Metro inc. — Interim / Quarterly Report 2021

Jan 26, 2021

INTERIM REPORT

12-week period ended December 19, 2020

1 st Quarter 2021

HIGHLIGHTS

2021 FIRST QUARTER

• n Sales of \$4,278.2 million, up 6.2%
• n Food same-store sales up 10.0%
• n Pharmacy same-store sales up 1.3%
• n Net earnings of \$191.2 million, up 12.3% and adjusted net earnings(1) of \$197.7 million, up 9.3%
• n Fully diluted net earnings per share of \$0.76, up 13.4%, and adjusted fully diluted net earnings per share(1) of \$0.79, up 11.3%
• n Negative impact of about \$0.05 per share due to the labour conflict at our Jean Coutu distribution center
• n Expenses related to COVID-19 totalling \$28 million
• n Declared dividend of \$0.25 per share, up 11.1%

REPORT TO SHAREHOLDERS

Dear Shareholders,

I am pleased to present our interim report for the first quarter of Fiscal 2021 ended December 19, 2020.

Sales in the first quarter of Fiscal 2021 reached \$4,278.2 million, up 6.2% compared to \$4,029.8 million in the first quarter of Fiscal 2020. Food same-store sales were up 10.0% (1.4% in 2020). Online food sales increased by about 170% versus last year. Our food basket inflation was approximately 2.5% (2.0% in 2020). Pharmacy same-store sales were up 1.3% (3.6% in 2020), with a 4.0% increase in prescription drugs and a 3.8% decrease in front-store sales, mainly due to lower traffic, the milder cold and flu season, and reduced promotional activity during the labour conflict. Our warehouse sales to franchisees were impacted by the labour conflict at our Jean Coutu distribution center which had a dampening effect on the total sales increase of the Corporation.

First quarter net earnings were \$191.2 million in Fiscal 2021 compared with \$170.2 million in 2020, and fully diluted net earnings per share were \$0.76 compared with \$0.67 in 2020, up 12.3% and 13.4%, respectively. Taking into account adjustments for the 2021 and 2020 first quarters, the amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition as well as for the first quarter of 2020 the loss on disposal of our subsidiary MissFresh, adjusted net earnings(1) for the first quarter of Fiscal 2021 totalled \$197.7 million compared with \$180.9 million in 2020, and adjusted fully diluted net earnings per share(1) amounted to \$0.79 versus \$0.71, up 9.3% and 11.3%, respectively. The labour conflict at our Jean Coutu distribution center had an unfavorable impact of approximately \$0.05 on the fully diluted net earnings per share of the current quarter.

On January 25, 2021, the Board of Directors declared a quarterly dividend of \$0.25 per share, an increase of 11.1% versus the same quarter last year.

We are pleased with our first quarter results, delivering continued strong food sales with good operating leverage, while working through an 8-week labour conflict at our Jean Coutu distribution center. Our contingency plan enabled us to successfully maintain the supply of medication to over 400 pharmacies. We are now back to normal operating conditions in the distribution center. I want to again sincerely thank all our front-line staff who continue to deliver the essential services of food and pharmacy to our communities during this challenging lockdown period. Our first priority remains the safety of our employees and our customers.

Eric La Flèche President and Chief Executive Officer

January 26, 2021

⁽¹⁾ See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

⁽³⁾ See section on "Forward-looking Information"

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis (MD&A) sets out the financial position and consolidated results of METRO INC. on December 19, 2020 and for the 12-week period then ended. It should be read in conjunction with the unaudited interim condensed consolidated financial statements and accompanying notes in this interim report.

The unaudited interim condensed consolidated financial statements for the 12-week period ended December 19, 2020 have been prepared by management in accordance with IAS 34 Interim Financial Reporting. They should be read in conjunction with the audited annual consolidated financial statements and accompanying notes and the MD&A presented in the Corporation's 2020 Annual Report. Unless otherwise stated, the interim report is based on information as at January 15, 2021.

Additional information, including the Certification of Interim Filings letters for quarter ended December 19, 2020 signed by the President and Chief Executive Officer and the Executive Vice-President, Chief Financial Officer and Treasurer, will also be available on the SEDAR website at: www.sedar.com.

OPERATING RESULTS

SALES

Sales in the first quarter of Fiscal 2021 reached \$4,278.2 million, up 6.2% compared to \$4,029.8 million in the first quarter of Fiscal 2020. Food same-store sales were up 10.0% (1.4% in 2020). Online food sales increased by about 170% versus last year. Our food basket inflation was approximately 2.5% (2.0% in 2020). Pharmacy same-store sales were up 1.3% (3.6% in 2020), with a 4.0% increase in prescription drugs and a 3.8% decrease in front-store sales, mainly due to lower traffic, the milder cold and flu season, and reduced promotional activity during the labour conflict. Our warehouse sales to franchisees were impacted by the labour conflict at our Jean Coutu distribution center which had a dampening effect on the total sales increase of the Corporation.

OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION

This earnings measurement excludes financial costs, taxes, depreciation and amortization.

Operating income before depreciation and amortization for the first quarter of Fiscal 2021 totalled \$399.2 million, or 9.3% of sales, up 9.9% versus the corresponding quarter of last year. In the first quarter of Fiscal 2020 we recognized a loss of \$7.5 million on disposal of our subsidiary MissFresh. Excluding this item, adjusted operating income before depreciation and amortization(2) for the first quarter of Fiscal 2021 increased by 7.7% versus the first quarter of last year.

Operating income before depreciation and amortization adjustments (OI)(2)

	12 weeks / Fiscal Year
	2021			2020
(Millions of dollars, unless otherwise indicated)	OI	Sales	(%)	OI	Sales	(%)
Operating income before depreciation and amortization	399.2	4,278.2	9.3	363.1	4,029.8	9.0
Loss on disposal of a subsidiary	—			7.5
Adjusted operating income before depreciation and amortization(2)	399.2	4,278.2	9.3	370.6	4,029.8	9.2

Gross margin on sales for the first quarter of Fiscal 2021 was 19.7% versus 19.6% for the corresponding quarter of 2020.

Operating expenses as a percentage of sales for the first quarter of Fiscal 2021 were 10.4% versus 10.6% (10.4% excluding the loss on disposal of our subsidiary MissFresh) for the corresponding quarter of Fiscal 2020. The costs related to COVID-19 for the first quarter of Fiscal 2021 were approximately \$28 million including \$8 million of gift cards to front-line employees.

⁽¹⁾ See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

⁽³⁾ See section on "Forward-looking Information"

DEPRECIATION AND AMORTIZATION AND NET FINANCIAL COSTS

Total depreciation and amortization expense for the first quarter of Fiscal 2021 was \$107.3 million, versus \$101.5 million for the corresponding quarter of Fiscal 2020.

Net financial costs for the first quarter of Fiscal 2021 were \$31.4 million compared with \$31.1 million for the corresponding quarter of Fiscal 2020.

INCOME TAXES

The income tax expense of \$69.3 million for the first quarter of Fiscal 2021 represented an effective tax rate of 26.6% compared with an income tax expense of \$60.3 million in the first quarter of Fiscal 2020 which represented an effective tax rate of 26.2%.

NET EARNINGS AND ADJUSTED NET EARNINGS(1)

Net earnings for the first quarter of Fiscal 2021 were \$191.2 million compared with \$170.2 million for the corresponding quarter of Fiscal 2020, while fully diluted net earnings per share were \$0.76 compared with \$0.67 in 2020, up 12.3% and 13.4%, respectively. Excluding the specific items shown in the table below, adjusted net earnings(1) for the first quarter of Fiscal 2021 totalled \$197.7 million compared with \$180.9 million for the corresponding quarter of Fiscal 2020, and adjusted fully diluted net earnings per share(1) amounted to \$0.79 versus \$0.71, up 9.3% and 11.3%, respectively. The impact of the labour conflict at the Jean Coutu distribution center was approximately \$0.05 per share resulting from lower revenues and additional costs incurred to implement our contingency plan.

Net earnings adjustments(1)

12 weeks / Fiscal Year
(Millions of dollars)	Fully diluted EPS (Dollars)	(Millions of dollars)	Fully diluted EPS (Dollars)	Net earnings	Fully diluted EPS
191.2	0.76	170.2	0.67	12.3	13.4
—		4.2
6.5		6.5
197.7	0.79	180.9	0.71	9.3	11.3
	Amortization of intangible assets acquired in	2021		2020	Change (%)

(1) See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

(2) See table on "Operating income before depreciation and amortization adjustments" and section on "Non-IFRS Measurements"

(3) See section on "Forward-looking Information"

QUARTERLY HIGHLIGHTS

(Millions of dollars, unless otherwise indicated)	2021	2020	2019	Change (%)
Sales
Q1(4)	4,278.2	4,029.8	—	6.2
Q4(4)	—	4,143.6	3,858.9	7.4
Q3(5)	—	5,835.2	5,229.3	11.6
Q2(4)	—	3,988.9	3,701.6	7.8
Net earnings
Q1(4)	191.2	170.2	—	12.3
Q4(4)	—	186.5	167.4	11.4
Q3(5)	—	263.5	222.4	18.5
Q2(4)	—	176.2	121.5	45.0
Adjusted net earnings(1)
Q1(4)	197.7	180.9	—	9.3
Q4(4)	—	193.1	174.0	11.0
Q3(5)	—	272.3	230.3	18.2
Q2(4)	—	182.8	155.1	17.9
Fully diluted net earnings per share (Dollars)
Q1(4)	0.76	0.67	—	13.4
Q4(4)	—	0.74	0.66	12.1
Q3(5)	—	1.04	0.86	20.9
Q2(4)	—	0.69	0.47	46.8
Adjusted fully diluted net earnings per share(1) (Dollars)
Q1(4)	0.79	0.71	—	11.3
Q4(4)	—	0.77	0.68	13.2
Q3(5)	—	1.08	0.90	20.0
Q2(4)	—	0.72	0.60	20.0

(4) 12 weeks

(5) 16 weeks

Sales in the first quarter of Fiscal 2021 reached \$4,278.2 million, up 6.2% compared to \$4,029.8 million in the first quarter of Fiscal 2020 Food same-store sales were up 10.0% (1.4% in 2020). Online food sales increased by about 170% versus last year. Our food basket inflation was approximately 2.5% (2.0% in 2020). Pharmacy same-store sales were up 1.3% (3.6% in 2020), with a 4.0% increase in prescription drugs and a 3.8% decrease in front-store sales, mainly due to lower traffic, the milder cold and flu season, and reduced promotional activity during the labour conflict. Our warehouse sales to franchisees were impacted by the labour conflict at our Jean Coutu distribution center which had a dampening effect on the total sales increase of the Corporation.

Sales in the fourth quarter of Fiscal 2020 reached \$4,143.6 million, up 7.4% compared to \$3,858.9 million in the fourth quarter of Fiscal 2019. Excluding the impact of IFRS 16 Leases adopted in the first quarter of 2020, sales reached \$4,156.1 million, up 7.7%. Food same-store sales were up 10.0% (4.1% in 2019). Online food sales were up 160% versus last year. Our food basket inflation was approximately 2.8% (2.8% in 2019). Pharmacy same-store sales were up 5.5% (3.4% in 2019), with a 5.3% increase in prescription drugs and a 6.0% increase in front-store sales.

⁽¹⁾ See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

⁽²⁾ See table on "Operating income before depreciation and amortization adjustments" and section on "Non-IFRS Measurements"

⁽³⁾ See section on "Forward-looking Information"

Sales in the third quarter of Fiscal 2020 reached \$5,835.2 million, up 11.6% compared to \$5,229.3 million in the third quarter of Fiscal 2019. Excluding the impact of IFRS 16 Leases adopted in the first quarter of 2020, sales reached \$5,851.9 million, up 11.9%. Food same-store sales were up 15.6% (3.1% in 2019). Online food sales almost quadrupled in the quarter from a small base last year. Our food basket inflation was approximately 3.0% (2.5% in 2019). Pharmacy same-store sales were up 1.0% (3.4% in 2019), with a 2.7% increase in prescription drugs and a 2.5% decrease in front-store sales.

Sales in the second quarter of Fiscal 2020 reached \$3,988.9 million, up 7.8% compared to \$3,701.6 million in the second quarter of Fiscal 2019. Excluding the impact of IFRS 16 Leases adopted in the first quarter of 2020, sales reached \$4,001.5 million, up 8.1%. Food same-store sales were up 9.7% (4.3% in 2019). The shift in Christmas sales represents 0.6% of the same-store sales increase. Our food basket inflation was approximately 2.0% (2.5% in 2019). Pharmacy same-store sales were up 7.9% (1.1% in 2019), with a 7.7% increase in prescription drugs (prescription count up 3.9%) and a 8.3% increase in front-store sales.

Net earnings for the first quarter of Fiscal 2021 were \$191.2 million compared with \$170.2 million for the first quarter of Fiscal 2020, while fully diluted net earnings per share were \$0.76 compared with \$0.67 in 2020, up 12.3% and 13.4%, respectively. Excluding from the first quarter of Fiscal 2021 the amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition of \$8.9 million and from the first quarter of Fiscal 2020 the \$7.5 million loss on disposal of a subsidiary and the amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition of \$8.9 million as well as income taxes relating to these items, adjusted net earnings(1) for the first quarter of Fiscal 2021 totalled \$197.7 million compared with \$180.9 million for the corresponding quarter of Fiscal 2020 and adjusted fully diluted net earnings per share(1) amounted to \$0.79 compared with \$0.71, up 9.3% and 11.3%, respectively.

Net earnings for the fourth quarter of Fiscal 2020 were \$186.5 million compared with \$167.4 million for the fourth quarter of Fiscal 2019, while fully diluted net earnings per share were \$0.74 compared with \$0.66 in 2019, up 11.4% and 12.1%, respectively. Excluding from the fourth quarter of Fiscals 2020 and 2019 the amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition of \$9.0 million, as well as income taxes relating to these items, adjusted net earnings(1) for the fourth quarter of Fiscal 2020 totalled \$193.1 million compared with \$174.0 million for the corresponding quarter of Fiscal 2019 and adjusted fully diluted net earnings per share(1) amounted to \$0.77 compared with \$0.68, up 11.0% and 13.2%, respectively.

Net earnings for the third quarter of Fiscal 2020 were \$263.5 million compared with \$222.4 million for the third quarter of Fiscal 2019, while fully diluted net earnings per share were \$1.04 compared with \$0.86 in 2019, up 18.5% and 20.9%, respectively. Excluding from the third quarter of Fiscal 2020 the amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition of \$11.9 million, and excluding from the third quarter of Fiscal 2019 the \$1.0 million gain resulting from the selling price adjustment related to the investment in associate Colo-D Inc. and \$11.9 million in amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition, as well as income taxes relating to all these items, adjusted net earnings(1) for the third quarter of Fiscal 2020 totalled \$272.3 million compared with \$230.3 million for the corresponding quarter of Fiscal 2019 and adjusted fully diluted net earnings per share(1) amounted to \$1.08 compared with \$0.90, up 18.2% and 20.0%, respectively.

Net earnings for the second quarter of Fiscal 2020 were \$176.2 million compared with \$121.5 million for the second quarter of Fiscal 2019, while fully diluted net earnings per share were \$0.69 compared with \$0.47 in 2019, up 45.0% and 46.8%, respectively. Excluding from the second quarter of 2020 the amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition of \$8.9 million, and from the second quarter of Fiscal 2019 the retail network restructuring expenses of \$36.0 million, the \$1.4 million loss on divestiture of pharmacies and \$8.8 million in amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition, as well as income taxes relating to all these items, adjusted net earnings(1) for the second quarter of Fiscal 2020 totalled \$182.8 million compared with \$155.1 million for the corresponding quarter of Fiscal 2019 and adjusted fully diluted net earnings per share(1) amounted to \$0.72 compared with \$0.60, up 17.9% and 20.0%, respectively.

⁽¹⁾ See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

⁽³⁾ See section on "Forward-looking Information"

	2021	2020				2019
(Millions of dollars)	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Net earnings	191.2	186.5	263.5	176.2	170.2	167.4	222.4	121.5
Retail network restructuring expenses, after taxes	—	—	—	—	—	—	—	26.4
Loss on disposal of a subsidiary, after taxes	—	—	—	—	4.2	—	—	—
Loss on divestiture of pharmacies, after taxes	—	—	—	—	—	—	—	0.7
Amortization of intangible assets acquired in connection with the Jean Coutu Group acquisition, after taxes	6.5	6.6	8.8	6.6	6.5	6.6	8.8	6.5
Gain on disposal of investments in associates, after taxes	—	—	—	—	—	—	(0.9)	—
Adjusted net earnings(1)	197.7	193.1	272.3	182.8	180.9	174.0	230.3	155.1

	2021	2020				2019
(Dollars)	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Fully diluted net earnings per share	0.76	0.74	1.04	0.69	0.67	0.66	0.86	0.47
Adjustments impact	0.03	0.03	0.04	0.03	0.04	0.02	0.04	0.13
Adjusted fully diluted net earnings per share(1)	0.79	0.77	1.08	0.72	0.71	0.68	0.90	0.60

CASH POSITION

OPERATING ACTIVITIES

In the first quarter of 2021, operating activities generated cash inflows of \$233.4 million compared with \$79.5 million in the corresponding quarter of 2020. This difference resulted primarily from the increase in earnings and the change in non-cash working capital items that required cash outflows of \$89.8 million in the first quarter of Fiscal 2021 compared with \$231.1 million in the first quarter of Fiscal 2020.

INVESTING ACTIVITIES

Investing activities required cash outflows of \$64.4 million for the first quarter of Fiscal 2021 compared with \$98.7 million for the corresponding quarter of Fiscal 2020. This difference stemmed mainly from the buyout of minority interests in Groupe Première Moisson Inc. in the amount of \$51.6 million in the first quarter of 2020.

During the first quarter of 2021, we and our retailers carried out major expansions and renovations of 4 stores and relocated 1 store for a net increase of 18,000 square feet or 0.1% of our food retail network.

FINANCING ACTIVITIES

In the first quarter of 2021, financing activities required cash outflows of \$290.2 million compared with \$210.7 million in the corresponding quarter of 2020. This difference resulted mainly from higher share repurchases of \$72.7 million in 2021.

⁽¹⁾ See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

⁽³⁾ See section on "Forward-looking Information"

FINANCIAL POSITION

We do not anticipate(3) any liquidity risk and consider our financial position at the end of the first quarter of Fiscal 2021 as very solid. We had an unused authorized revolving credit facility of \$600.0 million. Our non-current debt and lease liabilities represented 41.3% of the combined total of non-current debt, lease liabilities and equity (non-current debt and lease liabilities/total capital).

At the end of the first quarter of Fiscal 2021, the main elements of our non-current debt were as follows:

	Interest Rate	Maturity	Balance (Millions of dollars)
Revolving Credit Facility	Rates fluctuate with changes in bankers' acceptance rates	November 3, 2024	—
Series C Notes	3.20% fixed rate	December 1, 2021	300.0
Series F Notes	2.68% fixed rate	December 5, 2022	300.0
Series G Notes	3.39% fixed rate	December 6, 2027	450.0
Series B Notes	5.97% fixed rate	October 15, 2035	400.0
Series D Notes	5.03% fixed rate	December 1, 2044	300.0
Series H Notes	4.27% fixed rate	December 4, 2047	450.0
Series I Notes	3.41% fixed rate	February 28, 2050	400.0

The Corporation reclassified the Series C Notes of \$300.0 million to current portion of the debt as it matures on December 1, 2021. The Corporation intends(3) to refinance the Series C Notes.

Our main financial ratios were as follows:

	As at	As at
	December 19, 2020	September 26, 2020
Financial structure
Non-current debt (Millions of dollars)	2,612.5	2,612.0
Non-current lease liabilities (Millions of dollars)	1,754.9	1,811.4
	4,367.4	4,423.4
Equity (Millions of dollars)	6,214.7	6,155.4
Non-current debt and lease liabilities/total capital (%)	41.3	41.8

Since the Corporation intends(3) to refinance the Series C Notes presented under non-current debt, the amount of \$300.0 million was added to non-current debt when calculating the ratio of non-current debt and lease liabilities/total capital.

		12 weeks / Fiscal Year
	2021	2020
Results
Operating income before depreciation and amortization/Financial costs (Times)	12.7	11.7

(1) See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

(2) See table on "Operating income before depreciation and amortization adjustments" and section on "Non-IFRS Measurements"

(3) See section on "Forward-looking Information"

CAPITAL STOCK, STOCK OPTIONS AND PERFORMANCE SHARE UNITS

	As at	As at
	December 19, 2020	September 26, 2020
Number of Common Shares outstanding (Thousands)	248,398	250,243
Stock options:
Number outstanding (Thousands)	2,305	2,322
Exercise prices (Dollars)	21.90 to 56.92	21.90 to 56.72
Weighted average exercise price (Dollars)	41.29	41.27
Performance share units:
Number outstanding (Thousands)	613	618

NORMAL COURSE ISSUER BID PROGRAM

Under the current normal course issuer bid program, the Corporation may repurchase up to 7,000,000 of its Common Shares between November 25, 2020 and November 24, 2021. Between November 25, 2020 and January 15, 2021, the Corporation has repurchased 1,750,000 Common Shares at an average price of \$58.39, for a total consideration of \$102.2 million.

DIVIDENDS

On January 25, 2021, the Board of Directors declared a quarterly dividend of \$0.25 per share, an increase of 11.1% versus the same quarter last year.

SHARE TRADING

The value of METRO shares remained in the \$57.30 to \$66.25 range over the first quarter of Fiscal 2021. During this period, a total of 42.2 million shares were traded on the Toronto Stock Exchange. The closing price on January 15, 2021 was \$58.27 compared with \$64.02 at the end of Fiscal 2020.

FORWARD-LOOKING INFORMATION

We have used, throughout this 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 herein that does not constitute a historical fact may be deemed a forward-looking statement. Expressions such as "anticipate", "expect", "intend" and other similar expressions are generally indicative of forward-looking statements. The forward-looking statements contained herein are based upon certain assumptions regarding the Canadian food industry, the general economy, our annual budget, as well as our 2021 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 the risks described under the "Risk Management" section of the 2020 Annual Report which could have an impact on these statements. As with the preceding risks, the COVID-19 pandemic constitutes a risk that could have an impact on the business, operations, projects, synergies and performance of the Corporation as well as on the forward-looking statements contained in this document.

We believe these statements to be reasonable and pertinent 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"

⁽³⁾ See section on "Forward-looking Information"

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 INCOME BEFORE DEPRECIATION AND AMORTIZATION, ADJUSTED NET EARNINGS AND ADJUSTED FULLY DILUTED NET EARNINGS PER SHARE

Adjusted operating income before depreciation and amortization, 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, which 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.

OUTLOOK(3)

Government measures to curb the impact of the ongoing pandemic have been increased in recent weeks and continue to evolve. Restrictions on the sale of non-essential goods in Quebec and the milder cold and flu season is expected to have an unfavorable impact on our Pharmacy commercial sales. In the first four weeks of the second quarter of 2021, pharmacy front-end same store sales were down 11.7%. To mitigate this impact, we are adjusting our promotional activity and directing customers to shop online or to use the in-store order service. Prescription same store sales were up 5.7%. Furthermore, food revenues continue to grow at higher than normal rates. In the first four weeks of the second quarter of 2021, food same-store sales were up 12.0% versus the same period last year.

Montréal, January 26, 2021

⁽¹⁾ See table on "Net earnings adjustments" and section on "Non-IFRS Measurements"

⁽²⁾ See table on "Operating income before depreciation and amortization adjustments" and section on "Non-IFRS Measurements"

⁽³⁾ See section on "Forward-looking Information"

Interim Condensed Consolidated Financial Statements

METRO INC.

December 19, 2020

Consolidated statements of income	13
Consolidated statements of comprehensive income	14
Consolidated statements of financial position	15
Consolidated statements of changes in equity	16
Consolidated statements of cash flows	17
Notes to interim condensed consolidated financial statements	18
1- Statement presentation	18
2- Additional information on the nature of earnings components	19
3- Income taxes	20
4- Net earnings per share	20
5- Debt	20
6- Capital stock	20
7- Financial instruments	22
8-Changes in defined benefit plans	23
9- Approval of financial statements	23

Consolidated statements of income

Periods ended December 19, 2020 and December 21, 2019

(Unaudited) (Millions of dollars, except for net earnings per share)

Fiscal Year 2021	2020
Sales 4,278.2	4,029.8
Cost of sales and operating expenses (note 2) (3,879.0)	(3,659.2)
Loss on disposal of a subsidiary (note 2) —	(7.5)
Operating income before depreciation and amortization 399.2	363.1
Depreciation and amortization (note 2) (107.3)	(101.5)
Financial costs, net (note 2) (31.4)	(31.1)
Earnings before income taxes 260.5	230.5
Income taxes (note 3) (69.3)	(60.3)
Net earnings 191.2	170.2
Attributable to:
Equity holders of the parent 190.5	169.7
Non-controlling interests 0.7	0.5
191.2	170.2
Net earnings per share (Dollars) (note 4)
Basic 0.76	0.67
Fully diluted 0.76	0.67

Consolidated statements of comprehensive income

Periods ended December 19, 2020 and December 21, 2019 (Unaudited) (Millions of dollars)

	12 weeks Fiscal Year
	2021	2020
Net earnings	191.2	170.2
Other comprehensive income
Items that will not be reclassified to net earnings
Changes in defined benefit plans
Actuarial gains (note 8)	53.8	27.4
Asset ceiling effect	(6.5)	(5.2)
Minimum funding requirement	—	0.9
Corresponding income taxes	(12.5)	(6.1)
	34.8	17.0
Comprehensive income	226.0	187.2
Attributable to:
Equity holders of the parent	225.3	186.7
Non-controlling interests	0.7	0.5
	226.0	187.2

Consolidated statements of financial position

(Unaudited) (Millions of dollars)

September 26, 2020 December 19, 2020 ASSETS Current assets Cash and cash equivalents 320.3 441.5 Accounts receivable 759.1 641.8 Accounts receivable on subleases 88.1 88.0 Inventories 1,351.2 1,268.2 Prepaid expenses 39.1 45.0 Current taxes 20.6 16.0 2,578.4 2,500.5 Non-current assets Fixed assets 2,878.0 2,860.8 Investment properties 40.1 40.2 Right-of-use assets 1,125.2 1,150.5 Intangible assets 2,849.6 2,850.2 Goodwill 3,300.7 3,300.7 Deferred taxes 33.5 43.5 Defined benefit assets 34.0 19.7 Accounts receivable on subleases 571.8 596.3 Other assets 53.8 61.5 13,465.1 13,423.9 LIABILITIES AND EQUITY Current liabilities Bank loans 0.9 0.4 Accounts payable 1,518.4 1,458.9 Deferred revenues 49.0 38.0 Current taxes 73.0 81.7 Provisions 2.0 2.5 Current portion of debt (note 5) 319.9 20.6 Current portion of lease liabilities 259.1 258.0 2,222.3 1,860.1 Non-current liabilities Debt (note 5) 2,312.5 2,612.0 Lease liabilities 1,754.9 1,811.4 Defined benefit liabilities 99.2 129.9 Provisions 19.2 19.2 Deferred taxes 839.5 833.9 Other liabilities 2.8 2.0 7,250.4 7,268.5 Equity Attributable to equity holders of the parent 6,201.9 6,142.2 Attributable to non-controlling interests 12.8 13.2 6,214.7 6,155.4	As at	As at
	13,465.1	13,423.9

Consolidated statements of changes in equity

Periods ended December 19, 2020 and December 21, 2019

(Unaudited) (Millions of dollars)

			Attributable to the equity holders of the parent
	Capital stock (note 6)	Treasury shares (note 6)	Contributed surplus	Retained earnings	Total	Non controlling interests	Total equity
Balance as at September 26, 2020	1,713.8	(25.1)	22.2	4,431.3	6,142.2	13.2	6,155.4
Net earnings	—	—	—	190.5	190.5	0.7	191.2
Other comprehensive income	—	—	—	34.8	34.8	—	34.8
Comprehensive income	—	—	—	225.3	225.3	0.7	226.0
Stock options exercised	0.2	—	—	—	0.2	—	0.2
Shares redeemed	(12.6)	—	—	—	(12.6)	—	(12.6)
Share redemption premium	—	—	—	(99.1)	(99.1)	—	(99.1)
Share-based compensation cost	—	—	2.2	—	2.2	—	2.2
Dividends	—	—	—	(56.3)	(56.3)	(0.1)	(56.4)
Repurchase of shares in joint ventures	—	—	—	—	—	(1.0)	(1.0)
	(12.4)	—	2.2	(155.4)	(165.6)	(1.1)	(166.7)
Balance as at December 19, 2020	1,701.4	(25.1)	24.4	4,501.2	6,201.9	12.8	6,214.7

	Capital stock	Treasury shares	Contributed surplus	Retained earnings	Total	Non controlling interests	Total equity
Balance as at September 28, 2019	1,732.3	(24.6)	19.2	4,228.3	5,955.2	13.4	5,968.6
Net earnings	—	—	—	169.7	169.7	0.5	170.2
Other comprehensive income	—	—	—	17.0	17.0	—	17.0
Comprehensive income	—	—	—	186.7	186.7	0.5	187.2
Stock options exercised	1.3	—	(0.1)	—	1.2	—	1.2
Shares redeemed	(4.7)	—	—	—	(4.7)	—	(4.7)
Share redemption premium	—	—	—	(34.3)	(34.3)	—	(34.3)
Share-based compensation cost	—	—	2.1	—	2.1	—	2.1
Dividends	—	—	—	(50.8)	(50.8)	—	(50.8)
Adoption of IFRS 16 "Leases"	—	—	—	(169.4)	(169.4)	—	(169.4)
Change in fair value of non-controlling interests liability	—	—	—	(0.5)	(0.5)	—	(0.5)
	(3.4)	—	2.0	(255.0)	(256.4)	—	(256.4)
Balance as at December 21, 2019	1,728.9	(24.6)	21.2	4,160.0	5,885.5	13.9	5,899.4

Consolidated statements of cash flows

Periods ended December 19, 2020 and December 21, 2019 (Unaudited) (Millions of dollars)

	12 weeks
	Fiscal Year
	2021	2020
Operating activities
Earnings before income taxes	260.5	230.5
Non-cash items
Loss on disposal of a subsidiary (note 2)	—	7.5
Depreciation and amortization	107.3	101.5
Share-based compensation cost	2.2	2.1
Difference between amounts paid for employee benefits and current period cost	1.3	(0.1)
Financial costs, net	31.4	31.1
	402.7	372.6
Net change in non-cash working capital items	(89.8)	(231.1)
Income taxes paid	(79.5)	(62.0)
	233.4	79.5
Investing activities
Net proceeds on disposal of a subsidiary (note 2)	—	3.5
Repurchase of shares in joint ventures	(1.0)	—
Buyout of a minority interest (note 7)	—	(51.6)
Net change in other assets	(1.9)	0.5
Additions to fixed assets and investment properties	(80.2)	(71.7)
Disposal of fixed assets and investment properties	2.5	—
Additions to intangible assets	(9.7)	(5.0)
Payments received from subleases	21.8	22.7
Interests received from subleases	4.1 (64.4)	2.9 (98.7)
Financing activities
Net change in bank loans	0.5	0.5
Shares issued	0.2	1.2
Shares redeemed	(111.7)	(39.0)
Increase in debt	2.4	8.4
Repayment of debt	(3.0)	(7.3)
Interest paid on debt	(47.2)	(49.3)
Payment of lease liabilities (principal)	(63.9)	(62.5)
Payment of lease liabilities (interest)	(12.0)	(11.8)
Net change in other liabilities	0.8	(0.1)
Dividends	(56.3)	(50.8)
	(290.2)	(210.7)
Net change in cash and cash equivalents	(121.2)	(229.9)
Cash and cash equivalents — beginning of period	441.5	273.4
Cash and cash equivalents — end of period	320.3	43.5

Periods ended December 19, 2020 and December 21, 2019 (Unaudited) (Millions of dollars, unless otherwise indicated)

1. STATEMENT PRESENTATION

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 pharmacy operations, are combined into one reportable operating segment due to the similar nature of their operations.

The unaudited interim condensed consolidated financial statements for the 12-week period ended December 19, 2020 have been prepared by management in accordance with IAS 34 Interim Financial Reporting and using the same accounting policies and methods of computation as those used in preparing the audited annual consolidated financial statements for the year ended September 26, 2020. They should be read in conjunction with the audited annual consolidated financial statements and accompanying notes which were presented in the Corporation's 2020 Annual Report.

Periods ended December 19, 2020 and December 21, 2019

(Unaudited) (Millions of dollars, unless otherwise indicated)

2. ADDITIONAL INFORMATION ON THE NATURE OF EARNINGS COMPONENTS

	12 weeks
	Fiscal Year
	2021	%	2020	%
Sales	4,278.2		4,029.8
Cost of sales	(3,434.8)		(3,239.3)
Gross margin	843.4	19.7	790.5	19.6
Operating expenses
Wages and fringe benefits	(225.6)		(202.0)
Employee benefits expense	(23.6)		(22.3)
Rents and occupancy charges	(70.2)		(73.7)
Loss on disposal of a subsidiary	—		(7.5)
Others	(124.8)		(121.9)
	(444.2) 10.4		(427.4) 10.6
Operating income before depreciation and amortization	399.2	9.3	363.1	9.0
Depreciation and amortization
Fixed assets	(53.4)		(49.2)
Investment properties	(0.1)		(0.1)
Right-of-use assets	(36.4)		(35.0)
Intangible assets	(17.4)		(17.2)
	(107.3)		(101.5)
Financial costs, net
Current interest	(0.7)		(0.8)
Non-current interest	(24.4)		(23.6)
Net interests on lease liabilities	(7.9)		(8.0)
Interest on defined benefit obligations net of plan assets	(1.0)		(1.0)
Amortization of deferred financing costs	(0.4)		(0.6)
Interest income	3.0		3.0
Passage of time	—		(0.1)
	(31.4)		(31.1)
Earnings before income taxes	260.5		230.5

The Corporation disposed of the assets of subsidiary MissFresh on December 9, 2019 for a cash consideration of \$3.5 and recorded a loss on disposal of \$7.5 mainly related to tangible and intangible assets. The Corporation also recognized a deferred tax asset of \$3.3 related to this subsidiary's fiscal attributes.

Periods ended December 19, 2020 and December 21, 2019

(Unaudited) (Millions of dollars, unless otherwise indicated)

3. INCOME TAXES

The effective income tax rates were as follows:

	12 weeks
	Fiscal Year
(Percentage)	2021	2020
Combined statutory income tax rate	26.5	26.6
Changes
Loss on disposal of a subsidiary (note 2)	—	(0.5)
Others	0.1	0.1
	26.6	26.2

4. NET EARNINGS PER SHARE

Basic net earnings per share and fully diluted net earnings per share were calculated using the following number of shares:

	12 weeks
	Fiscal Year
(Millions)	2021	2020
Weighted average number of shares outstanding – Basic	249.6	253.6
Dilutive effect under:
Stock option plan	0.7	0.7
Performance share unit plan	0.6	0.6
Weighted average number of shares outstanding – Fully diluted	250.9	254.9

5. DEBT

The Corporation reclassified the Series C Notes of \$300,0 to current portion of the debt as it matures on December 1, 2021. The Corporation intends to refinance the Series C Notes.

6. CAPITAL STOCK

COMMON SHARES ISSUED

The Common Shares issued were summarized as follows:

	Number
	(Thousands)
Balance as at September 28, 2019	254,440	1,732.3
Shares redeemed for cash, excluding premium of \$190.5	(3,910)	(26.7)
Stock options exercised	265	8.2
Balance as at September 26, 2020	250,795	1,713.8
Shares redeemed for cash, excluding premium of \$99.1	(1,850)	(12.6)
Stock options exercised	5	0.2
Balance as at December 19, 2020	248,950	1,701.4

Periods ended December 19, 2020 and December 21, 2019

(Unaudited) (Millions of dollars, unless otherwise indicated)

TREASURY SHARES

The treasury shares were summarized as follows:

	Number
	(Thousands)
Balance as at September 28, 2019	577	(24.6)
Acquisition	112	(6.2)
Release	(137)	5.7
Balance as at September 26,2020 and December 19, 2020	552	(25.1)

The treasury shares are held in trust for the performance share unit plan (PSU). They are released into circulation when the PSUs settle.

Excluding treasury shares from the Common Shares issued, the Corporation had 248,398,000 outstanding Common Shares issued as at December 19, 2020 (250,243,000 as at September 26, 2020).

STOCK OPTION PLAN

The outstanding options were summarized as follows:

	Number	Weighted average exercise price
	(Thousands)	(Dollars)
Balance as at September 28, 2019	2,281	37.30
Granted	355	56.92
Exercised	(265)	27.35
Cancelled	(49)	45.08
Balance as at September 26, 2020	2,322	41.27
Exercised	(5)	24.28
Cancelled	(12)	46.46
Balance as at December 19, 2020	2,305	41.29

The exercise prices of the outstanding options ranged from \$21.90 to \$56.92 as at December 19, 2020 with expiration dates up to 2027. 891,600 of those options could be exercised at a weighted average exercise price of \$33.51.

The compensation expense for these options amounted to \$0.5 for the 12-week period ended December 19, 2020 (\$0.5 in 2020).

Periods ended December 19, 2020 and December 21, 2019

(Unaudited) (Millions of dollars, unless otherwise indicated)

PERFORMANCE SHARE UNIT PLAN

The number of PSUs outstanding was as follows:

	Number
	(Thousands)
Balance as at September 28, 2019	605
Granted	205
Exercised	(137)
Cancelled	(55)
Balance as at September 26, 2020	618
Cancelled	(5)
Balance as at December 19, 2020	613

The compensation expense for the PSU plan amounted to \$1.7 for the 12-week period ended December 19, 2020 (\$1.6 in 2020).

7. FINANCIAL INSTRUMENTS

The non-current financial instruments' book and fair values were as follows:

	As at December 19, 2020		As at September 26, 2020
	Book value	Fair value	Book value	Fair value
Other assets Assets measured at amortized cost
Loans to certain customers	51.7	51.7	59.8	59.8
Debt
Liabilities measured at amortized cost
Series C Notes (note 5)	300.0	307.2	300.0	307.9
Series F Notes	300.0	311.4	300.0	311.0
Series G Notes	450.0	503.9	450.0	503.6
Series B Notes	400.0	541.4	400.0	542.8
Series D Notes	300.0	386.6	300.0	391.0
Series H Notes	450.0	529.9	450.0	536.6
Series I Notes	400.0	414.6	400.0	416.5
Loans	46.6	46.6	47.2	47.2
	2,646.6	3,041.6	2,647.2	3,056.6

The fair value of loans to certain customers and loans payable is equivalent to their carrying value since their interest rates are comparable to market rates. The Corporation categorized the fair value measurement in Level 2, as it is derived from observable market inputs.

The fair value of notes represents the obligations that the Corporation would have to meet in the event of the negotiation of similar notes under current market conditions. The Corporation categorized the fair value measurement in Level 2, as it is derived from observable market inputs.

Under the shareholder agreement, the Corporation acquired the minority interest in Groupe Première Moisson Inc. during the first quarter of Fiscal 2020 for a cash consideration of \$51.6, which represents the price payable based on Groupe Première Moisson's Fiscal 2019 results.

Periods ended December 19, 2020 and December 21, 2019

(Unaudited) (Millions of dollars, unless otherwise indicated)

8. CHANGES IN DEFINED BENEFIT PLANS

The actuarial gains of \$53.8 recorded in the consolidated statements of comprehensive income during the 12-week period ending December 19, 2020 are primarily due to changes in fair value of assets and increase in discount rates from 2.74% as at September 26, 2020 to 2.80% as at December 19, 2020.

9. APPROVAL OF FINANCIAL STATEMENTS

The interim condensed consolidated financial statements for the 12-week period ended December 19, 2020 (including comparative figures) were approved for issue by the Board of Directors on January 25, 2021.

INFORMATION

METRO INC.'s Investor Relations Department Telephone: (514) 643-1000

METRO INC.'s corporate information and press releases are available on the Internet at the following address: www.metro.ca