’re – it’s part of our digital offering and so far, so good.

And can you give us any metrics on how the average basket compares to your typical price and what kind of skew you’re seeing between home delivery and click and collect?

I won’t respond on the last one. But I can tell you that the average basket that is sold online is clearly a bigger basket, a good margin basket.

Clearly, it’s a customer that's driven by convenience, less by price. So, it's a healthy basket.

And it’s a loyal Metro customer is going for that offer, so that we have to serve them well. So, as I said, the project is meeting our expectations so far.

It's still very much early days. But as far as basket and margin of that basket, we’re happy with the results.

And does that mean that the percent margin would be dilutive on either a click and collect or home delivery purchase?

Well, on the gross margin side, certainly not. On the net margin side, perhaps, yes.

Delivery is expensive. And it’s early days and we don't have the scale yet to be profitable.

So, as I said, it's very much early days.

Okay. Thank you, Eric.

Yeah.

Hi. Just further on the e-commerce business, are you seeing any – as you roll it out in Montreal, are you seeing any issues.

You have some dealer stores and you have some corporate-owned stores. How have you sort of managed that relationship as you rollout the service?

So, that’s a good question. There is no issue.

So, our franchise store, as opposed to our affiliate store, so the tests or the phase one is in our franchise network. So, as a phase one of our project, we have to be "in charge” and test and learn and spend.

So, we’re doing that. And as the model improves, I'm sure some of our affiliates will be interested to participate down the road, but we’re not there yet.

Okay.

But there's no conflict there.

Okay. And just in terms of the competitive tactics you’re noticing during this deflationary period, I wonder if you can talk about – we’ve sort of in aggregate a lot about how promotional is the environment.

But are you seeing any different tactics between conventional versus discount as we work through this deflationary period? Is there any real differences there?

Or is it largely everyone is just doing the same thing as we’ve done before?

Well, the market moves all the time. It’s very dynamic.

It’s very aggressive. So, both of our main banners in both markets are actively pursuing their strategies and they’re very promotional.

So, I won’t comment on the competitors. I can say that what we see is that it's a very, very aggressive promotional market right now.

Okay. And then just lastly, on the Adonis, the take-out of the minority interest, was that price at the time of the deal was struck or is it based on the current earnings power?

Well, there is a formula set at the time of the deal. It was a multiple.

And very happy with that transaction and the relationship we have with the founders. They’re exiting as planned.

They have a good succession plan in place. People we've been working with for several years now.

And we’re looking forward for continued growth with the Adonis banner. We’re looking for more stores down the road.

Okay, that’s great. Thank you very much.

Thank you.

Hi. Thanks for taking my question and good quarter.

Just on the purchase price of the Adonis stake, does that align with the number in the balance sheet, on the liability section?

Yes.

Okay.

Sorry. It was reclassed from long term to short term as we’re pursuing with the acquisition.

Sorry, saw that. So, will that number change or that's going to be consistent?

It will most likely change. It's an estimate of what we think the price will be and it gets adjusted as we forward.

But it’s – obviously, it’s getting closer and closer.

Okay. And are you can help us with the split in the NCI for what we should think about accretion between Premiere Moisson and Adonis?

Well, what’s going to be left is going to for Premiere Moisson.

Okay. So, we will work with our own estimates there on the split.

Just on...

On EPS, we’ll tell you, the only impact will be – on the P&L would be the minority interest that you deduct to get the EPS.

Right.

So, we’ll give you more visibility as we move forward as to what that impact was. I thought you meant on the balance sheet.

Sorry.

Okay, okay. So, it gets more visibility in the coming quarters?

Yes.

Okay. In terms of delivery, do you see – as you ramp that out, do you see a big CapEx spend or do you think you're going to have a third-party kind of do the delivery for you?

But how does that work?

We’re still looking at different models and doing different tests here. So, I’d rather reserve my comments.

For obvious reasons, I won’t comment further on – you’re talking about the e-commerce delivery model?

Right, right. So, would it be a venture third-party like an Uber or something?

I'm just throwing that name out there. But or – I don't foresee the grocers building their own delivery network of sort.

Is that a fair way to think about it?

Well, it’s a challenge. For a store that offers delivery in our phase one, they are our stores and our employees.

And yes, it can be challenging. So, we’re looking at different alternatives, but no announcements that I want to share for now.

Okay. And just in terms of Premiere Moisson, that’s subject to the same kind of agreement as Adonis', so that after a certain amount of years you have the option to take it out?

Yes.

Okay. That’s it for me, guys.

Thanks.

Hi. Good morning.

Good results. A question again on Adonis.

How will the management change at Adonis after the closing of the deal?

So, there is one individual identified to run the stores and there’s another individual identified to run the import distribution business. They're both longtime employees.

And actually, one is a family member of the founders. So, as I said earlier, there's a good team there, good leadership, and they will report into senior executive at Metro who will manage or oversee that division, but they will manage it on a separate basis, with still their own merchandising and their own team.

It’s a good formula and we want to keep it growing.

Okay. And I know in the past, one of the challenges to expanding is just finding the store labor because of the specialty skills that you’re looking for, do you think that's going to change at all with the founders not being around or the leaders sticking around that will provide some continuity?

Well, the Adonis new store, there are many employees, a lot of specialized services. So, there’s training involved.

So, it’s always a challenge to open new stores, but we’re getting to a level now with 11 stores. We’ll open a 12th store in the spring of 2018.

And, hopefully, we’ll open a couple of stores a year after that. And we think that with the team in place, we will have the resources to build and train and open more stores and grow from there.

So, I think we’re in a good position to continue to grow at around a couple of stores a year for the foreseeable future. So, looking forward to that.

Okay. And can you provide some color as to how the Adonis and Première Moisson products are doing within your traditional stores?

Well, we continue to put more emphasis on that. So, on the Adonis side, last year, we introduced the marinated meat store in Metro banner in Quebec to good success, and that's going to be year two of that in our barbecue program this year.

So, I’m looking for good results there. Some stores have – most of our stores have all these dried nuts and – anyway.

Spices.

So that come from Phoenicia. That’s on the specialized stuff.

And then the import – through Phoenicia, they import the cedar, private label medicinal products, specialty import products. So, we’re selling a lot of that in our stores, Food Basics.

[indiscernible] Metro in both provinces. And I think we have more opportunity to do even more with Phoenicia going forward.

So, I think it's a good differentiator for us and I think that’s going to help us grow.

All right. Thank you.

And just finally, can you comment on the traffic in basket, what you're seeing during the quarter and how that kind of trended as the quarter came to an end?

Well, traffic was, I would say, down a little bit. Basket – even in a deflationary environment, we were able to grow the basket a bit overall.

Fuel prices are up almost 20% year-over-year. Is there a link to traffic there?

Perhaps. There’s usually a correlation in our historical data there.

So, as I said, it's highly promotional out there and the key is to bring people in and grow the basket. So, we’ve been in a deflationary environment where we were overall able to do that.

Okay, thank you.

Hey, good morning. I actually just wanted to ask you a question, as it relates to sort of the latest discount square footage that you brought into the market, and it seems that it sort of reflects a new level of local market customization.

I wonder if you can just talk a bit about what's behind that and wondering if that's something you can extend to other markets or maybe more importantly to other ethnicities?

Thanks for the question. Yes, regionalization is an important part of our strategy in both of our markets.

So, I think the latest discount store you are referring to is the Food Basics in Woodbridge, which has a high Italian percentage of population there. So, I think our team did a great job to merchandise that store, to serve that community really well, and the results are very encouraging.

So, it’s part of the plan. I think we can do a similar rollout of regionalization in different areas and we plan to.

As far as different ethnic communities, yes, that's something to think about for sure and we’re thinking about. To say that we have a Chinese store and a South Asian store and all sorts of different ethnicities at this point would be pushing it a bit.

Again, I said – we talked about the Adonis products, I think they can serve a broad spectrum of ethnic consumers. So, I think we’re going to differentiate with those in all of our stores.

And then, in certain markets, we can regionalize even more specialty, like we did in Woodbridge. So, I think there's a few more stores where we can do that for sure and especially in the Ontario market, but it's also true on the [indiscernible] Montréal where we need to regionalize even more.

So, that's where the growth is. The population growth, as we all know, is mostly ethnic, so we have to serve those communities better and it’s a key part of our focus going forward for sure.

And is the key driver of that your own capabilities or is there a data element to it or what’s sort of facilitating this?

Well, it’s a challenge, but we have to have the right people with the right skills and the right knowledge to choose the right products and merchandise them and present them in the store the way they need to be presented to service those customers. So, that’s what we call execution.

So, that’s what we aim to do.

Yeah. Thank you very much.

Appreciate it.

Yeah, good morning. My questions have all been answered, so I’ll decline.

Okay.

Yes. I wondered if you could update us on where the Walmart supercenter rollout in Québec currently is at?

I think they have 56 done out of the 74, 75 Walmarts in Quebec. So, there was, I would say, an acceleration of the rollout over the last year and a half.

They opened quite a few stores in eastern part of Québec that we felt by the way. So, in my mind, the way we look at it is, they have a couple more years to go to convert to more supercenters.

So, they’ve done quite a bit in the last year and a half and the roll out is not quite complete. That’s the way I would put it.

And then, I was wondering if you could comment on, the Costco expansion plans have been very aggressive in their current fiscal year, particularly in Ontario. Can you just give us some perspective on how the Costco openings affect your stores?

Yeah. Well, there are two new Costcos in the Ontario market and two coming.

So, that's significant for sure. We don't see anything happening in Québec for now.

They did open a couple of stores over the last few years, the last couple of years in Quebec, but not this year. So, as far as their Canadian expansion plan, Ontario is the focus and clearly we’re feeling that and we’re in those markets where they’re putting more stores.

So, it’s a significant competitor and we have to execute and differentiate, but clearly it’s something that we have to contain with.

And I just had one question on your historical relationship with Adonis. When new stores were built, I think there’s maybe six or so built since you acquired them.

Did they put in 45% of the capital on the new stores?

Yes, they did. So, there were four stores when we made the deal originally.

There are 11 now. So, it was a 55-45 split.

So, that’s how the new store expansion was financed.

Yeah. Keith, whatever debt is incurred to finance the expansion is split on the same basis, 45-55.

So, it all adds up in the end.

Thanks very much.

Hi. Good morning.

First, how do you plan to fund the purchase of the Adonis stake? Would it be from cash from operations?

Or is there room on your balance sheet to raise incremental debt? I’m basically trying to get a sense of how the purchase would impact or potentially impact how many shares you’ll be buying back in 2018?

Yeah. So, well, the first part of the question is definitely we will be using – basically a revolving facility is completely reimbursed following the issue of the floating rate note we did earlier.

So, we have CAD 600 million of capacity on the revolver. So, we can easily fund the Adonis acquisition with that.

So, accommodation of cash from ops/revolving facility. So, as for the buybacks, well, we have authority to do 12 million.

And we’ve done over 7.2 million so far. So, I think we’re on track to do a similar level than what we did last year.

Okay, that’s helpful. And I think you mentioned in your opening remarks, the leverage was about 2.3 times.

Yeah. It was – it’s been up.

It’s not as fast as we said, but it’s inching up.

And is 2.5 still roughly the mark that you want to be at?

Yeah, that’s the target. It’s not a perfect science.

It’s just plus or minus a few dollars, but it’s above the level we – we won’t go above on a normal course business.

And then on the Couch-Tard, I think you recently moved it to another subsidiary. I understand it’s mostly for preemptive tax planning reasons.

Anything more you want to share on that or is that really – that was the really reason?

It was just to get ready for whatever new legislation. So, it was just an internal setup to make sure that we had all the options available to us.

So, there will be no impact on a tax basis following this transaction. It’s just an internal sale.

And then, Eric, just maybe a question on the pharmacy side of the business. I was wondering if you can maybe comment on what you see in terms of M&A, given the McKesson deal recently and also on the regulatory side of the business with some of the potential changes upcoming in Québec?

Well, on the regulatory front, there's a deal that was announced between the Pharmacists Association and the government, so that provides a little more clarity to our pharmacists. As far as McMahon, our wholesale distribution arm, there's not that much of an impact due to that, except on the royalty side, depending on the sales where they end up.

So, I think the pharmacists are happy with this element. As far as M&A, we won’t comment on McKesson.

We each have our own strategy, so we'll see.

Okay. And then my last question is – sorry if you answered that in the opening remarks, but just your margin improvement, on gross margin side, you mentioned better shrink management.

I think on the last call you mentioned that was partly because low prices, people are buying more fruit and vegetables, and then the flow through is better. Are there – can you just maybe expand on the reasons for the improvement this quarter on the gross margin side?

I think that’s one of the – shrink is better when prices are more normal. Another reason why the gross margin improved, as produce last year was experiencing significant inflation, we were selling at very low or no margins, certain crazy products.

You all remember the cauliflower. Well, we didn't have much margin on cauliflower last year at those high prices.

At more normal prices this year, just an example, the gross margin overall improves in a deflationary environment, which is more like normal prices. So, shrink and more normal pricing gave you the improvement.

Okay, great. Thanks very much for the answers.

Thank you. Good morning.

Eric, you flagged the bold and the expansion of Costco and the like, how does that impact the pace of your renovation plans in the Ontario market and perhaps also how you will allocate dollars between formats in the Ontario market over the next sort of 12 to 18 months?

Well, we have our own capital plan. And, yes, we do consider what competitors are doing around us, but we stick to our knitting, as we say.

So, the capital that will go in Ontario will be a little more than in Québec this year. We have some catching up to do.

Between discount and conventional, probably about the same amount of dollars. More new stores for Food Basics, but significant renovations on the Metro side.

A couple of Metro stores are new stores too. So, I would say the capital was going to be split about equal.

And then, Eric, we haven’t followed up for a while. But just on the Wow Stores, could you give any update there?

I realize that’s sort of a switching of gears there, but could you give some color just on how the Wow Stores have been performing and your thinking around those stores given the performance?

Well, we’re pleased with the performance. As we renovate – just speaking for Ontario for a minute, as we renovate more and more Metro stores, they’re not all with the complete the Wow offering, but we adjust market by market.

But very pleased with that and doing more. So, we will invest with discipline and market by market where it warrants.

We doing the two Oakville stores, the Metro stores in Oakville as we speak. We think it’s a good market.

Our stores needed significant refresh. So, those will be – one of them is finished.

The other one will be soon finished. So, those are going to be Wow Stores in a market that’s going to be key for us.

So, those just are examples. We’re continuing to roll up the renovated Metro stores in both Ontario and Québec.

So, as far as Québec, as planned, we have a few major renovations done and underway in the Québec market. I don't have a new – openings of new Metro stores.

Actually, we did one in Drummondville. It was a relocation.

So, it's a new store in that market for us from an older small store and very pleased with that start too. So, a mix of new and renovations, more renovations on Metro.

Okay, thank you very much. I’ll leave it there.

Okay. Thank you for having joined us today.

And we will be holding our Q3 conference call August 15. Thank you.