Good morning. I'd like to welcome everyone to this Web Conference presenting Alimentation Couche-Tard Financial Results for its Second Quarter of its Fiscal Year 2022 [Operator Instructions] Good morning.

After the presentation, we will answer questions that were forwarded to us beforehand by analysts. We would like to remind everyone that this webcast presentation will be available on our website for a 90-day period.

Also, please remember that some of the issues discussed during this webcast might be forward-looking statements, which are provided by the corporation with its usual caveats. These caveats or risks and uncertainties are outlined in our financial reporting.

Therefore, our future results could differ from the information discussed today. Our financial results will be presented by Mr.

Brian Hannasch, President and Chief Executive Officer; and Mr. Claude Tessier, Chief Financial Officer.

Brian, you may begin your conference.

Thank you, Jean Lachance, and welcome to the team. Good morning, everyone.

Thanks for joining us for the presentation of our second quarter 2022 results. Overall around our global network, we once again had solid results both in convenience and fuel.

Same store sales were particularly solid in our US and European markets as we continue to see growing momentum with our key initiatives, including our food programs. Fuel volumes continue to be strong in Europe while North America remains impacted by COVID-19 traffic patterns.

But they do continue to improve versus 2019 levels. Across the board, we continue to achieve healthy fuel margins.

And I'm particularly proud of the work we did this quarter to improve and innovate the customer experience and drive traffic to our stores, which I'll elaborate more on later in my presentation. Before moving to results, I want to take a moment to comment that like our peers across the retail and convenience landscape in North America, we continue to face unprecedented labor, supply chain challenges this quarter.

No doubt this is the most difficult labor market in recent history and certainly in my career. As we've been working hard to mitigate the situation we've instituted hiring and retention initiatives, including bonuses and other offers and increased recruitment capacity and pipeline visibility across the network.

We've also focused more intensive training and engagement to be recognized Employer of Choice. After meeting our summer goal of hiring over 20,000 store team members this year, we're starting to see some stabilization and our efforts have ensured business continuity and success.

Unlike a lot of other retailers we remain open for business and ready for our customers. Labor shortage has also impacted supply chain across the industry, particularly in the US from shortages of truck drivers to warehouse staffing issues with our suppliers.

Our vendors have also experienced significant disruption in receiving raw materials causing delays in production. We've been working closely with our partners to find solutions and we've seen recent improvement the situation.

I'm cautiously optimistic the worst is behind us. And I'm pleased that we, as we face these labor and supply chain obstacles head on, we continue to deliver a solid quarter and kept on track with our strategic goals.

This is a testament to the dedication of our teams across the organization, who work tirelessly and creatively to come up with viable options in the face of these obstacles. I'm grateful for their continued commitment to our business and our customers.

Let me turn to our results beginning with convenience. Compared to same quarter last year, same store merchandise revenue increased 1.4% in the United States, 3.9% in Europe, and decreased 2.1% in Canada.

Convenience activities performed well on a two year basis as same store merchandise revenue increased at a compound annual growth rate of 2.9% in the US, 6.3% in Europe, and 4.5% in Canada. Across the network, we continue to drive growth and expansion with our fresh food fast program.

By the end of the quarter, we will have implemented the offer in nearly 2,700 stores in North America and close to 190 stores in Europe. In addition to increasing store count, we focused on the development of our food culture, including extensive training of our North American operations team in both execution and food safety.

The global supply chain issues have led us to work more closely with our partners in the food space. And we're working to diversify our supply base and adapt to these challenges.

In our dispense beverage categories, Sip and Save beverage subscription offers now expanded includes over 380,000 active subscribers. The feedback from our customers has been overwhelmingly positive and we can continue to expand the software across the US.

Improvements have been made to our website which makes signing up a real quick and easy. And we're working on enhancing product quality for our customers.

It's also worth highlighting that in Q2 we received the hot dispense Innovator of the Year Award for this unique subscription program, as well as moving to 100% sustainably sourced coffee in the US. Another other traffic drivers to our locations quarter ended.

We've entered into a pioneering Global Partnership which will bring over 9,000 of our stores to life for leading augmented reality game. In the first five day alone, this product is brought in over a half a million visits to our locations with customers redeeming especially with in game rewards and offers.

We're excited to realize the full potential this partnership in the weeks and months ahead as experience gains momentum and awareness. Overall, growth in package beverage remains positive with good unit growth continuing through Q2, Energy drinks continue to drive the category with water and sports drinks also being bright spots.

Consumers continue to shift back to media consumption packaging to purchasing more units driving overall sales growth. Again to combat the supply issues, we've been rapidly adjusting assortment as a priority.

Overall, the age of sugar category was not as strong as the same quarter last year when the restrictor pandemic -- restrictions on restaurants and bars. Europe continues to have good results in other tobacco products and our US business units focus on opportunities with wine, including the fast growing single serve wine products.

To enhance same store customer journey maximize impulse purchases, we now have over 1,300 Q-line installations complete in North America and over 230 in Europe. These Q-lines continue to show very strong values and building basket and will push deeper under Network in the coming quarters.

In our data and analytics work, we completed last wave of a rollout of localized pricing. With the entire network now live with the capability we're focused on going deeper into particular categories and continuing to optimize the work based on our learnings.

In our data driven merchandise efforts continuing through Q2, we're able to glean significant learnings from initial efforts across the US, Canada and Europe. Here we're seeing meaningful opportunity to utilize more effectively in store promotions and tailor our assortment making us even better and more localized retailer.

Looking to the fuel business, same store road transportation fuel volumes increased 3.3% in the US, 2.8% in Canada, while decreasing 0.3% in Europe and other regions. On a two year basis same store road transportation fuel volumes decreased at a compound rate of 6.5% in the US, 2% in Europe and 4.9% in Canada.

Fuel volumes continue to be challenged in parts of our network by work from home trends. However, we continue to see volume strengthened each week versus our 2019 baselines.

As I mentioned earlier, fuel margins remained healthy through the network compensating for the loss in volumes during the quarter. In our Circle K fuel rebranding work over the quarter we've now completed 121 new sites bringing the year-to-date to 200 locations, and the total site count will certainly take fuel in North America to 3,000.

By the end of the year, we expect to have 60% of the in scope North American network with Circle K fuel brand. Also in our fuel category, we're pleased with our strong sourcing and efficiency and growing in-house fuel transportation operations across the network.

We see them continuing to deliver value. In Europe in our B2B network, we've had another strong quarter in volume with both carton and box segments trending ahead of prior year, driven primarily by continued positive performance across the fleet segments.

We further the focus on the customer journey with improvements in our B2B mobile payment app and self service solutions. Make it easier for those customers to manage drivers and control their costs.

We've also made good progress in our electric vehicle work this quarter. Our European fast charging network now consists of 935 chargers covering more than 230 locations.

We're continuing to expand the charging network from Norway across Scandinavia, as well as we started deploying in the Baltic in Ireland. We've also continued to develop and expand our partnerships in Europe with TeSLA, and IMT as well as growing number of Circle K chargers.

As we develop our approach in North America, we now have 20 fast chargers installed in Canada, 12 of those sites being in our Quebec business unit, and we will begin installation in the US in targeted markets in the coming quarters. Turning to innovation; after a successful launch across Sweden, our Pay by Plate frictionless payment solution for fuel.

We continued deploying that network into Denmark, Estonia and Norway, and we're now preparing our other markets for launch in coming quarters. In the US this quarter, we retrofitted seven stores in Arizona with full frictionless checkout technology.

And these Tempe and Tucson locations customers have the option of a fully frictionless experience, or a more traditional registered checkout. This marks the next step in our journey to incorporate innovative solutions and technologies that help our customers get in and out quickly, and empower store teams to focus their time and talents in better serving their customers.

Moving forward, we'll continue to explore a variety of checkout innovation and experiences, and getting feedback from these customers and our team members as we make decisions about further network deployment. Returning to the labor issue, we're using some innovative tools to help fill our shift at locations.

We now have over 300 stores in the US using mobile apps to hire gig workers to cover needed hours and help with non customer facing tasks, such as stocking shelves, and keeping the stores and floor courts clean. We're seeing a clear benefit of utilizing the gig workforce as we continue to adapt to these unprecedented labor challenges.

I'm going to pause here and let Claude take you through more of our second quarter financial results. Claude?

Thank you, Brian. Ladies and gentlemen, good morning.

For the second quarter of fiscal '22 we are happy to report net earnings of $694.8 million or $0.65 per share on a diluted basis. Excluding certain items for both comparable periods, adjusted net earnings were approximately $693 million or $0.65 per share on a diluted basis for the second quarter of fiscal 2022 compared with $735 million or $0.66 per share on a diluted basis for the second quarter of fiscal 2021.

I will now go over some key figures for a quarter. For more details please refer to our MD&A available on our website.

During this most recent quarter, excluding the net impact from foreign currency translation, merchandise and service revenues increased by approximately $183 million or 4.9%. This increase is primarily attributable to the contribution from acquisitions, which amounted to approximately $170 million.

On a two year basis, same store merchandise revenues increase at a solid compounded annual growth rate of 2.9% in the United States, 6.3% in Europe and 4.5% in Canada. Excluding the net impact from foreign currency translation, merchandise and service gross profit increased by approximately $72 million or 5.6% mainly attributable to the contribution from acquisitions, which amounted to approximately $49 million.

Our merchandise and service gross margins increased by 0.2% in the United States to 33.8% and 0.4% in Canada to 32.3% mainly due to the favorable changes in product mix, as customer are favoring smaller size packaging, including the single serves as well as the positive impact from our localized pricing initiatives. Our merchandise and service gross margin decreased by 1.8% in Europe and other regions to 38.4%, mainly due to the integration of Circle K Hong Kong which has a different product mix than our European operations.

Excluding Circle K Hong Kong, our merchandise and service gross margins in Europe and other regions would have been 42.2% impacted by favorable changes in product mix. Moving on to the fuel side of our business; in the second quarter of fiscal 2022, our road transportation fuel gross margin was $36.39 per gallon in the United States, an increase of 0.18 per gallon.

In Canada it was C$11.03 per liter, an increase of C$0.0102 per liter. Finally in Europe and other regions it decreased by $0.53 per liter to $10.57 per liter.

In the end, fuel margins remained healthy throughout our network as a result of strong sourcing efficiencies and market conditions. Now looking at SG&A for the second quarter of fiscal 2022 normalize operating expenses increased by 7.7% year-over-year driven in part by measures this is stated by the impact of the labor shortage and the need to improve employee retention as well as by an increased level of marketing activities and other discretionary expenses that were significantly reduced in the prior year quarter.

We would also note the impact of inflationary pressures, higher costs from rising minimum wages and incremental investments in our stores to support our strategic initiative partly offset by lower COVID-19 related expenses compared to the corresponding quarter of the previous fiscal year. Excluding the cost of the retention measures implemented, which totaled approximately $24 million, the remaining variance for the second quarter of fiscal 2022 would have been 5.7%.

On a two year basis, excluding the cost of those retention measures, we maintain our cost discipline, as demonstrated by a compounded annual growth rate of only 2.2% of the more normalized expense. While remaining focus on our cost optimization initiatives, the rising hourly wage in our industry are expected to pressure operating expense for the foreseeable future.

Excluding specific items described in more details in our MD&A the adjusted EBITDA for the second quarter of fiscal 2022 decreased by $16.8 million, or 1.3%, compared with the corresponding quarter of fiscal 2021, mainly due to the higher operating expenses, partly offset by organic growth in our convenience and road transportation fuel operations, and the contribution from acquisition as well as the net positive impact from foreign currency translation. From a tax perspective, the income tax rate for the second quarter of fiscal 2022 was 21.3%, compared with 20.4% for the corresponding period for fiscal 2021.

The increase in the income tax rate is mainly stemming from the impact of different mix in our earnings across the various jurisdictions in which we operate as well as from prior year gain taxable at a lower income tax rate. As of October 10, 2021, our return on equity remains strong at 21.2% and our return on capital employed to that 15.1%.

During the quarter, we continue to generate strong free cash flows, and our leverage ratio remained unchanged at 1.23. We also have strong balance sheet liquidity with $3.4 billion in cash and an additional $2.5 billion available through our revolving credit facility.

In addition, we repurchase close to $240 million under our NCIB during the quarter, as well as another $50 million subsequent to the end of the quarter, continuing to provide value to our shareholders. Turning to the dividend.

The Board of Directors approved yesterday an increase in quarterly dividend of C$2.25 per share, bringing it to C$0.11 Canadian per share an increase of 25.7%. During the same meeting, the Board of Directors declared a quarterly dividend of C$0.11 per share for the second quarter of fiscal 2020 to shareholders on record as of December 2, 2021, and approved its payment effective December 16, 2021.

Finally, a reminder that Friday, December 17 will be the last business day on which our Class B shares will be trading on the TSX as our youngest founder will turn 65 on Saturday December 18, triggering the sunset clause. Therefore, on that date, all Class B shares will be delisted effective Monday morning the 20th of December following an automatic conversion on a one for one basis only one class of share will be traded on the TSX and all shares will then carry 10 votes.

We intend to amend the terms of our NCIB to purchase for cancellation the same amount of such class of shares rather than currently approved Class B shares. This will all be in consequential for the business, as well as for our founders, who will continue to be involved in the organization as they have been for over four decades.

With that, I thank you all for your attention and turn the call back over to Brian.

Thank you, Claude. Before I conclude, I want to address the continuing presence of the pandemic, albeit at different levels across our network, early in the quarter, the Delta variants of virus were spreading really an alarming speed in the US, particularly in the south and southwest, where we have a significant number of stores.

While we're seeing the situation much more under control, we have seen a spike in Eastern Europe, particularly the Baltics and Poland, where we have low vaccination rates, and relatively high COVID cases. So we've seen some shutdowns that have the potential to impact our business in those smaller markets.

Our larger markets in Scandinavia and Canada continue to have very low number of cases and very high vaccination rates and also in the US. We're assessing preparing for the vaccine testing rules from OSHA affecting businesses with over 100 employees.

We continue to monitor that situation, updating our guidelines and procedures, and we continue to push internally for higher vaccination rates. And we put the health and safety of our team members and our customers at the forefront of all of our decision making.

Despite these ongoing challenges, we're steadfastly meeting our strategic goals, and progressing on our journey to become the world's leader in convenience and mobility. Finally, most, you'll be happy to hear that next quarter will end a very long standing tradition of asking your questions before the conference call.

Starting in our third quarter's conference call in March 2022, we will change the format of the call and welcome and answer all your questions live. So at this time, we'll answer the questions that we've received from analysts.

Thank you, Brian, and Claude. Just a reminder that a replay of the call will be available on our website in the events and presentations of the investors section.

We are now ready to answer the questions received in advance from the analyst. On the topic of labor availability, our first question comes from Michael Van Aelst at TD Securities.

The labor situation is a challenge for all employers at this stage of the pandemic; Couche-Tard appears to have been more successful than many in attracting and retaining employees. But it is coming at a cost.

Can you discuss the initiatives used to attract and retain employees, as well as the associated costs of these programs? And how much longer you believe these costs could continue to be required?

Brian?

Yes, thanks, Michael. First and foremost, proud of where we're at, we are open; we have a very small number of sites where we have reduced hours due to labor.

When I compare it to a lot of the other retail I see around the US. I think our teams have done a great job.

Like our peers across retail and convenience in North America, we have continued to face labor and also supply chain. No doubt this is the most difficult labor market and we've been working hard to mitigate it.

What we found is there's not a silver bullet. It's just not about all about money, but rather we've been taking a comprehensive approach, hiring and retention issues, including bonuses and other offers, with a goal to keep as much as we can of this variable and performance based.

We've increased dedicated recruiter capability and capacity. And we've upped our online visibility.

We've dramatically simplified and shorten the time between applications and job offers, which is important as we're fighting for all anyone that's out there today looking for a job. We've also focused more intensely on training and engagement to be recognized as an employer of choice.

It's a lot easier to keep them than it is to hire people. So, after meeting our summer goal of hiring over 20,000 store team members, we're starting to see some stabilization.

While turnover is higher than historical norms in most of our markets. We've been successful in recent months in hiring more people than we're losing, and staffing levels are slowly creeping back to more normal levels.

We believe that the portion of these costs will continue in the next fiscal year. And while it's unclear what portion will stay with us long term, rapidly taking the mitigating actions to minimize their impact on the bottom line, and we'll talk more about that and some of the coming questions.

On the same topic. Our second question comes from Vishal Shreedhar at National Bank.

Our labor challenges slowing down management various improvements initiatives such as NTI and fresh food rollout. Brian?

Yes, Vishal, we're tracking generally in line with our plans on NTIs as well as Fresh Food Fast implementation. But there's no doubt that labor shortages adds to the challenges, we're seeing longer lead times for almost everything we do.

With regard to these two big programs that really are driving a lot of value for us. We're fortunate that our current pipeline of projects had been well planned out well in advance, and we are not anticipating any material slowdown in those two areas.

Now people turnover and shortages is making everything harder. With regard to Fresh Food Fast in addition to the rollout, we've doubled down on training and offer simplification.

And we're working to create supply chain redundancy for those products where it's been an issue in the past quarters. This has been an unprecedented challenge, as we talked about earlier, and our team is working very hard to keep us up with our big plan strategic goals.

Moving on to the topic of supply chain, the following two questions will be answered too simultaneously. The first question from Martin Landry at Stifle.

There have been media reports, especially in the US about retailers incurring challenges to replenish their shelves with products. Has this been an issue for you?

And did it impact your same store sales during the quarter? And the second question from Patricia Baker at Scotiabank.

Can you discuss what you are experiencing from a supply chain perspective in each of your markets? And to what degree you might be impacted by supply chain disruptions?

Are you seeing any issues with product availability, as we are hearing from others? Brian?

Yes, Martin and Patricia, just overall as an industry, I think we're well positioned versus other channels. If you think about our supply chain, it's typically a significantly shorter without a lot of overseas imports that a lot of other channels rely on.

But that said there's no doubt supply chain has led to challenges with product availability. And this has really taken two forms.

One is SKU availability due to production issues or ingredients. An example could be Pepsi instead of 25 sparkling SKUs may have half of that available as they focus on their best sellers.

The other has been driver availability, whether that's been warehouse or direct store delivery, it's getting deliveries and getting deliveries on time. That's been difficult.

This issue certainly been more acute in some markets and others, parts of the US being the most impacted while Europe and Canada are relatively unaffected. Same store sales have been impacted during the quarter, but very difficult to quantify.

As I said earlier, when I started, we know other retailers are facing similar or worst challenges. So net-net, we think we've left sales on the table.

But again, as vaccination rates continue to rise, we're seeing more stability with many of our key supplier partners, and are cautiously optimistic that the worst of that situation is behind us today.

Thank you. Moving on the topic of inflation.

Our first question comes from Bonnie Herzog at Goldman Sachs. Can you touch on your overall pricing strategy in light of all price increases we're seeing from many different manufacturers?

And how successful have you been in taking pricing ahead of these increases? Furthermore, I'd be curious to hear how these higher prices have impacted consumer behavior.

Finally, are you at all concerned that the low income consumer might be pressured next year, given this consumer demographic has disproportionately benefited from government stimulus, much of which will likely be going away next year? Could this potentially have a negative impact on both in store and fuel demand?

Brian?

Yes, Bonnie, well, we certainly had seen cost increases across literally every single category in our business. I don't think we're unique there.

They've been affected really all retail. And quite honestly, I expect more to come.

Today, we've been able to successfully pass along these costs into our retail prices, while maintaining unit volume and our margin. We have comprehensive plans in place in all of our businesses to move prices to both maintain margin.

But beyond that to mitigate the cost increases we're seeing across the value chain. One example certainly being later, we're seeing retail price movements broadly across all channels.

So I believe that we're remaining competitive on a relative basis. Now we strive to continue to provide our customers value through smart multi-pack pricing offering different assortments and working with our vendors on private label and other exclusive innovative values that ideally leverage our scale.

Based on our supply information, it looks like we can see it perform well versus our peers. As you can see in the quarter, our margins have remained very solid.

We are also seeing pressure on the cost side I talked about labor, but also it's across other things, utilities, construction of new sites remodels, when we launched our double gain strategy, we have a goal to dramatically reduce our costs across the value chain. And prior to these current situations, we've activated a large number of cost saving initiatives across our value chain, which I think has helped us on a relative basis, we're certainly going to be some of that back.

But without those actions that we had starting on as early as two years ago, we'd be feeling more than impact today. Finally, on the low end consumer question, it's possible that after the removal of the government stimulus, it could be a negative impact on both in store and fuel demand.

But there's offsetting things on the other side, and it's hard to measure the net. On the positive side, after two years of COVID, we believe there's a lot of pent-up demand as people gets out of their homes.

We've seen personal savings rates at historic highs, and we have full employment and we're seeing wages rise at the lower end of the wage scales and net- net, we're optimistic that consumer demand will remain strong in the face of increased prices. And as more offices and schools reopened in normal commuter patterns return, we feel good about the future.

On the same topic, our second question comes from Vishal Shreedhar at National Bank. Can you provide greater perspective on labor inflation challenges?

Have we seen the worst of the pressure in Q2? Or is the pressure expected to magnify in coming quarters?

Claude?

Thank you, Vishal. During the quarter normalized operating expenses increased by 7.7% year-over-year driven by the measure necessitated by the impact of the labor shortage and increased level of marketing activities, and other discretionary expense that have been reduced significantly in the prior year.

We also know the impact of inflation. Our costs are from rising minimum wages and incremental investments in our store to support our strategic initiatives partly offset by the lower COVID-19 related expense that we incurred last year.

It's a difficult to estimate whether or not we've seen the worst of the pressure in the second quarter as the environment in which we operate changes quickly. Our various initiatives allow us to adapt quickly and mitigate some of these inflationary headwinds.

We're seeing labor pressures slightly easing with the turnover rates coming down slowly towards the end of the quarter. This is not over with but we are seeing signs of slight improvement right now.

Thank you. Moving on to the topic of fuel.

Our first question comes from Karen Short at Barclays. How are you thinking about the next 12 months with respect to fuel volumes, in light of the rapidly rising fuel price environment in the US and Canada?

And if this pressure gallon comps, how will you mitigate this as it relates to preserving growing in store comps in the US and Canada? Brian?

Yes, Karen, I think overall our performance based on the data we gather was ever from the EIA and the credit card companies et cetera that we're performing at or better than the industry. In Europe, clearly, I think we're taking market share.

But that said, fuel volumes continue to be challenged in parts of our network by work from home trends, and changing local restrictions. We're still not back to pre COVID levels.

We're close in Europe, a bit further away in North America and then in that I think are largely focused on people staying at home and working from home. And then there are some local restrictions that are still impairing travel, particularly as I mentioned in Eastern Europe.

In more recent weeks, we've seen some of our North American markets reach 2019 levels, and not declaring victory, but certainly encouraging to see. We'd like to see retail prices lower is and I just think about it as a large tax that affects disposable income over time.

Now, that said we believe there's a lot of pent-up demand to get out and we'll see traffic continue to improve as vaccination rates rise and COVID concerns mitigate. In terms of our mitigating actions, we're working actively on building the Circle K fuel brand in the US.

We've been piloting an entirely new loyalty concept in North Carolina and in Denmark that has a strong fuel component. And finally, we're investing in communication of key value propositions around our fuel quality to our customers.

Our testing shows this messaging is resonating and driving results over time. And then finally I think -- when I think about commodity prices what Texas high oil prices and high oil prices.

So in the scope of the timeframe of 12 months that you mentioned, Karen, certainly a lot can change and we'd hope that retail prices does mitigate. But we're pleased despite the rising increases in costs, we've seen over the last month that fuel margins remain strong and volumes continue to improve.

On the same topic, our second and third questions to which we will answer simultaneously come from Irene Nattel at RBC Capital Markets, and Graeme Kreindler at Eight Capital. So Irene's question is, over the past six quarters, you have generated extremely robust fuel margins.

On the last call, you outline some of the key initiatives. But can you please walk us through these again, relative contribution?

How far along you might be with these and the degree to which we might be sustainable? Based on these initiatives do you view your $0.28 to $0.30 per gallon fuel margin objective as conservative?

And Graeme's question is, the company outlined its fuel margin expectations on its recent Investor Day, it expects margins to reverts to 2019 levels and slowly increase from there. Given the sharp rise in fuel prices, does this outlook still hold?

Can you discuss the ongoing competitive dynamics and comment on how it will impact your margin trends directionally? Brian?

Yes, Irene and Graeme, thanks for the question. I'd say the last six quarters have been challenging in terms of fuel demands we talked about with impacts from COVID and the government measures we discussed earlier, as outlined in our Investor Day presentation margins have had to rise to compensate for the reduced volumes experienced by all operators in these quarters, as well as the increasing costs of doing business.

We believe this CO economic effect will continue. And we note that industry volumes remain below pre COVID levels in many of the markets we operate in.

We are pleased with the progress of our various tool initiatives. We are approaching the delivery of these initiatives in a structured way.

And we're confident that it will allow Circle K to sustainably outperform on fuel earnings, which is our focus. We note that the markets we operate in are extremely competitive and we remain focused on providing our customers with the best value.

Overall, we stand by the information shared at a recent Investor Day based on our outlook of our fuel initiatives and our performance. Fuel margins continue to be very healthy across the network as a result in part of our stable competitive landscape, compensating for the fuel volume loss that the industry has experienced.

We're pleased with our strong sourcing efficiency and growing in-house fuel transportation operations across the network, including our venture with Muscat which is a division of Lowe's, we've seen that cooperation dramatically improve our ability on the sourcing and supply side. And finally, we continue to be pleased with our overall growth and fuel gross profit.

In regard to fuel margin itself, our focus is on leveraging the scale. And our initiatives outperformed the industry regardless of the margins.

We do believe in some of the initiatives we've outlined including our move to Circle K brand, drives more value -- driving more value from our supply chain, utilizing data analytics for sharper pricing. And we have created sustainable benefits to our fuel margin versus most of our key competitors.

Thank you. Moving on the topic of convenience.

Our first question comes from John Royall at JP Morgan. Can you talk about your progress in the Fresh Food Fast program?

And how that is tracking your expectations? Is the business negatively affected by stay at home trends?

Brian?

Yes, John, we continue to see growing momentum in the US and in Europe, weekly or daily sales, however you want to quantify that continue to grow, we've been focusing on the development of the food culture. So all hands on deck around training, around execution around food safety.

We're now at 2,600 sites in North America, and well on our path to 4,000 stores this year. We're at 190 stores in Europe and I think we're in a good place to reach 500 by the end of the year as we committed.

Certainly this initiative has been impacted by home trends particularly in the morning commutes; we've got a gray array of breakfast sandwiches they tend to be in our top sellers. And we need that morning customer back for our coffee, our pastries and our fresh food, the breakfast items.

So is that returns to normal, we expect that to just only strengthen the performance we're seeing in Fresh Food Fast. And in terms of bottom line, we still believe we're on track to deliver our fiscal '23 EBIT target contribution from Fresh Food Fast even in the face of COVID labor and supply chain challenges.

So, again, despite the challenges, I feel we're in a good place, not a good track.

On the same topic, our second and third questions to which we will respond simultaneously come from Chris Lie at Desjardins and Bobby Griffin at Raymond James. Chris's question is can you talk about the factors that influence merchandise same store and margins this quarter?

It seems there was a slight slowdown in the US, at least on a two-year stock basis, while Europe remained strong. And Bobby's question is; are there any areas of the in-store business that are still below pre COVID levels?

And if so, are these areas having an outsized impact on gross margins? Brian?

I'd say in our Europe business we are clicking on all cylinders there. And the data is saying that we're winning in this market.

So we've not had the same supply chain challenges or labor challenges. But that said, we're still outperforming the markets and continuing to gain traction there.

If you look at North America, and specifically the US, last year, we sold a lot of PPE equipment, mask, hand sanitizers, and that certainly slowed down and created some of the sales drag we feel, alcohol sales in the US also declined this year versus last, certainly look good versus 2019. But with the reopening of bars and restaurants, in many of our markets, we've got some headwinds in the alcohol side.

Those are the kind of two big ones around salesman the third is supply chain, which I talked about, we have not tried to quantify it. But certainly with the difficulties, many of our supply partners have had we certainly think we've left some sales on the table in parts of the US in particular.

In terms of margin, we were up 20 basis points in the US from 33.6 to 33.8 in the quarter, largely explained by favorable mix, as customers turn more to single serve products. I'd say the other driver we continue to be excited about around margins.

Setting aside, the cost increases from inflation, is our localized pricing. We've got a large data and analytics team stood up.

We're live now in all the US. And we're expanding deeper in new categories every month and versus control sites, we continue to see strong performance, so continuingly that's a very big price for us.

And we're piloting beyond pricing into an assortment and promotion as we speak.

Thank you. Moving on to the topic of operating expenses.

Our first question comes from Peter Sklar at BMO Capital Markets. Operating, selling, administrative and general expenses grew at a 7.7% net of the various adjustments you identified.

You indicated that part of the high growth rate can be explained by employee retention measures. Please outline in order of significance, the other factors that resulted in this growth in operating costs.

Peter, you're correct. On a normalized basis expense grew by 7.7%.

As disclosed 2%, out of that 7.7% is related to the employee retention measures. The other 5.7% is mainly related to the growth in hourly rate, investments in our strategic initiatives, marketing initiatives that were significantly reducing the prior year quarter as well as the overall growth in other discretionary expenses like we've outlined earlier.

On a three year basis, we maintain our cost discipline as demonstrated by the normalized expenses growth at a compounded annual rate of growth of only 2.2%. So we continue to work on our cost optimization program to reduce costs in our stores by pulling non customer facing hours and trying to make the lives of our store easier every day.

Thank you. Our second question on the same topic comes from John Royall at JP Morgan.

Can you talk about your outlook on OpEx for the remainder of the year and into fiscal year '23? How have you managed to grow expenses at such a low rate on a two year basis?

And can that continue into this inflationary period?

And John, so like I said, as far as total OpEx, while we did see an increase in our normalized operating expenses for a quarter, the CAGR was 2.2% on a two year basis, maintaining our strong cost discipline. So however, we continue to see some cost pressure from inflation, high labor costs and incremental investment in our stores.

And we do expect to offset some of these expenses with our cost optimization, the first step applying in the past such as business process optimization, and our operational excellence program where we are reducing repair costs, and maintenance costs, among others. But most importantly, we're putting a special focus on all the activities that are allowing us to help relieve the pressure on labor at store level.

So the activities such as labor scheduling, eliminating back office tasks, and others are at the center of our initiatives. That's where our big focus is to make sure that we're providing proper help to our stores in these difficult moments.

But finally, we are also working on our retail prices to mitigate some of the impact. So we're looking to pass on some of those increases also.

So finally, these pressures are not going away immediately, despite all the work that we're doing, and we expect them to continue in the foreseeable future.

Thank you. Moving on to the topic of M&A.

Our first question comes from Mark Petrie at CIBC. You have spoken about an improving pipeline for acquisitions.

Could you please update us on the landscape and pipeline today, and comment on the outlook for tuck-in versus more material transactions? How our valuation multiples looking today versus the elevated levels that we have seen for the last several years?

Brian?

Thanks Mark. We continue to look for opportunities in various sizes that include quality stores, and the right talent or infrastructure, if you will, to compete going into the future.

With these two recently announced acquisitions, so we're acquiring a strong group of fuel and convenience assets in the Pacific Northwest Atlantic Canada that we announced in the quarter they're both great fits for us, and I put them in the tuck-in category. We now also have in Dublin, Ireland, an acquisition on the table or consummated, I guess, for 10 stores, urban stores, non fuel, on high streets in Dublin, that we announced during the quarter that we anticipate closing before the end of the calendar year.

So as we experienced a new normal we are seeing all the deal flow in all three of our platforms. And I'm cautiously optimistic; we'll get some deals done in the coming quarters.

But I always say we remain disciplined in our approach, we have a clear set of criteria for the assets we're looking at. And we'll continue to try to do the right thing for the shareholders.

In terms of valuations, they range widely, depending on the asset quality, but have remained surprisingly elevated given a lot of the challenges that we've all experienced with COVID. But that aside I'm optimistic we've created structural, unsustainable advantages against a lot of our industry.

And we're optimistic with the level of deal flow that we'll be able to participate.

Thank you. Moving on to the double again strategy.

Our first question comes from Chris Li at Desjardins. Over the last four quarters EBITDA has totaled almost US $5 billion close to your $5.1 billion target by fiscal 2023.

Do you believe there is upside to your target? And what are the key factors required to exceed your target?

Thank you, Chris. I know you're referring on the organic portion of our target by referring to the $5.1 billion in fiscal year '23.

But I probably as you have seen, during the call, we're satisfied with our progress to data on our key initiatives, whether it be Fresh Food Fast, localized pricing, our fuel sourcing, so we continue to execute on our key strategic initiative and are confident that we're going to continue to perform on these. We also on cost optimization initiative and cost control remain at the top, and we remain -- this initiative we remain at the top of our priorities.

However, we recognize that supply chain and the labor challenges are not behind us and we need to continue to monitor these impacts and to stay ahead of these challenges. Field dynamics could also change and have an impact on our upcoming results.

But we continue to believe in the optimization of the fuel gross profit dollars in the future. So, overall, though, we remain cautiously optimistic that we will reach our EBITDA target by fiscal year 2023.

Thank you. Moving on to the next topic COVID.

Our first question comes from Irene Nattel at RBC Capital Markets. It appears that COVID continues to be disruptive to traffic, both at the pump and inside the store and basket patterns.

Can you talk about how these are evolving the exit rates at quarter end? And what you're seeing now, Brian?

Yes, thanks, Irene. You've covered a lot of this.

But we'll give a little bit of view on what we're seeing. The situation in North America has improved pretty significantly since early in Q2, when delta was spreading pretty rapidly, we've seen vaccination rates continue to rise.

And we continue to see improving traffic and sales trends and more recent weeks continue to be strong. So we're optimistic that we've got good trends and most of our key markets with just some markets where we continue to see disruption.

As I mentioned earlier, Eastern Europe while not big markets for us they recently have had very high number of cases in some societal shutdowns, that will likely impact our operations in those countries for some period of time. Also renewed instructions in Ireland could also impact our results.

But again, our bigger markets, Scandinavia, US, Canada, we're seeing lower number of cases, improving and high vaccination rates, and much more of a return to normalcy. We do continue to diligently monitor the situation, and push actively internally for higher vaccination rates.

And putting those decisions that we make around our team members or customers at the forefront. We've been actively supporting vaccination and our rates, I'm proud of that are generally above the general population, and the majority of markets and we continue to push the education of vaccines internally.

This remains fluid, and we'll continue to closely monitor it as the cold weather approaches. And we're prepared for hopefully, the optimistic side of getting better but also with if we see some reversion back.

In terms of traffic, Irene, traffic continues to be impacted, as we talked about from work from home. Or like a lot of businesses, we've announced that after the holidays, we're going to actively be getting people back to their offices.

And I hope that we can all get there. And we're optimistic that'll certainly help our morning commute and the traffic from that day part.

In the meantime our basket continues to perform well, despite soft traffic in the morning. And, again, when traffic becomes more back to normal, we feel good about the future and good about the sales trends that we're seeing in more recent weeks.

Thank you. Finally, on the topic of balance sheet and leverage.

Our last question comes from Derek Dley with Canaccord Genuity. With your adjusted leverage position at 1.23x, can you remind us where you would be comfortable leveraging up to for the right acquisition?

And in the absence of a major acquisition should we expect a continued return of capital to shareholders, as we have witnessed over the first half of this fiscal year?

Derek, thank you for the question. So as part of our overall strategy, you should expect that we will use our free cash flow for M&A opportunities, and we will opportunistically repurchase our shares.

Our policy has not changed. And we will look into opportunistic buybacks as long as the leverage ratio is below 2.25.

We remain committed to investment grade grading and like to maintain a strong balance sheet to be prepared for future M&A opportunity and also allocate capital to our organic initiatives, like new store development, digital innovation, IT and commercial programs. We also, finally we also believe that we could easily add at least $10 billion new debt to our balance sheet for the right acquisition.

So this combined to our position -- cash position, make us ready for any future opportunity that could be raised in front of us. So thank you.

Thank you, Brian. Thank you, Claude.

That covers all the questions for today's call. Thank you all for joining us.

We wish you a great day and look forward to discussing our third quarter 2022 results in March. You may now disconnect your lines.

Thank you.

Thanks everyone. Happy Thanksgiving to our American friends out there.

Take care.