Metro AG
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 2018/19 Consolidated financial statements of METRO AG WHOLE- SALE 360 wGESCHÄFTSBERICHT 2018/19Konzernabschluss der METRO AG360WHOLE- SALEMETRO IN FIGURES € million Key financial figures for continuing operations Sales development (like-for-like) Sales development in local currency Sales (net) EBITDA excluding earnings contributions from real estate transactions Earnings contributions from real estate transactions EBITDA EBIT EBT (earnings before taxes) Profit or loss for the period2 Earnings per share (basic = diluted) Cash flow from operating activities Investments Net debt 2017/181 2018/19 Change in % % % € 1.3 1.3 2.1 2.2 26,792 27,082 1,088 128 1,216 713 576 357 0.98 766 565 3,102 1,021 338 1,359 828 709 405 1.12 796 499 2,858 – – 1.1 −6.1 – 11.8 16.1 23.1 13.7 13.7 3.9 −11.7 −7.9 −3.1 Employees (annual average by headcount) 104,912 101,654 1 Previous year’s adjustment due to discontinued operations. 2 Attributable to METRO shareholders. € million 2017/18 2018/19 Change in % Key financial figures for continuing operations, incl. METRO China (outlook analysis) Sales development (like-for-like) Sales development in local currency Sales (net) EBITDA excluding earnings contributions from real estate transactions EBITDA excluding earnings contributions from real estate transactions Development1 Profit or loss for the period2 Earnings per share (basic = diluted) Dividend per ordinary share Dividend per preference share 1 At constant exchange rates. 2 Attributable to METRO shareholders. 3 Subject to the resolution of the Annual General Meeting. % % % € € € 1.3 1.5 2.4 2.5 29,476 29,928 – – 1.5 1,242 1,173 −5.5 1.2 443 1.22 0.70 0.70 −4.2 523 1.44 0.703 0.703 – 18.0 18.0 – – In October 2019, METRO signed an agreement to sell a majority stake in METRO China to Wumei. As a result of the sale METRO China is reported as a discontinued operation as of 30 September 2019 in accordance with IFRS 5. Unless expressly stated otherwise, all presentations refer to continuing operations (excluding the hypermarket business and excluding METRO China). Only the comparison of outlook with actual business developments as well as the dividend proposal refer to the outlook issued for 2018/19 which includes METRO China. TO OUR SHAREHOLDERS 155 5 7 15 18 20 30 Letter to the shareholders The Management Board The year in review Report of the Supervisory Board METRO share 35 GOALS AND STRATEGY 43 COMBINED MANAGEMENT REPORT 45 49 84 1 Overview of financial year 2018/19 and outlook 2 Principles of the group 3 Economic report 103 4 Report on events after the closing date and outlook 108 124 141 150 5 Opportunities and risk report 6 Remuneration report 7 Takeover-related disclosures 8 Supplementary notes for METRO AG (pursuant to the German Commercial Code) CONSOLIDATED FINANCIAL STATEMENTS AND NOTES Income statement Reconciliation from profit or loss for the period to total comprehensive income Balance sheet Statement of changes in equity Cash flow statement Notes 158 159 160 162 164 167 314 RESPONSIBILITY STATEMENT OF THE LEGAL REPRESENTATIVES 315 INDEPENDENT AUDITOR’S REPORT 327 SERVICE 7 LETTER TO THE SHAREHOLDERS 15 THE MANAGEMENT BOARD 18 THE YEAR IN REVIEW 20 REPORT OF THE SUPERVISORY BOARD 30 METRO SHARE TO OUR SHAREHOLDERST O O U R S H A R E H O L D E R S L E T T E R T O T H E S H A R E H O L D E R S 7 LETTER TO THE SHAREHOLDERS Our origin is wholesale, wholesale is our demonstrably forged ahead with portfolio future. We have consistently aligned our simplification. This allowed us to reduce the company in that direction in recent years. company’s debt by around €5 billion. At the Since 2012, we have focused all our efforts same time, we have been expanding our on wholesale while simultaneously core business, wholesale. With a consistent modernising and localising our business focus on the 2 core customer groups models. The restructuring of the group took HoReCa (hotels, restaurants and catering high priority. For example, with more than companies) and Traders (independent one major annual transaction in the area of grocery stores) we were once again able to mergers and acquisitions, we have report noticeable sales growth in the past financial year. This enabled us to create the foundation for further growth and to identify new business opportunities. All things considered, we are much more vital and agile today than at the beginning of our transformation. This also puts us in a position to respond much faster to an increasingly dynamic market environment. As a shareholder, you join us in the implementation of our strategy. During the group restructuring phase we were able to distribute more than €2 billion to our shareholders. Thank you for supporting us on this path. In financial year 2018/19, we made great progress with our transformation strategy once again: The sale of the hypermarket business is well advanced. We are in the final stages of negotiations and are working with the potential buyer on the future concept for Real, which includes retaining part of the core business and passing on some store networks to competitors. Moreover, the early involvement of the antitrust authorities has increased transaction CEO video in the online report: https://reports.metroag.de M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S L E T T E R T O T H E S H A R E H O L D E R S 8 security. Therefore, we are confident that Supplemented by income from real we will be able to sign off on the estate transactions in the amount of transaction in the very near future. €388 million which clearly exceeded In October 2019, we signed an expectations, a largely stable tax rate agreement to sell a majority stake in and a significantly improved financial METRO China to Wumei. As a result of result, we considerably increased the sale, the global share of sales of the earnings per share from 1.22 to 1.44 core customer groups HoReCa and (including METRO China). On this basis, Traders will increase significantly, while we will propose a dividend of €0.70 per METRO’s 20% stake will open up various share to the Annual General Meeting of strategic partnership opportunities with METRO AG. This dividend proposal Wumei. We expect this transaction to corresponds to 49% of earnings per result in a net cash inflow of more than share (including METRO China) and is €1 billion, after deduction of debt, taxes thus in line with our dividend policy. and other transaction costs. These proceeds will provide room and flexibility for future growth initiatives. As a result of the sale, METRO China is reported as a discontinued operation as of 30 September 2019 in accordance with IFRS 5. However, selectively it is still included in this annual report for the purpose of comparison with the outlook for the past financial year and as the basis for the dividend proposal. With the completed reduction of the conglomerate, the focus on the wholesale business and the expansion of service offerings for our customers, we will succeed in further increasing the value of the company. As part of the voluntary takeover offer by EP Global Commerce (EPGC), whom we welcome among our shareholders, you, our current shareholders, have held onto a majority of your shares. By doing so, you have confirmed your Group-wide, we achieved like-for-like confidence in METRO’s strategy and we sales growth of 2.4% including METRO thank you for that. China. This is the highest growth in the last decade for METRO Wholesale. This clearly shows how our strategic approach Wholesale 360 increases Focus on wholesale customer relevance and consequently Let me take this opportunity to explain in our sales. more detail why the wholesale business As expected, EBITDA from operating offers so many opportunities for us. METRO activities of the group as a whole declined by −4.2% due to higher operates in attractive and constantly growing markets. The addressable HoReCa investments in IT and digitalisation as and Traders markets comprise more than well as the ongoing macroeconomic €650 billion and more than €850 billion, challenges in Russia. By contrast, EBITDA respectively, for our country portfolio. grew in the Western Europe, Germany Growth rates in these markets continue to and Asia segments. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 rise, driven primarily by increasing disposable income and more people eating out. Our clear focus on added value for professional customers will further increase our relevance for these target groups. Consequently, growth rates in our core business will also continue to develop positively. Market consolidation offers T O O U R S H A R E H O L D E R S L E T T E R T O T H E S H A R E H O L D E R S 9 another opportunity for growth in In order to consistently align ourselves to wholesale. We operate in very fragmented the needs of our customers, we continually markets with plenty of opportunities for ask them for their opinion. With the Net additional dynamic growth through Promoter Score (NPS), we frequently acquisitions. We intend to make greater use collect feedback and measure customer of this opportunity in the coming years, satisfaction in order to identify particularly in our European countries. improvement potential and prioritise We strive for long-term customer operational projects. The Net Promoter relationships characterised by a high level Score has been introduced worldwide in all of loyalty. Currently, 78% of our sales are METRO stores and distribution centres, with generated by customers who purchase all countries exhibiting positive NPS ratings. goods and services from us on a regular So far, METRO has received feedback from basis. Moreover, orders from HoReCa and roundly 2.2 million customers and more Traders customers average approximately than 610,000 callbacks have already taken €225, while purchases from retail place. consumers only come in at around one METRO is well positioned to play a tenth of this value. leading role in the HoReCa and Traders Our strong localisation efforts have made sector and is increasingly exploiting this us a preferred partner for professional opportunity: once the sale of the majority customers in many countries. This wealth of stakes of METRO China is completed, the data enables us to better understand the core customer groups will account for 70% needs of our customers and accommodate of total sales. This is more than them even better. At the same time, we are 10 percentage points above the level of constantly working on improving the about 10 years ago. Like-for-like sales efficiency of our operations, because we growth for these 2 target groups in financial know that with every saving that we get, we year 2018/19 was 4.2% for HoReCa sales can invest into generating additional value and 5.1% for Traders sales in the focus for our customers. This also includes further countries. development of our own brands. In 2017, we joined forces with professional chefs to align our brand image and product range with the wholesale sector. In 2018 we rolled out this product mix in all countries, and like-for-like sales of own-brands grew by 3% in financial year 2018/19. The sales share is now 16%. We still see a lot of potential here beyond the current successes – especially with HoReCa customers and in the delivery business. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 On the way to becoming a complete solution partner – the Wholesale 360 approach We have laid the foundation for a successful future, but what happens next? How can we build on the accelerating growth to further increase customer relevance and capture additional market share? The answer lies at the heart of our strategy. Since 2012, we have been working continuously to contribute to the success of our professional customers. We are accomplishing this with tailor-made product assortments, improved sales channels and, increasingly, also by inspiring and training our customers. Our goal is to be the preferred partner for our professional customers. How can we assert this claim T O O U R S H A R E H O L D E R S L E T T E R T O T H E S H A R E H O L D E R S 10 even more? Only by putting ourselves solution that combines online wholesale completely in the shoes of our customers with delivery service. and identifying the challenges they face. In the Traders segment, we continued to And there are many. Rising costs, higher roll out and optimise our franchise system, regulatory requirements, increasing which is primarily represented in Eastern competitive pressure and staff shortages Europe under various names. We provide are just a few examples. The reality in our our customers with a comprehensive range customers’ operations is often very similar: of support services that enable them to a great deal of passion but very little compete with retail chains. Today we support. We want to change that by already have 7,460 franchisees as METRO supporting them with digital tools, advice partners and we are determined to provide and services. Our goal is to offer our additional solutions. This includes various customers added value in as many areas as digital tools and an online ordering system possible. We call this Wholesale 360. Of that already significantly simplifies the course, we will not be able to do this on our ordering process thus ties our customers own. Rather, we will focus on targeted more closely to METRO. partnerships. We are convinced that this approach will help us make our customers even more successful. We are aspiring to intensify our customer relationships and are already seeing the fruits of our work today as these initiatives are leading to the acquisition of many new customers. Service quality in the core business is and remains a 7,460 franchisees key component. In financial year 2018/19, For HoReCa customers, we want to we were able to further increase these in continuously expand our range of services. various countries. One of our goals is to provide the widest The delivery business continued to grow range of products. To this end, we created a strongly at around 10% and thus accounted new platform: METRO MARKETS. In for a share of 17% of total sales. The delivery September 2019, we launched the online companies Classic Fine Foods in Asia, Pro à B2B marketplace developed especially for Pro in France and Rungis Express in wholesale business, which builds on the Germany and Switzerland significantly experience of Real’s highly successful contributed to this growth. This marketplace. We sell our own goods via this development was also facilitated by the roll- platform, but at the same time also work out of our online ordering system, which together with strong trading partners. We significantly simplifies and accelerates make our brand and our reach available to recurring ordering processes for HoReCa HoReCa specialists from all over the world. customers in particular. As a result, the METRO MARKETS is clearly aimed at average order ticket rose by up to 18%. In HoReCa customers and offers a wide range financial year 2018/19, we processed of non-food products tailored to the approximately 5.3 million orders using this hospitality industry. After only 2 months, tool. In March 2019, METRO also supported the marketplace already offered around thedelivery business by entering the Myanmar market. In contrast to other 87,000 non-food articles for the hospitality industry through 110 partners. In just a few countries, METRO does not operate any months, we will multiply the assortment store-based wholesale stores in Myanmar, range and depth and thus offer but offers customers a purchasing restaurateurs further significant added experience with a virtual one-stop shop value. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S L E T T E R T O T H E S H A R E H O L D E R S 11 We have also made good progress in the The collected data continuously open up digitalisation of the hospitality industry. In new possibilities. By analysing the particular, our proprietary digital tools have ingredients of a meal, ideas can be received a very good response. The DISH developed as to how work steps can be platform connects restaurateurs online and further optimised with modern equipment. offers them digital tools for more efficient Does this mean that METRO wants to fully operation of their businesses. Today, it dive into this sector? No, but it has inspired already has more than 170,000 customers us to look for ways to target this who use digital services such as a fully opportunity. In July 2019, we entered into a comprehensive online presence or the cooperation with Pentagast, Germany’s reservation tool. Our goal is to make the largest association of 24 hospitality and data the best ingredient in the hospitality canteen kitchen suppliers. The goal of this industry. With our MenuKit, we digitalise the partnership is to offer restaurateurs tailor- menus of our customers. The data obtained made solutions from a single source and to through this method offer a variety of merge the 2 industry competences of food insights, which we communicate to our and technology. For example, restaurateurs customers through our specialist advice. will be able to acquire tailor-made offers for This allows us to significantly increase their efficient and economical kitchen solutions entrepreneurial success and in turn open up in the future under the name SMART & new potential for METRO. A similarly strong EASY. Showrooms are also planned in potential is offered by the analysis of POS selected METRO stores in order to exhibit a data. The specially designed cockpit selection of the Pentagast product range in increases the transparency of economic the non-food assortment on an area of relationships even more, so that approximately 100 m². Additional restaurateurs can use this tool as a ‘control partnerships of this kind are in the works, centre’ for their business decisions. All for example to support our customers with these examples show that the digitalisation customised financing. of the hospitality industry can open up We have also made considerable considerable economic potential. METRO is progress this year when it comes to our ideally positioned to drive this trend sustainability initiatives. In addition to its forward and further increase its relevance renewed certification as the best in the for professional customers. industry in the Dow Jones Sustainability Index Europe, METRO is also listed as a member of the sustainability stock market index FTSE4Good. This is an enormous sign of appreciation of our work. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S L E T T E R T O T H E S H A R E H O L D E R S 12 With our focus on the food sector, we Outlook rely on 3 main topics: Financial year 2018/19 was a successful year across the entire METRO organisation. Including METRO China, METRO increased like-for-like sales by 2.4% in financial year 2018/19 and thus significantly increased the growth momentum. Reported sales of €29.9 billion were €0.4 billion higher than in the previous year’s figures. EBITDA excluding earnings contributions from real estate transactions amounted to €1,173 million. Adjusted for currency effects, EBITDA excluding earnings contributions from real estate transactions was down €52 million or −4.2% compared to the previous year’s figures. METRO has thus achieved its targets for financial year 2018/ 19. In this annual report, our hypermarket business and METRO China are reported as discontinued operations. We expect both transactions to be closed shortly. Therefore, the outlook for financial year 2019/20 only covers our continuing operations. For financial year 2019/20, based on the assumption of stable exchange rates and no further adjustments to the portfolio, we expect total sales and like-for-like sales to grow by 1.5% to 3%. This includes a further trend improvement in Russia and a flat sales development in Germany. Western Europe (excluding Germany), Eastern Europe (excluding Russia) and Asia are expected to grow at the previous year’s level. Across all segments, the Management Board sees the FSD business in particular and the synergetic interaction of the various channels as well as the focus on HoReCa and Traders customers as growth drivers. We want to make our range of products and services more sustainable by positively influencing the availability, quality and health as well as the social and environmental safety of food. We promote more conscious consumption, especially through the use of alternative proteins. By pooling our partnership strengths, we are fighting against food waste. 50% reduced food waste by 2025 In financial year 2018/19, for example, METRO was the first retail company in Germany to have its climate targets confirmed by the Science Based Targets initiative (SBTi). Based on estimates of the Science Based Target initiative, METRO is working towards a climate target of ‘well below 2 °C’ by 2030 by reducing the submitted commitments in category 1 (for example fluorinated gases from cooling in wholesale stores) and category 2 (for example emissions from acquired electricity) by 60% per square metre of selling and delivery space compared to the base year 2011. METRO's climate targets are thus in line with the reductions required to keep global warming well below 2 °C. Furthermore, as part of its commitment to the New Plastics Economy of the Ellen MacArthur Foundation, METRO has set the goal of reducing another 300 tonnes of plastic packaging by September 2023 (basis: October 2018). As a member of the Consumer Goods Forum, METRO has also undertaken to reduce food waste in its own operations by 50% by 2025 compared to 2016. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S L E T T E R T O T H E S H A R E H O L D E R S 13 An important focus of METRO is on survey. This year we were able to record a increasing operating efficiency and portfolio commitment value of 74%. Thus, we are simplification. Against this background, the once again well above average for the retail Management Board announced to adopt sector, which is 65% worldwide. efficiency measures on 19 November 2019. Dear shareholders, I want to take this In financial year 2019/20, the Management opportunity to thank you very much. In Board expects this to result in non-recurring financial year 2018/19, you once again transfomation costs of €60 million to proved that you believe in METRO and our €80 million. future success. We find ourselves in a Before transfomation costs for these stronger position than a year ago. Our core efficiency measures, the Management Board business is getting better and better; our expects EBITDA excluding earnings profile as a focused wholesaler is becoming contributions from real estate transactions ever clearer; our opportunities to open up to be roughly at the level of the past new wholesale business areas are growing financial year (2018/19: €1,021 million). continuously; and our motivation to Earnings in Russia are expected to decline constantly work on new ideas in order to by between €20 million and €30 million as provide even better solutions for our a result of the ongoing repositioning. customers has never been as high. In Earnings growth in Germany and Western addition, the transaction in China will Europe (excluding Germany) is expected to significantly boost our balance sheet and compensate for this. For the remaining increase our strategic ability to act. segments EBITDA is expected to remain My colleagues and I look forward to roughly at the previous year's level. another exciting financial year in which we The transformation of our company is intend to further enhance our performance progressing steadily. This requires the full profile in order to firmly establish a clear commitment of all parties involved. In the image in the eyes of our customers: METRO wholesale segment, the key success factor is my partner – unmatched in quality, is our team. Our team members are in daily service and innovation. contact with our customers, procure unique Yours truly, products, develop new concepts and ensure high efficiency of our company. We would therefore like to express our sincere gratitude to all our employees for their commitment and motivation. Their commitment is the foundation for future success. Therefore, we assess the satisfaction level of our employees several times a year by means of an employee Olaf Koch Chairman of the Management Board of METRO AG M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 THE MANAGEMENT BOARD Philippe Heiko Palaz zi H ut macher Olaf Koch Andrea Christian Euenheim B aier T O O U R S H A R E H O L D E R S T H E M A N A G E M E N T B O A R D 16 OLAF KOCH CHRISTIAN BAIER ANDREA EUENHEIM Chairman of the Management Board Areas of responsibility Corporate Communications, Corporate Public Policy, Corporate Development including strategy and M&A, Corporate Legal Affairs & Compliance, Corporate Office, Corporate Investor Relations, responsibility for the METRO Wholesale country organisations in: Bulgaria, Germany including Rungis Express, Croatia, Moldova, Austria, Serbia, Slovakia, Czech Republic, Romania, Ukraine and Hungary, Hospitality Digital, METRO MARKETS, METRO-NOM (since 1 October 2019), Real. Profile Olaf Koch was appointed Chief Executive Officer of METRO AG on 2 March 2017 for a term ending on 1 March 2022. From 14 September 2009 until the end of 2011 he was a member of the Management Board (Chief Financial Officer) of the former METRO AG (now: CECONOMY AG), and from 1 January 2012 to 12 July 2017 he was the Chief Executive Officer of the company. He was previously employed at the financial investor Permira. Following his graduation in business administration, Mr Koch started his career at Daimler-Benz AG in 1994. He was a board member of Mercedes Car Group from 2002 to 2007. Chief Financial Officer Areas of responsibility Corporate Accounting, Corporate Controlling & Finance, Corporate Risk Management, Corporate Tax, Corporate Treasury, Global Business Services (since 1 October 2019), Group Internal Audit (since 1 October 2019), METRO PROPERTIES, METRO LOGISTICS, MIAG, METRO Insurance Broker. Profile Christian Baier was appointed member of the Management Board of METRO AG on 11 November 2016. His current appointment as a member of the Management Board runs until 30 September 2020. In addition Mr Baier is reappointed from this date until 30 September 2025. He was the Chief Financial Officer (CFO) of METRO Cash & Carry (now METRO Wholesale) from 1 July 2015 to 1 March 2017 and previously held the position of Group Director Strategy, Business Innovation and M&A at the former METRO AG (now: CECONOMY AG). Mr Baier joined METRO Cash & Carry Germany (now METRO Germany) as a member of the Management Board/Head of Finance and Administration – C+C Schaper – in the year 2011. He holds a BA in business administration and an MBA from New York University and was previously employed at the finance investor Permira and a number of banks. Chief Human Resources Officer and Labour Director Since 1 November 2019 Areas of responsibility Human Resources (Campus HR, Compensation, Global Mobility & HR Processes, Global Talent Management & Recruiting, HR Operations & Leadership, Labour Relations Germany & Labour Law), METRO Campus Services. Profile Andrea Euenheim was appointed member of the Management Board and Labour Director of METRO AG on 1 November 2019 for a term ending on 31 October 2022. Prior to that, she worked at Amazon in Seattle, USA, from October 2015, initially as HR Director of Global Consumer Products and since the end of 2017 as HR Director of Global Expansion, Mergers and Acquisitions (M&A). Before moving to the USA, Andrea Euenheim was responsible for personnel management at Amazon Europe since 2007, primarily overseeing Germany, Italy, Spain and France. From 2001 to 2007, she worked for General Electric, where her last position was Head of Human Resources for Germany, Austria and Switzerland at GE Commercial Finance, Fleet Services. Andrea Euenheim completed her master’s degree in linguistics, sociology, psychology and business administration at the University of Passau. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S T H E M A N A G E M E N T B O A R D 17 HEIKO HUTMACHER PHILIPPE PALAZZI Member of the Management Board Until 31 December 2019 Areas of responsibility In the period from 1 November to 31 December 2019, Heiko Hutmacher’s HR responsibilities will be transferred to Andrea Euenheim. Until 30 September 2019, Heiko Hutmacher was also responsible for Corporate Responsibility, Customer Experience, Global Business Services, Group Internal Audit and METRO-NOM. Profile Heiko Hutmacher assumed his position as a member of the Management Board on 2 March 2017 and was appointed Chief Human Resources Officer and Labour Director of METRO AG on 31 August 2017. His appointment as Labour Director ended on 31 October 2019; Mr Heiko Hutmacher will leave the company at his own request on 31 December 2019. He was a member of the Management Board of the former METRO AG (now: CECONOMY AG) from 1 October 2011 to 12 July 2017 and held the position of Chief Human Resources Officer and Labour Director. From April 2012 to June 2015, Mr Hutmacher headed the Human Resources Department at METRO Cash & Carry (now METRO Wholesale). Mr Hutmacher holds a degree in business administration. His experience in human resources spans over 30 years, including posts at IBM and Akzo Nobel. Chief Operating Officer Areas of responsibility METRO Wholesale centralised functions (Corporate Responsibility [since 1 October 2019], Customer Experience [since 1 November 2019], Digital Transformation, Expansion & Investment, Food Service Distribution, Global Branding & Activation, Global Business & Supplier Management, Global Food Sourcing, Global Non-Food, Global Own Brand Management, International Expansion, Pricing, Quality Assurance, Supply Chain Management, Trader Franchise), responsibility for the METRO Wholesale country organisations in: Belgium, China, France including Pro à Pro, India, Italy, Japan, Kazakhstan, Myanmar, the Netherlands, Pakistan, Poland, Portugal, Russia, Spain and Turkey, Classic Fine Foods, METRO ADVERTISING, METRO SOURCING International. Profile Philippe Palazzi was appointed member of the Management Board of METRO AG on 7 May 2018 for a term ending on 30 September 2021. From 1 July 2015 to 6 May 2018, he held the position of Operating Partner with responsibility for METRO France including Pro à Pro, MAKRO Spain and MAKRO Portugal. He previously held the position of Chief Customer and Marketing Officer at METRO AG and various posts at the METRO country organisations, most recently as Chief Executive Officer of METRO Italy. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S T H E Y E A R I N R E V I E W 18 THE YEAR IN REVIEW SELECTED EVENTS IN FINANCIAL YEAR 2018/19 Q1 2018/19 Q2 2018/19 Own Business Day 9/10/2018 – For the 3rd time, METRO honours the commitment of small and medium-sized entrepreneurs at Own Business Day. METRO encourages own business owners to place their offers online free of charge on a platform and thus become part of a major marketing campaign. DISH – digital service connects restaurateurs 16/10/2018 – As part of the METRO digital offensive, interested restaurateurs can receive a free website. The new DISH online platform offers hospitality operators additional tools for more efficient management of their businesses. They include a free internet presence, a free online reservation tool and other digital solutions from third-party providers. Sustainability: Global commitments to the New Plastics Economy 29/10/2018 – METRO signs the Ellen MacArthur Foundation’s global commitment to the New Plastics Economy. Among other things, 100% of plastic packaging is supposed to be reusable, recyclable or compostable by 2025. Award for F-Gas Exit Programme 22/11/2018 – METRO is honoured at the ATMOsphere Europe conference for the F-Gas Exit Programme as the industry’s best food retailer. The programme is part of METRO’s commitment to reduce CO2 emissions group-wide by 50% by 2030. E-Commerce platform for Trader customers 27/11/2018 – In addition to the digital ordering platform M-Shop for hospitality industry customers, METRO launches a tailor-made online shop for Traders customers in Romania. METRO-NOM cooperates with IT service provider Spryker to set up the e-commerce platform. METRO and Target announce international start-up programme 3/12/2018 – With the ‘METRO Target Retail Accelerator certified by Techstars’, international start- ups are given the opportunity to be supported by mentors in their efforts to set up a company with access to global wholesale and retail markets. For the first time, METRO cooperates with Target, a leading retail chain in the USA. 9 METRO companies named ‘Top Employer 2019’ 14/2/2019 – Once again, the METRO national subsidiaries in Belgium, Bulgaria, France, Italy, Pakistan, Poland and Turkey have received the ‘Top Employer’ award. METRO AG and METRO-NOM are also certified for the first time. The award recognises the fact that METRO places its employees at the centre of its entrepreneurial activities and offers an outstanding work environment. Annual General Meeting approves dividend 15/2/2019 – METRO AG’s Annual General Meeting approves all resolutions proposed by the management and approves a dividend of €0.70 per ordinary share and preference share. As in the previous year, a stable dividend was distributed despite the ongoing transformation process. METRO received ‘Gold Class’ award at Sustainability Award 2019 26/2/2019 – METRO is included in the Sustainability Yearbook for the 4th time in a row with the highest distinction: ‘Gold Class’. The yearbook, published by the international investment entity RobecoSAM, presents companies that draw attention through their outstanding sustainability performance. The positive rating is the result of RobecoSAM’s annual Corporate Sustainability Assessment (CSA). Start of the purchasing cooperation Horizon International 6/3/2019 – The purchasing cooperation Horizon International between METRO, Auchan Retail, Dia Group and Casino Group starts in 47 countries in Europe, Asia and South America. The cooperation brings together market participants who share a common vision for new supplier relationships – from services for international suppliers to supporting small and medium-sized enterprises in their international development. METRO expands its international portfolio by adding Myanmar 8/3/2019 – METRO announces its official market entry in Myanmar. Supported by highly efficient digital ordering and delivery services, METRO Myanmar serves local commercial customers in the rapidly growing restaurant and tourism sector. Instead of stationary wholesale stores, METRO offers its customers a delivery service. Customers can order via website or mobile app. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S T H E Y E A R I N R E V I E W 19 Q3 2018/19 Expansion of own-brand portfolio to include organic assortment 15/4/2019 – METRO’s own-brand portfolio is expanded by an organic assortment with focus on fruits and vegetables. With METRO Chef Bio the wholesaler meets the growing demand of its customers for organic products. The own brand METRO Chef Bio will initially be introduced at METRO Austria and successively rolled out. Exclusivity agreement signed for sale of Real 8/5/2019 – METRO and a consortium led by Redos agree on exclusive contract negotiations. The goal is to conclude a contract based on detailed due diligence. METRO is committed to human rights in the supply chain 1/6/2019 – METRO becomes a member of Sedex. The non-profit organisation collects data on social standards in the supply chain. METRO is thus strengthening its own commitment to enforcing and complying with social standards. METRO sets science-based target for itself 14/6/2019 – METRO expanded the climate target to the supply chain and as the first German retailer set a recognised science-based target for itself. METRO undertakes to reduce its Scope 1 and Scope 2 CO2 emissions by 60% per square metre of selling and delivery space by 2030 compared to 2011. Furthermore, METRO is committed to reducing absolute Scope-3-CO2 emissions (supply chain) by 15% by 2030 compared to 2018. Q4 2018/19 METRO cooperates with Pentagast 22/7/2019 – METRO Germany and Pentagast, the largest association of catering and canteen kitchen suppliers in Germany, will start a strategic cooperation in September 2019, initially at 6 METRO locations/ stores in Germany. Trader franchise continues to grow 24/7/2019 – METRO expands its Trader Franchise concept. The number of Trader Franchise locations in the various Eastern European countries grows by 600 to 7,100 locations within one year. Andrea Euenheim is appointed as the new Labour Director to the Management Board of METRO AG 2/8/2019 – As of 1 November 2019, Andrea Euenheim will be appointed to the Management Board of METRO AG as the new Labour Director. She is succeeding Heiko Hutmacher, who is leaving the company as of 31 December 2019 at his own request. Voluntary takeover bid by EPGC falls short of minimum acceptance threshold 9/8/2019 – EP Global Commerce VI GmbH (EPGC), an acquisition companycontrolled by Daniel Křetínský, has not reached the minimum acceptance threshold of 67.5% for its voluntary takeover offer published on 10 July 2019. 11 European wholesale stores sold 2/9/2019 – METRO PROPERTIES sold 11 wholesale stores in Poland, Hungary and the Czech Republic in August 2019. METRO continues to operate all wholesale stores at the respective locations based on long-term leases agreed as part of sale-and-leaseback transactions. METRO MARKETS online marketplace launched in Germany 13/9/2019 – METRO is further expanding its digital portfolio for the hospitality industry with a new online marketplace. At the launch of the platform, more than 20,000 non-food items from approximately 40 partners are on offer. METRO MARKETS is responsible for the development and operation of the digital B2B platform. New product solution Gourvenience under own- brand METRO Chef 24/9/2019 – Using the own-brand METRO Chef, METRO Germany introduces the Gourvenience assortment. The 200 articles comprise high-quality convenience products for restaurateurs. Verification of efficiency measures 25/9/2019 – METRO AG confirms to review efficiency measures with regard to administrative structures, processes and business activities. The efficiency measures to be examined would be triggered by the intended sale of the hypermarket business and the resulting smaller size of the company and would predominantly depend on this transaction. Customer focus through Net Promoter Score 30/9/2019 – Since the implementation of the Net Promoter Score roundly 2.2 million customer feedbacks have been collected. This enables METRO to respond even more efficiently to customer needs and offer customers a better shopping experience and improved delivery. Events after the closing date Sale of METRO China 11/10/2019 – METRO AG signs contract to sell a majority stake in METRO China to Wumei. After this transaction, the core customer groups HoReCa and Trader contribute around 70% to METRO's sales. In addition, the transaction offers further opportunities to accelerate growth organically and through acquisitions. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 20 REPORT OF THE SUPERVISORY BOARD With the significant acceleration of like-for-like direction, although METRO is still dealing with sales growth by 2.4% (including METRO a difficult market environment in Russia. China) METRO reaches the outlook delivered EBITDA (excluding earnings from real estate for the financial year 2018/19. Thereby METRO divestments) was also in line with the confirms that the focus on the wholesale forecasted corridor with around −4% business is already moving in the right compared to the previous year. With regard to the voluntary takeover offer issued by EP Global Commerce in summer 2019, Management Board and Supervisory Board were of the opinion that the offered price significantly undervalues the earnings’ power and value perspective of METRO. It is now up to all of us to dedicate all our strengths to realize the real value of METRO! Jürgen Steinemann Chairman of the Supervisory Board Profile Jürgen Steinemann was born in 1958 in Damme, Germany. He graduated with a degree in business administration from the European Business School in Wiesbaden, London and Paris in 1985 and initially held different management positions at Eridania Béghin-Say, Unilever and Nutreco. Jürgen Steinemann was CEO of Barry Callebaut AG from 2009 to 2015 and has been a member of the company’s board of directors since 2014. From 2015 to the demerger of the former METRO GROUP in July 2017, Mr Jürgen Steinemann was a member of the Supervisory Board of the former METRO AG (now: CECONOMY AG) and Chairman of the Supervisory Board since February 2016. Jürgen Steinemann has been a member and Chairman of the Supervisory Board of the new METRO AG since 2017. More information about the other members of the Supervisory Board can be found at www.metroag.de in the section company – Supervisory Board. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 21 Strategic projects planned with foresight, statutory requirements. Its reporting in such as for example the sale of the majority particular included information on the stake in METRO China, affirm the clear intended business policies and other focus on the target of being a pure fundamental concerns relating to corporate wholesaler. Another major step towards planning, as well as the ongoing business reaching this target is the planned sale of development and information about the Real which is driven forward, cautiously situation of the company and the group keeping an eye on the prospectus for the (including the risk position, risk employees and the future viability of Real. management and compliance). The At the end of the financial year, we Management Board provided detailed initiated a change in the Management explanations for any deviations from Board. Heiko Hutmacher is leaving the planned business performance. Based on company at his own request at the end of the Management Board’s reports, we the year. We thank Heiko Hutmacher for his discussed all transactions that were of support in the last 8 years. Andrea significance to the company at the Euenheim is taking over the position as Supervisory Board meetings and within the Labour Director. We are convinced that she committees. The Supervisory Board was is an experienced and inspiring new involved in all decisions bearing material member of the Management Board of significance for the company. These METRO AG. decisions included inter alia the joint On behalf of the Supervisory Board, I reasoned statement of Management Board would like to thank the Management Board and Supervisory Board with regard to the and all employees for their work in financial voluntary takeover offer of EP Global year 2018/19, which was not only marked by Commerce VI GmbH as well as measures greater intensity and more focus on the and transactions for which the Supervisory wholesale business but also by a large Board’s approval was prescribed by law as number of strategic projects. well as the Articles of Association or The demonstrated commitment is one of intercompany regulations, such as for the most important prerequisites for a example the sale of the majority stake in further successful growth of our company. METRO China. We thoroughly reviewed the Advice and supervision in consultation with the Management Board In financial year 2018/19, the Supervisory Board performed the duties imposed on it by law, the Articles of Association and the Code of Procedure. We advised the Management Board in relation to the management of METRO AG and the group and supervised its activities. The Management Board furnished us with detailed written and verbal information on all significant developments within METRO at the Supervisory Board meetings (and also in-between, if necessary) in a timely manner and in accordance with the M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 relevant matters and discussed benefits, potential opportunities, risks and other implications with the Management Board. Managers from the relevant departments of METRO attended meetings to address particular agenda items. Prof. Dr Edgar Ernst as the Chairman of the Audit Committee and I as the Chairman of the Supervisory Board continuously, closely and regularly exchanged information and ideas with regard to key issues and pending decisions with the Chief Financial Officer and/or the Chief Executive Officer also outside of meetings. I was also in contact with the members of the Supervisory Board outside of meetings. In our capacity as committee chairmen, Prof. Dr Edgar Ernst and I also reported in detail on the work and recommendations of the T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 22 respective committees at the subsequent Supervisory Board meeting. Since no matters requiring clarification arose in financial year 2018/19, we did not make use of the Supervisory Board’s rights of inspection and audit pursuant to § 111 Section 2 Sentence 1 and 2 of the German Stock Corporation Act (AktG). The Supervisory Board held 8 meetings in financial year 2018/19, with 1 meeting convened as an extraordinary meeting. Moreover, 2 resolutions were passed in a written procedure outside a Supervisory Board meeting. In so-called closed sessions, the members of the Supervisory Board regularly exchanged views without the participation of the members of the Management Board. As was customary in the past, both the shareholder and employee representatives on the Supervisory Board of METRO AG discussed relevant agenda items in separate preliminary meetings. The members of the Supervisory Board are required to disclose any conflicts of interest without delay. Member of the Supervisory Board Dr Florian Funck is also a member of the Management Board of Franz Haniel & Cie. GmbH, which, at the time of the takeover offer by EPGC Global Commerce VI GmbH, indirectly held about 15.20% of the voting rights in METRO AG as documented in the voting rights notification dated 5 October 2018. Due to the business relationship of Franz Haniel & Cie. GmbH with EP Global Commerce, Dr Florian Funck was neither involved in the flow of information in financial year 2018/19 nor did he take part in deliberations and resolutions of the Supervisory Board concerning the voluntary takeover offer of EP Global Commerce VI GmbH. No further conflicts of interest involving members of the Management Board and the Supervisory Board arose in financial year 2018/19. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Key issues covered by Supervisory Board meetings November 2018 – At this meeting, the Management Board initially informed us routinely about current business developments. In this setting, the Management Board also reported on the status of preparations for a sales process of Real. We then discussed the company’s capital market outlook for 2018/19. We also resolved on the individual performance factors of the members of the Management Board for determining the amount of the short-term incentive for financial year 2017/ 18 and dealt with Management Board remuneration for 2018/19, in particular the discussion of the individual targets for the individual members of the Management Board. We discussed the annual report on governance functions in the group and, to prepare for the annual report, dealt with the non-financial statement to be issued for the first time in financial year 2017/18. Furthermore, we passed a resolution to mandate a consultant for succession planning in the boards and were informed about the company’s sustainability initiatives and changes in top management. December 2018 – Our Supervisory Board meeting held on 7 December 2018 focused on the annual and consolidated financial statements and the combined management reports for METRO AG and for the group for financial year 2017/18, including the non- financial statement as well as the proposal for the appropriation of the balance sheet profit to the Annual General Meeting 2019. The auditor attended this discussion and reported on the key findings of his audits. Other important subjects discussed at the Supervisory Board meeting were, in addition to the ordinary report by the Management Board about the current business development, the adoption of a resolution concerning the Report of the Supervisory Board and the Corporate Governance Report for financial year 2017/ 18, as well as the preparation of the Annual T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 23 General Meeting 2019. We also received May 2019 – As part of the information on information on the development of current business developments, the preparations for the Real sales process and Management Board provided detailed the company’s communication strategy. information on the status of the sales February 2019 – In a meeting held process of Real. The Supervisory Board immediately before the Annual General passed a resolution to mandate an Meeting on 15 February 2019, the independent consultant to revise the Management Board provided information existing remuneration system for the about the current business development. It members of the Management Board of also reported on the development of the METRO AG. After receiving information on country organisation in China and the status the changes in top management, the of strategic considerations in this regard. As Supervisory Board dealt with the subject of a precautionary measure, the Supervisory leadership at METRO and obtained Board adopted a resolution granting power information on talent management and of attorney to a law firm, in particular in succession planning. Another resolution of relation to potential actions for rescission the Supervisory Board addressed the and/or annulment against resolutions adjustment of Mr Heiko Hutmacher’s adopted by the Annual General Meeting employment contract with regard to the 2019. Subject to the appointment of the waiver of the post-contractual restraint on auditor by the Annual General Meeting, we competition. In this context, a resolution approved the audit assignments for the was also passed to mandate a consultant 2018/19 annual and consolidated financial (including a budget) for the succession of statements and the review of the the position of Labour Director. condensed financial statements and interim Moreover, the members of the management report for the first half of Supervisory Board had the opportunity to financial year 2018/19. We also reviewed the participate in an internal training event on status of the public prosecution’s the subject of ‘HoReCa customers as a investigation of suspected insider trading strategic basis for METRO’. and market manipulation. Ultimately, we June 2019 – The 2-day strategy meeting received information on changes in top in Moscow focused on consulting with the management and the review of OTC Management Board on the status quo and derivative contracts pursuant to § 32 of the strategy of METRO Wholesale, particularly German Securities Trading Act (WpHG, old in Russia and Germany, as well as the group version). and portfolio strategy. We dealt with the In a written procedure immediately initiatives to transform METRO into a pure following the Annual General Meeting, the wholesaler and to improve earnings. We Supervisory Board re-elected Dr Fredy Raas also talked about the realignment of the as a member of the Audit Committee. This business model towards the strategic target re-election was necessary after his groups HoReCa and Traders. The membership of the Supervisory Board Supervisory Board also discussed personnel ended at the end of the Annual General matters relating to the Management Board Meeting on 15 February 2019 and he had and passed a resolution to terminate the been re-elected by the Annual General appointment of Mr Heiko Hutmacher as a Meeting on the same day. member of the Management Board and Labour Director by mutual consent no later than 31 December 2019. In this regard, the conclusion of a termination agreement with Mr Heiko Hutmacher was also approved. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 24 July 2019 – On 21 June 2019, EP Global the Management Board, a resolution was Commerce VI GmbH, a special purpose passed on the appointment of Ms Andrea entity directly held by Mr Daniel Křetínský Euenheim as a member of the Management and Mr Patrik Tkáč, announced that it Board and as Labour Director of METRO AG intended to make a voluntary public effective 1 November 2019 and on the takeover offer to the shareholders of corresponding revocation of Mr Heiko METRO AG to acquire all ordinary and Hutmacher as Labour Director. The preference shares. Consequently, a Supervisory Board also discussed the resolution was passed by the Supervisory concept prepared by the Presidential Board outside a meeting on the Committee with support of the establishment of a Takeover Committee remuneration consultant for the revision of with equal representation for the duration the remuneration system for the of the takeover process. The task of this Management Board. committee was to deal with the takeover September 2019 – At its September process on an ongoing basis and to prepare meeting, the Supervisory Board focused on all necessary or expedient tasks and budget and medium-term planning for decisions of the Supervisory Board in this financial year 2019/20 and subsequent respect. years. Moreover, the Supervisory Board was In an extraordinary meeting on 23 July updated on the sales process of Real and 2019, the Supervisory Board dealt discussed the strategic options with regard exclusively with the takeover process in to METRO China. Routinely, the Supervisory addition to the current business Board dealt with the remuneration of the development. The strategic and financial Management Board and resolved on the parameters of the takeover offer were performance targets of the short-term examined. The measurement and fairness incentive for financial year 2019/20 for the opinions of the respective investment banks members of the Management Board. In were explained in detail and discussed with addition, the Supervisory Board adopted the financial and legal consultants of the schedules of responsibilities of the company and the Supervisory Board. After Management Board of METRO AG, which preparatory work by the Takeover are valid from 1 October 2019 and from Committee and with the support of the 1 November 2019, when Ms Andrea financial and legal consultants of the Euenheim joined the Management Board. company and the Supervisory Board, the Furthermore, we again discussed the Supervisory Board passed a resolution on a concept for revising the Management Board joint reasoned statement by the remuneration system. We resolved on the Management Board and the Supervisory declaration of conformity pursuant to § 161 Board of METRO AG pursuant to § 27 of the of the German Stock Corporation Act German Securities Acquisition and Takeover (AktG) and mandated the auditor to Act (WpÜG) on the voluntary takeover conduct a limited assurance audit of the offer. company’s non-financial statements. After At the Supervisory Board meeting held METRO Germany’s management was filled at the end of July as scheduled, the with a dual leadership position in July 2019, members of the Supervisory Board were Co-CEOs Frank Jäniche and Christof Knop informed about the status of the takeover introduced themselves to the Supervisory process and the sales process of Real. Board and explained their strategic and Furthermore, the Supervisory Board operational plans. The Management Board received an investment review regarding the also provided an overview of the acquisition of Pro à Pro in February 2017. development of the company’s IT strategy With regard to personnel matters relating to and information about the project to M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 25 introduce a new goods management The permanent committees of the system. Supervisory Board are composed as follows (status: 4 December 2019): Work in the committees For the purpose of effectively performing its duties, the Supervisory Board relies on the work of 4 permanent committees: the Presidential Committee, the Audit Committee, the Nomination Committee and the Mediation Committee pursuant to § 27 Section 3 of the German Co-determination Act (MitbestG). Furthermore, a Takeover Committee was set up for the duration of the takeover process. The committees prepare the board-level consultations and resolutions. In addition, also decision- making responsibilities were transferred to the committees within the legally allowed parameters. The respective chairmen of the committees report to the Supervisory Board regularly and comprehensively with regard to the work in the committees. A detailed description of the working methods of the committees is contained in the corporate governance report, which is combined with the declaration on corporate management pursuant to §§ 289f and 315d of the German Commercial Code (HGB). The corresponding versions as well as information about the current members of the Supervisory Board can be found on the website www.metroag.de/en in the section Company – Corporate Governance. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Presidential Committee: Jürgen Steinemann (Chairman), Werner Klockhaus (Vice Chairman), Xaver Schiller, Dr Liliana Solomon Audit Committee: Prof. Dr Edgar Ernst (Chairman), Werner Klockhaus (Vice Chairman), Thomas Dommel, Dr Florian Funck, Dr Fredy Raas, Xaver Schiller Nomination Committee: Jürgen Steinemann (Chairman), Gwyn Burr, Prof. Dr Edgar Ernst Mediation Committee pursuant to § 27 Section 3 of the German Co- determination Act (MitbestG): Jürgen Steinemann (Chairman), Werner Klockhaus (Vice Chairman), Prof. Dr Edgar Ernst, Xaver Schiller The Supervisory Board’s Takeover Committee, which was set up for the duration of the takeover process, comprised the following members: Jürgen Steinemann (Chairman), Thomas Dommel, Prof. Dr Edgar Ernst, Werner Klockhaus, Xaver Schiller, Alexandra Soto Presidential Committee – The Presidential Committee is mainly concerned with the personnel issues of the members of the Management Board and monitors compliance with legal regulations and the application of the German Corporate Governance Code. In accordance with § 107 Section 3 Sentence 4 of the German Stock Corporation Act (AktG), the Presidential Committee passes resolutions on urgent matters and matters submitted to it by the Supervisory Board. The Presidential Committee held 6 meetings in financial year 2018/19, 3 meetings were convened as an extraordinary meeting. One of the key areas of the committee’s work was the preparation of the resolutions to be adopted by the Supervisory Board with regard to the appointment of Ms Andrea Euenheim as a member of the Management T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 26 Board and Labour Director of METRO AG as The Audit Committee prepared the of 1 November 2019 and on the amicable meeting of the Supervisory Board in departure of Mr Heiko Hutmacher from the December 2018 and conducted an in-depth Management Board effective 31 December review of the annual and consolidated 2019. Another focus was the work on a financial statements for financial year 2017/ concept for revising the existing 18, the combined management report of Management Board remuneration system. METRO AG and the group for financial year Moreover, the committee prepared the 2017/18 as well as the combined non- individual and strategic performance financial statement contained in the targets for the members of the combined management report. The results Management Board for financial year 2018/ of the audit were discussed by the 19, as well as the short-term incentive for Supervisory Board in the presence of the financial year 2019/20. Further issues auditor. This formed the basis for the Audit addressed by the Presidential Committee Committee to issue recommendations for included corporate governance at METRO, resolutions to the Supervisory Board after especially the preparation of the declaration detailed discussion. These included, in of conformity in accordance with § 161 of particular, the recommendation to approve the German Stock Corporation Act (AktG). the annual and consolidated financial The committee also focused on the statements for financial year 2017/18 and to development of talent management and approve the Management Board’s proposal targeted internal succession planning at to the Annual General Meeting 2019 on the various organisational levels. appropriation of the balance sheet profit. Audit Committee – The Audit Committee The members of the Audit Committee is responsible for supervising the company’s discussed the quarterly statement and the accounting, accounting processes, the half-year financial report for financial year effectiveness of the internal control system, 2018/19 prior to their respective publication. the risk management system, the internal The Audit Committee also prepared the audit system, compliance and the audit of audit engagements for financial year 2018/ the annual financial statements (in 19 and considered the auditor’s planning of particular relating to the selection and the audit as well as the key audit areas. The independence of the auditor and any committee was informed about the so- additional performances rendered by the called non-audit services provided by the auditor). 7 committee meetings were held in auditors and intensively examined the financial year 2018/19, 1 of which was governance functions within the group extraordinarily convened. The CFO, the CEO (internal control systems, risk management and I as the Chairman of the Supervisory system, internal audit and compliance), the Board attended all meetings. The auditor draft budget presented by the Management and managers of the relevant departments Board, the group controlling plan and the of METRO were consulted on selected audit plan prepared by the Internal Audit issues. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 unit. The Audit Committee further requested information about significant projects and legal issues. They particularly included the legally required ongoing development of European and international accounting standards, accounting-related changes and an evaluation of the ensuing implications for METRO. T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 27 The Audit Committee also received Individual attendance at meetings reports on business developments between meetings in separate telephone calls in The individual attendance of members of which the Chairman of the Management the Supervisory Board at meetings of the Board and the Chief Financial Officer took Supervisory Board and its committees is part as scheduled. disclosed in the following: Nomination Committee – The Nomination Committee is responsible for proposing suitable candidates for the Supervisory Board’s election proposals to the Annual General Meeting. In financial year 2018/19, 2 committee meetings were held for the purpose of preparing election Supervisory Board Jürgen Steinemann, Chairman Werner Klockhaus, Vice Chairman proposals to the Annual General Meeting. Stefanie Blaser Takeover Committee – In connection Herbert Bolliger with the voluntary takeover offer of EP Gwyn Burr Global Commerce VI GmbH, this committee Thomas Dommel dealt with the takeover process and Prof. Dr Edgar Ernst prepared all necessary or expedient tasks and decisions of the Supervisory Board, in particular the joint reasoned statement of the Management Board and the Supervisory Board pursuant to § 27 of the German Securities Acquisition and Takeover Act (WpÜG). Moreover, the Takeover Committee was authorised to select and commission external consultants, in particular financial and legal consultants, in connection with the takeover offer. The Takeover Committee met 6 times. Due to the short-term nature of the scheduled meetings, the option of telephone participation was also granted. Dr Florian Funck Michael Heider Peter Küpfer Susanne Meister Dr Angela Pilkmann Dr Fredy Raas Xaver Schiller Eva-Lotta Sjöstedt Dr Liliana Solomon Alexandra Soto Angelika Will Manfred Wirsch Silke Zimmer Mediation Committee – The Mediation Total Meeting attendance Attendance in % 8/8 8/8 8/8 8/8 7/8 8/8 8/8 8/8 8/8 7/8 8/8 8/8 8/8 7/8 7/8 6/8 7/8 7/8 5/8 8/8 100 100 100 100 88 100 100 100 100 88 100 100 100 88 88 75 88 88 63 100 93 Committee formulates proposals for the appointment and revocation of members of the Management Board in cases pursuant to § 31 of the German Co-determination Act (MitbestG). The Mediation Committee did not convene a meeting in financial year 2018/19. Presidential Committee Jürgen Steinemann, Chairman Werner Klockhaus, Vice Chairman Xaver Schiller Dr Liliana Solomon Total Meeting attendance Attendance in % 6/6 6/6 6/6 4/6 100 100 100 67 92 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 28 Meeting attendance Attendance in % on Corporate Management | Corporate Governance Report. This document has also Meeting attendance Attendance in % unqualified audit certificate. The auditor also issued an unqualified certificate about Audit Committee Prof. Dr Edgar Ernst, Chairman Werner Klockhaus, Vice Chairman Thomas Dommel Dr Florian Funck Dr Fredy Raas Xaver Schiller Total 7/7 7/7 7/7 7/7 7/7 7/7 100 100 100 100 100 100 100 Nomination Commitee Jürgen Steinemann, Chairman Gwyn Burr Prof. Dr Edgar Ernst Total Meeting attendence Attendence in % 2/2 2/2 2/2 100 100 100 100 Takeover Committee1 Jürgen Steinemann, Chairman Thomas Dommel Prof. Dr Edgar Ernst Werner Klockhaus Xaver Schiller Alexandra Soto Total 6/6 6/6 6/6 6/6 6/6 6/6 100 100 100 100 100 100 100 1 Set up for the duration of the takeover process. Corporate governance In September 2019, the Management Board and the Supervisory Board of METRO AG issued their declaration of conformity with regard to the recommendations of the Government Commission on the German Corporate Governance Code pursuant to § 161 of the German Stock Corporation Act (AktG) and published the declaration of conformity on the website www.metroag.de/en in the section Company – Corporate Governance. Reporting on METRO’s corporate governance is provided in the Declaration M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 been published on the website www.metroag.de/en in the section Company – Corporate Governance. Annual and consolidated financial statements KPMG AG Wirtschaftsprüfungsgesellschaft has reviewed the Annual Financial Statements prepared by the Management Board in accordance with the German Commercial Code (HGB) and the consolidated financial statements prepared by METRO AG based on the International Financial Reporting Standards (IFRS). It also reviewed the combined management report for METRO AG and the group for financial year 2018/19 and issued an the combined non-financial statement contained in the management report as a result of his audit to provide limited assurance. The auditor provided a written report on the audits. The documents for the annual financial statements, including the combined non- financial statement, and the audit reports were discussed and reviewed in great detail during the meeting of the Audit Committee on 3 December 2019 and in the Supervisory Board meeting on 4 December 2019 in the presence of the auditor. Prior to these meetings, the required documents were distributed to all members of the Audit Committee as well as the Supervisory Board, giving them sufficient time to review them. In both meetings, the auditor reported about the key findings of his audit and was at the Supervisory Board’s disposal to answer questions and provide additional information also in the absence of the Management Board. The auditor also provided information on services rendered in addition to auditing T O O U R S H A R E H O L D E R S R E P O R T O F T H E S U P E R V I S O R Y B O A R D 29 services. No issues resulting in a disqualification due to bias arose. Appointments and resignations Based on our own review of the Annual The office terms of the members of the Financial Statements, the consolidated financial statements and the combined management report as well as the combined non-financial statement for Supervisory Board Ms Eva-Lotta Sjöstedt, Ms Alexandra Soto and Dr Fredy Raas ended at the end of the METRO AG Annual General Meeting on 15 February 2019. On financial year 2018/19, we had no objections the same day, they entered a new office and the Supervisory Board approved the term through election by the Annual result of the audit. As recommended by the General Meeting. In light of the change in Audit Committee, we approved the Annual the shareholding structure, member of the Financial Statements and the consolidated Supervisory Board Dr Florian Funck financial statements submitted by the resigned his mandate with effect from the Management Board. The METRO AG Annual end of 7 December 2019. Financial Statements are thus adopted. Effective 1 November 2019, the Following a careful own review and Supervisory Board appointed Ms Andrea consideration of the interests involved, we Euenheim as a member of the Management approved the Management Board’s proposal Board and Labour Director. She is to the Annual General Meeting 2020 for the succeeding Mr Heiko Hutmacher, who is appropriation of the balance sheet profit. leaving the company as of 31 December 2019. Düsseldorf, 4 December 2019 The Supervisory Board Jürgen Steinemann Chairman Information about the members of the Supervisory Board can be found on the website www.metroag.de/en in the section Company – Supervisory Board. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S M E T R O S H A R E 30 METRO SHARE Performance of the METRO share At the beginning of financial year 2018/19, the stock market initially developed weakly, in particular due to the trade conflict between the USA and China as well as due to Brexit. As 2019 progressed, it recovered and the MDAX returned to the previous year’s level, reaching 25,887 points on 30 September 2019 (28/9/2018: 25,998 points). In contrast, the EURO STOXX Retail performed very positively and gained 9% compared to 28 September 2018. As of 30 September 2019, the METRO share finished with a closing price of €14.48 in Xetra trading on the Frankfurt Stock Exchange. This represents an increase of 7%. On a total return basis – and thus comparable with the MDAX – the METRO share recorded an increase of 12% at the end of financial year 2018/19. The preference share traded at €12.90 on 30 September 2019. The METRO share’s listing in financial year 2018/19 was marked by a number of positive developments, which were attributable to various business events such as the sale of the hypermarket business and the search for a strategic partner for the Chinese business. Moreover, the share price was influenced by speculation about the voluntary takeover bid by EP Global Commerce. The temporary recovery of the Russian business also made a positive contribution to this trend. The share price was largely stable at the end of the financial year. DEVELOPMENT OF THE METRO SHARE (%) 120 110 100 90 80 SXRE (EURO STOXX RETAIL) B4B GY EQUITY (METRO AG) MDAX 2/10/2018 31/12/2018 31/3/2019 30/6/2019 30/9/2019 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S M E T R O S H A R E 31 METRO SHARE Closing price High Low Dividends Dividend yield based on closing price Market capitalisation (billion) 1 Subject to the resolution of the Annual General Meeting. Data based on Xetra closing prices Source: Bloomberg Ordinary share Preference share Ordinary share Preference share Ordinary share Preference share Ordinary share Preference share Ordinary share Preference share € € € € € € € € % % € 2017/18 2018/19 13.50 12.61 18.00 17.69 10.08 9.93 0.70 0.70 5.2 5.6 4.9 14.48 12.90 16.07 14.65 11.69 10.95 0.701 0.701 4.81 5.41 5.3 Shareholder structure of METRO AG The shareholder structure of METRO AG has changed. In preparing the Annual Financial Statements, the largest (indirect) shareholders of METRO AG, based on the voting rights notifications received by METRO AG in accordance with the German Securities Trading Act (WpHG), are EP Global Commerce GmbH with 29.99% of the ordinary shares and Meridian Stiftung and Beisheim Holding, to which a total of approximately 20.63% of the ordinary shares are allocated on a reciprocal basis memorialised in a pooling agreement. These 3 shareholders hold a total of 50.62% of the voting rights. In addition, Franz Haniel & Cie. GmbH holds 2.71% and CECONOMY AG holds 0.99% of the ordinary shares of METRO AG. In addition, all ordinary shares held by Franz Haniel & Cie. GmbH are subject to a call option of EP Global Commerce GmbH. Under the terms of the demerger agreement, the ordinary shares of CECONOMY AG cannot be sold until 1 October 2023. For more information about details of the pooling agreement between Meridian Stiftung and Beisheim page 141 Holding, see chapter 7 takeover-relevant disclosures in the combined management report. 49.38% of METRO AG shares are free-floating and held by a number of national and international investors. The shareholder structure reflects the international distribution of the share capital: approximately 15% of ordinary shares are held by investors from the USA, followed by investors from the United Kingdom with approximately 11%, Germany with approximately 13% and Europe (excluding Germany and the United Kingdom) with approximately 7%. The remaining countries account for around 3%. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S M E T R O S H A R E 32 SHAREHOLDER STRUCTURE1 as of 6/11/2019 MS/BH² MS/BH² 20.63% Meridian Stiftung/Beisheim Holding EP FFS 29.99% EP Global Commerce 49.38% Free-floating shares 100.00% FFS EP 1 The information above is in particular based on notifications of voting rights pursuant to the German Securities Trading Act that were received and published by METRO AG. 2 Vote on exercising voting rights under the pooling agreement. Market capitalisation and index inclusion The market capitalisation of METRO AG was €5.3 billion at the end of September 2019. In the time between the initial stock exchange listing and the end of the financial year, a typical trading day at the Frankfurt Stock Exchange in financial year 2018/19 saw an average of around 900,000 of METRO’s ordinary shares traded. Around 4,000 of the significantly fewer liquid preference shares were exchanged on each trading day. The METRO AG ordinary share is included in a number of indices, most noteworthy the MDAX. The MDAX comprises the 60 largest German corporations with the highest trading volumes below the DAX 30. The composition is based on fixed inclusion criteria. In addition to being listed in the Prime Standard and a free float of more than 10%, inclusion in the index depends on the free-float market capitalisation and the stock exchange turnover. As of 30 September 2019, METRO was ranked number 38 in the MDAX in terms of market capitalisation and number 33 in terms of stock exchange turnover. The METRO share is also included in the global MSCI index and the relevant industry sector indices EURO STOXX Retail and STOXX 600 Retail. Many investors place high priority on the issue of sustainability. METRO is fostering the continuous dialogue with sustainability-oriented investors, analysts and rating agencies. In 2019, METRO AG was again confirmed as the best company in the industry in the European sustainability ranking of the Dow Jones Sustainability Index. Rating agency Oekom Research issued a prime recommendation for METRO AG in the wholesale category (Trading Companies & Distributors). METRO is also listed in the FTSE4Good index. METRO has been issuing public statements on climate protection and water for many years through CDP. METRO achieved a rating of A- or B- (on a scale from F to A) for both subject areas. Since 2019, METRO has also reported via the CDP on deforestation, which is associated with sensitive raw materials such as soya, palm oil, meat and wood/paper. The results for 2019 were not yet available on the publication date. METRO shares are also included in the MSCI World ESG Leaders Index and its European counterparts. METRO has set the future course with its initiation and implementation of sustainable business practices. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S M E T R O S H A R E 33 Dividend and dividend policy The Management Board and Supervisory Board of METRO AG will propose a dividend of €0.70 per share to the Annual General Meeting on 14 February 2020. This dividend proposal corresponds to 49% of earnings per share of €1.44 for continuing operations including METRO China (outlook view) and is thus within the payout ratio of 45% to 55% as envisaged by METRO’s dividend policy. The dividend yield on the basis of the closing price on 30 September 2019 is 4.8% for the METRO ordinary share and 5.4% for the preference share. Analysts’ recommendations 20 analysts have regularly published analyses and studies about the METRO share over the course of financial year 2018/19. 16 analysts rated the METRO share neutrally in the medium to long term; 2 analysts recommended selling the share and 2 analysts were ‘restricted’ at the end of the financial year, that is, the analyst firm had internally blocked the submission of recommendations. The median value of share price targets was €14.60 at the end of September 2019 (€12.50 at the end of September 2018). Grade Hold Sell Restricted Bank Baader Bank Barclays Berenberg Bernstein Research Commerzbank DZ Bank HSBC Independent Research Invest Securities Jefferies Kepler Cheuvreux LBBW M.M.Warburg MainFirst Oddo BHF Société Générale Deutsche Bank Exane BAML J.P. Morgan Head office Share price target (€) Munich London London London Frankfurt Frankfurt London Frankfurt Paris London Frankfurt Stuttgart Hamburg London Paris Paris London London London London 14.00 14.00 14.40 13.00 15.00 14.00 16.00 14.80 16.00 14.70 14.30 14.80 15.30 15.00 14.50 16.00 13.00 10.80 - - M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 T O O U R S H A R E H O L D E R S M E T R O S H A R E 34 Investor Relations The METRO Investor Relations team is in continuous dialogue with analysts, institutional investors and retail investors. The team is guided by the principles of customer-focused capital market support: Topicality: assurance of information leadership Continuity: consistency in external communications Credibility: disclosure of accurate information Equal treatment: same information in terms of time and content for all recipients In addition to the regular quarterly and yearly reporting, the Investor Relations team is also available for personal meetings at roadshows and conferences. It also conducted numerous individual and group discussions, store inspections and telephone conferences. All information about the METRO share is available in German and English from the Investor Relations section of the website. Among other things, the website also offers additional information about METRO’s corporate strategy and business development, all current publications, the schedule of events and the annual report. A webcast is available for all METRO events. The Investor Relations team can also be contacted directly. The Annual General Meeting of METRO AG provides all shareholders with the opportunity to learn about the current developments at METRO. Its active membership in the German Equity Institute (Deutsches Aktieninstitut e. V., DAI) in Frankfurt allows METRO to actively promote an investment culture with an affinity for equities in Germany. METRO is also committed to the principles of open and continuous communications, which is expressed in the company’s membership in the German Investor Relations Association (Deutscher Investor Relations Verband e. V., DIRK). Contact Investor Relations METRO AG Investor Relations Schlüterstraße 1 40235 Düsseldorf, Germany T +49 211 6886-1280 F +49 211 6886-73-3759 investorrelations@metro.de www.metroag.de/en/investors M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 37 METRO/METRO WHOLESALE BACKSIDE CHAPTER GOALSAND STRATEGYG O A L S A N D S T R A T E G Y M E T R O / M E T R O W H O L E S A L E 37 GOALS AND STRATEGY METRO/METRO WHOLESALE As a leading international food wholesaler, METRO continues its transformation into a wholesale specialist in financial year 2018/19. Disposal of a majority stake in METRO China immediately after the end of the reporting period supports the focus on the core customer groups HoReCa and Trader. With the 'Wholesale 360' approach, METRO positions itself as the partner of choice for thewholesale customers through a comprehensive range of products, consulting, digital tools, marketplace, services and equipment. METRO is a leading international food wholesaler and global market leader in the cash-and- carry format. METRO is managed by METRO AG as the central strategic management holding company, which also assumes central management and administrative functions for the METRO Wholesale sales line. METRO Wholesale is active in 34 countries worldwide, including 24 countries with 678 wholesale stores under the METRO and MAKRO brands. The delivery business (Food Service Distribution, FSD) is also part of METRO Wholesale, including the METRO delivery service and the companies specialised in delivery: Classic Fine Foods, Pro à Pro and Rungis Express. The Others segment includes the digitalisation activities of METRO. They mainly comprise the activities of the Hospitality Digital business unit. The segment also includes the real estate company METRO PROPERTIES as well as various service companies that provide internal services for METRO in the areas of logistics, information technology, advertising and procurement. METRO’s focus on food wholesale follows a long-term strategy that has been continuously and successfully implemented in recent years. METRO already initiated the transformation from a conglomerate to a wholesale specialist in 2012. Following the disposals of the international Real business and Galeria Kaufhof as well as the spin-off of Media-Saturn, a contract was signed on 11 October 2019 for the sale of a majority stake in METRO China to Wumei. Thus, the core customer groups HoReCa and Traders will account for around 70% of METRO's worldwide sales. Moreover, the transaction offers further opportunities to accelerate growth organically and through acquisitions. At the same time, METRO AG’s 20% investments in the joint venture opens up various strategic partnership opportunities with Wumei and its technology partner Dmall, particularly with regard to the international procurement of goods. METRO will continue to participate in the growth of its business in China in a dynamic market environment with improved conditions. The advanced sale of Real marks the conclusion of the transformation process towards an exclusive focus on the wholesale business. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 G O A L S A N D S T R A T E G Y M E T R O / M E T R O W H O L E S A L E 38 The sale of the hypermarket business is well advanced. We are in the final stages of negotiations and are working with the potential buyer on the future concept for Real, which includes retaining part of the core business and passing on some store networks to competitors. Moreover, the early involvement of the antitrust authorities has increased transaction security. Therefore, we are confident that we will be able to sign off on the transaction in the very near future. The strategy of focusing on METRO Wholesale is aimed at long-term, consistent growth of (like-for-like) sales and earnings. The like-for-like sales development of METRO Wholesale has been positive for 6 years based on year-on-year growth rates. The wholesale business targets a very attractive industry sector that is characterised by (compared to food retail) very strong customer relationships, high shopping frequency, large shopping baskets and high productivity at significantly lower cost to serve. HoReCa and Traders Focus The 2 core customer groups of METRO Wholesale are HoReCa and Traders. The HoReCa section includes hotels, restaurants, bars and cafés as well as catering companies and canteen operators. The Traders section includes, for example, small grocery stores, kiosks, street food vendors as well as petrol stations and other wholesalers. Both core customer groups have very large market potentials. Service Companies and Offices (SCO) are another customer group. The HoReCa customer group in particular is showing very high growth momentum. Above all, the reason for this is the continuously increasing in out-of-home food consumption. The change in consumer behaviour is leading to an increase in out of home consumption and to a trend towards convenience solutions, from which the Traders customer group also benefits. Portfolio and market consolidation In the core customer groups HoReCa and Traders, METRO Wholesale aims to play a leading role as a product and service provider, depending on local market conditions. METRO Wholesale combines an extensive network of modern wholesale stores with delivery sales and digital services such as an online ordering system. The country portfolio of METRO Wholesale is divided into core customer groups and regions, and is regularly reviewed with regard to the feasibility of local market leadership and the attractiveness of the respective markets. Accordingly, possible portfolio adjustments of METRO Wholesale adhere to strict implementation of the strategy to achieve a leading role in the respective market. On the one hand, this can be done through acquisitions for further market consolidation, but on the other hand it does not rule out market exits for portfolio simplification. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 G O A L S A N D S T R A T E G Y M E T R O / M E T R O W H O L E S A L E 39 Localisation via country-specific value creation plans METRO Wholesale consistently aligns its business model to customer value and strengthens its local organisations to establish a closer relationship with B2B customers. Depending on the main customer focus in the respective countries, METRO offers a tailored product range that matches the specific preferences and requirements of its customers. By tailoring METRO products, services and sales channels to local needs, we can exploit local market opportunities to their full potential. Based on the business model, the national subsidiaries develop and implement their local strategies, which are then translated into individual value creation plans that enable transformation and growth according to local conditions. The central holding functions support local value creation, in particular by relieving administrative tasks. Based on the country-specific and locally generated value creation plans, METRO Wholesale has identified 5 major strategic value enhancers for its wholesale business: We want to leverage the full potential of the markets we serve across all customer groups. This is accomplished by differentiating the wholesale stores, for example by designing stores that are specifically tailored to the different customer groups and their respective needs. We intend to further expand the delivery sales because it is attractive and complements the core business of the wholesale stores. Delivery is the most important procurement channel for HoReCa customers in most countries. We intend to further roll out the Trader Franchising Model in countries such as Poland, Romania and Russia. METRO Wholesale operates in a similar way as a franchisor with its own brand identity. It provides products and offers additional services to the participating independent grocery stores, such as training courses and assortment consultancy. The expansion of the model helps open up new growth opportunities in relevant markets. We aim to increase our operating efficiency in order to reduce our cost base. To this end, on the one hand, the group-wide synergy potential is to be exploited. On the other hand, cost advantages are to be realised through strategic cooperation projects with international retail and wholesale companies, for example by reducing procurement costs through international purchasing alliances. METRO Wholesale provides its customers with the opportunity to benefit from its know- how by offering them training courses, tutorials and professional advice. Wholesale 360 Building on its successful core business, METRO Wholesale is expanding its offering and business model as part of its strategic approach Wholesale 360. Across all customer groups, the majority of METRO Wholesale customers are small and medium-sized companies as well as sole traders. One objective of Wholesale 360 approach is to strengthen the competitiveness of its customers – not only to make them and their business model more successful, but also with the aim of increasing customer retention over the long term and to become the preferred partner for HoReCa and Traders customers. Consequently, METRO wants to assist its customers in helping with their business challenges by providing them with sustainable solutions with superior added economic value, which we have combined under the Wholesale 360 approach. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 G O A L S A N D S T R A T E G Y M E T R O / M E T R O W H O L E S A L E 40 To achieve this, METRO leverages its experience, knowledge, resources and global presence, which it has gained and perfected in the 55 years since the first METRO wholesale store was opened in Germany. In addition, in a constantly changing environment, the current and future challenges of the customers are identified at an early stage and addressed by offering professional services and digital solutions. It pursues the goal of expanding the customer relationship from a transactional merchandise trade to a sustainable and holistic partnership. This allows METRO to clearly differentiate itself from other wholesalers. The Wholesale 360 approach is made up of 6 subject areas: Products, consulting, digital tools, marketplace, services and equipment. METRO’s core competence is to offer ultra-fresh, high-quality food at attractive prices, tailored to local needs. To this end, METRO Wholesale’s national companies continuously develop their product ranges in order to increase customer satisfaction, shopping cart size and repurchase rates. This also includes the introduction of METRO Chef Gourvenience, an assortment of convenience products at the highest level for professionals. Our customers are faced with a multitude of complex challenges, such as lack of personnel and time, efficient operational management, offer design or financing gaps. We offer individual top consulting, based on the know-how and experience of METRO. For this purpose METRO invests in the consulting competence of the customer managers and uses the possibilities of data analysis. In the future market India, METRO and the Fintech company ePayLater developed the app ‘Digital Shop’ for Kirana dealers to help them efficiently track sales, manage inventories or process free digital payments. Access to digital solutions and innovative applications is a key topic of our Wholesale 360 approach. The Hospitality Digital business unit offers customers from the hospitality industry convenient access to digital applications, such as free services for creating a website, online reservation systems or efficient staff management systems. Moreover, applications are available for optimising the respective operation, such as the MenuKit for automatic calculation of the cost of goods sold. These applications provide commercial added value for hospitality customers and will be used in a targeted manner in the future to expand existing customer relationships and to achieve an increase in new customers. Digitalisation represents an important strategic growth area and an investment into METRO’s future, and is consistently being implemented, in particular, by METRO-NOM, the group’s own IT subsidiary. METRO-NOM assists in the digital transformation of METRO and develops IT solutions for METRO Wholesale and customer contact points. It includes, for example, the M-Shop customer platform and the METRO Companion shopping app. The online marketplace METRO MARKETS, which represents another topic area in our Wholesale 360 approach and is aimed in particular at HoReCa customers, was launched in Germany in September 2019 and is supposed to be expanded to other countries after a pilot phase. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 G O A L S A N D S T R A T E G Y M E T R O / M E T R O W H O L E S A L E 41 The range of services within the scope of the Wholesale 360 approach is being intensively worked on, as we expect it to provide noticeable growth impulses in the future. First, we are offering additional services such as financial services in selected countries. Modern equipment in modern hospitality industry helps increase productivity and cut costs, while at the same time offering a high level of service quality. Strategic cooperations enable integrated solutions, for example professional equipment at advantageous conditions. In cooperation with Pentagast, the largest association of gastronomy and kitchen equipment suppliers, we provide trend-setting food and kitchen solutions. METRO is thus expanding its product range and reaching further potential customers. Real estate METRO has extensive real estate assets and manages a portfolio of more than 670 operating locations. The real estate sector makes a significant and long-term contribution to the corporate success of the wholesale and food specialist. METRO PROPERTIES concentrates the real estate know-how of METRO and has established itself on the market as a reputable real estate company. The company operates, develops and markets an international portfolio of properties. Its activities cover the entire life cycle of METRO’s real estate assets: from future-oriented investments, economic property operation/maintenance to sustainable and creative development of real estate assets as well as the realisation of capital gains during disposal at the right point in time. For example, in the reporting period, METRO PROPERTIES sold the EDU retail park in Bremen after extensive project development. With its attractive mix of tenants and industries, the EDU now represents a highly frequented retail location of around 50,000 m2. Other examples of successful development projects and sale-and- leaseback transactions are portfolios in Western Europe and Spain as well as in other Central and Eastern European countries. In addition, METRO PROPERTIES developed mixed-use concepts for Asian locations in Shanghai, India, China and Bangalore and has lined up additional projects for the coming years in Germany, Europe and Asia. Sustainability METRO is strongly committed to promoting the success and satisfaction of its more than 16 million customers worldwide, in a responsible manner. For more than 20 years, METRO has pursued to orientate all corporate processes towards sustainability in its own business operations as well as in the supply chain. In addition to reducing food waste and promoting conscious consumption, the company continues to pursue a clear commitment to cut its CO2 emissions in half by 2030 when compared to 2011. In 2019, METRO was ranked for the 5th time in a row as the European industry leader in the Food & Staples Retailing group in the Dow Jones Sustainability Index. Sustainability is not only an established part of METRO’s business model, but also an indispensable part of the wholesale specialist’s future strategy in terms of resource availability, talent acquisition and retention as well as customer demand and regulation. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 45 1 OVERVIEW OF FINANCIAL YEAR 2018/19 AND OUTLOOK 49 2 PRINCIPLES OF THE GROUP 49 51 54 56 70 80 2.1 Group business model 2.2 Management system 2.3 Innovation management 2.4 Combined non-financial statement of METRO AG 2.5 Employees 2.6 Characteristics of the accounting-related internal control and risk management system and explanatory report of the Management Board 84 3 ECONOMIC REPORT 84 3.1 Macroeconomic and sector-specific parameters 86 87 93 3.2 Asset, financial and earnings position Financial and asset position Earnings position 103 4 REPORT ON EVENTS AFTER THE CLOSING DATE AND OUTLOOK 103 103 Events after the closing date Outlook 108 5 OPPORTUNITIES AND RISK REPORT 108 111 112 114 123 Opportunity and risk management system Strict principles for dealing with risks Risk management details clearly defined Description of the opportunity and risk situation Management’s overall assessment of the opportunity and risk situation 124 6 REMUNERATION REPORT 124 138 The remuneration system for members of the Management Board Remuneration of members of the Supervisory Board 141 7 TAKEOVER-RELATED DISCLOSURES 150 8 SUPPLEMENTARY NOTES FOR METRO AG (PURSUANT TO THE GERMAN COMMERCIAL CODE) CONTENTSC O M B I N E D M A N A G E M E N T R E P O R T 1 O V E R V I E W O F F I N A N C I A L Y E A R 2 0 1 8 / 1 9 A N D O U T L O O K 45 COMBINED MANAGEMENT REPORT 1 OVERVIEW OF FINANCIAL YEAR 2018/19 AND OUTLOOK As a result of the sale of the majority interest in METRO China (signed on 11 October 2019), METRO China will be reported as a discontinued operation in accordance with IFRS 5 as of 30 September 2019; previous year’s income statement, cash flow statement and segment reporting figures have been adjusted accordingly. Unless expressly stated otherwise, all presentations in the combined management report refer to continuing operations (excluding the hypermarket business and excluding METRO China). Only the comparison of outlook with actual business developments as well as the dividend proposal refer to the outlook issued for 2018/19 which includes METRO China. Furthermore, the results for the financial year are reported before IFRS 16 adjustments. A first indication will be published in the consolidated financial statements – notes to the group accounting principles and methods of this Annual Report 2018/19, while a complete adjustment will be made available in January 2020. Earnings position Financial and asset position Like-for-like sales increased by 2.1%; Net debt decreased to €2.9 billion in reported sales rose by 1.1% to €27.1 billion adjusted year-on-year comparison (30/9/ (in local currency: +2.2%) 2018: €3.1 billion) EBITDA excluding earnings contributions Investments totalled €0.5 billion (2017/18: from real estate transactions was at €0.6 billion) €1,021 million (2017/18: €1,088 million); Cash flow from operating activities reported EBITDA reached €1,359 million reached €0.8 billion (2017/18: €0.8 billion) (2017/18: €1,216 million) Total assets (continuing and discontinued Profit or loss for the period (from operations) amounted to €14.5 billion continuing operations) amounted to (30/9/2018: €15.2 billion) €411 million (2017/18: €359 million) Equity (continuing and discontinued Earnings per share (continuing operations): €2.7 billion (30/9/2018: operations): 1.12 € (2017/18: 0.98 €) €3.1 billion) For continuing and discontinued Long-term rating: BBB- (Standard & operations, profit or loss for the period Poor’s) amounted to €−115 million (2017/18: €337 million) and earnings per share to €−0.35 (2017/18: €0.92) M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 1 O V E R V I E W O F F I N A N C I A L Y E A R 2 0 1 8 / 1 9 A N D O U T L O O K 46 Future development of METRO METRO continues its long-term strategy of focusing on wholesale and, in particular, on HoReCa and Traders customers. Against this background, we will continue to put emphasis on simplifying and streamlining our portfolio in the coming year. This includes in particular the closing of the sale of a majority stake in METRO China and the sale of our Real hypermarket business. METRO expects to generate a net cash inflow of more than €1 billion upon completion of the sale of METRO China (expected in the first half of 2020, subject to regulatory approvals). The remaining minority stake in METRO China will be reported as at- equity investment in the Asia segment. For the hypermarket business, METRO expects a successful closing of the transaction shortly. Neither METRO China nor the hypermarket business is included in the outlook either before or after completion of the transactions. As announced in November 2019, we are also planning to implement a number of efficiency measures in the coming financial year 2019/20. These measures concern in particular the simplification of administrative structures, processes and business activities. The measures will be associated with estimated one-time costs of €60 million to €80 million in 2019/20 and estimated sustainable savings in the mid-double-digit million euro range through an increase in operating performance. The associated costs from efficiency measures will be reported separately as transformation costs. The outlook is made before such transformation costs. Expected pro rata savings in 2019/20 in the low- double-digit million euro range are reflected in the outlook. METRO’s strategy further includes strengthening and expanding its core business, wholesale, in become a ‘360-degree supplier’ – the Wholesale 360 approach. This includes further localisation of the business, expansion of our delivery business, development of new channels and customers (for example via the online marketplace METRO MARKETS) as well as an increase in customer loyalty and an associated enhanced exploitation of customer potential, for example through digital solutions. In addition, we plan to selectively expand our business activities through acquisitions. The mergers and acquisitions activities should thereby focus on companies that increase our presence in a market (densification) and thus contribute to market consolidation. The outlook does not include such potential mergers and acquisitions transactions. We also continue to implement our sustainability goals defined on the basis of the UN Sustainable Development Goals. The focus is on reducing food waste, making our range of products and services more sustainable and promoting more conscious consumption. The outlook is based on the current segment structure. Unlike in the previous year, METRO China has been reported as a discontinued operation since 30 September 2019, so that the composition of the Asia segment has changed in this respect. In addition, changes in key figures resulting from the first-time application of IFRS 16 (see also the respective specifications in the notes to the group accounting principles and methods page 170 ) are initially not taken into account in the outlook. METRO will finalise the retrospective adjustments as planned in the first quarter of 2019/20. Based on that, METRO will publish a reconciliation of the relevant key figures, which shows both the old and the new standard, prior to our next quarterly statement and update the outlook accordingly. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 1 O V E R V I E W O F F I N A N C I A L Y E A R 2 0 1 8 / 1 9 A N D O U T L O O K 47 Outlook of METRO The outlook is based on the assumption of stable exchange rates and no further adjustments to the portfolio and only covers METRO's continuing operations. The main opportunities and risks that could influence our outlook are explained in the opportunity and risk report. The achievement of our sales and earnings outlook is further based on our assumptions for 2019/20 regarding macroeconomic developments. Sales Due to the advancing and successful focus on the HoReCa and Traders customer groups, the Management Board expects total sales and like-for-like sales to grow by 1.5% to 3% in financial year 2019/20 (2018/19: 2.2% growth to total sales and 2.1% growth of like-for-like sales). As a consequence of this focus, a further trend improvement is expected in Russia. Germany is expected to show a flat sales development, while the Western Europe (excluding Germany), Eastern Europe (excluding Russia) and Asia segments are expected to grow at the previous year's level. Across all segments, the Management Board sees the delivery business in particular and the synergetic interaction of the various channels as well as the focus on HoReCa and Traders customers as growth drivers. Earnings An important focus of METRO is on increasing operating performance and portfolio simplification. Against this background, the Management Board announced to adopt efficiency measures on 19 November 2019. In financial year 2019/20, the Management Board expects this to result in one-time transformation costs of €60 million to €80 million. Before transformation costs for these efficiency measures, the Management Board expects EBITDA excluding earnings contributions from real estate transactions to be roughly at the level of the past financial year (2018/19: € 1,021 million). Earnings in Russia are expected to decline by between €20 million and €30 million as a result of the ongoing repositioning. Earnings growth in Germany and Western Europe (excluding Germany) is expected to compensate for this. For the remaining segments, EBITDA is expected to remain roughly at the previous years level. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 1 O V E R V I E W O F F I N A N C I A L Y E A R 2 0 1 8 / 1 9 A N D O U T L O O K 48 Sales trend (like-for-like) METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Sales trend in local currency METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia EBITDA excluding earnings contributions from real estate transactions in € million METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others 1 At constant exchange rates, excluding further portfolio adjustments and transformation costs. 2018/19 2.1% 0.3% 1.3% −4.3% 6.3% 5.3% 2.2% −0.6% 1.3% −3.3% 6.4% 7.3% 1,021 95 499 220 344 11 −148 Outlook 2019/201 1.5%−3% growth Stable sales development Previous year’s level Trend improvement Previous year’s level Previous year’s level 1.5%−3% growth Stable sales development Previous year’s level Trend improvement Previous year’s level Previous year’s level Previous year’s level Earnings growth Earnings growth Decline between €20 million and €30 million Previous year’s level Previous year’s level Previous year’s level M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 49 2 PRINCIPLES OF THE GROUP 2.1 Group business model METRO is a leading international specialist in food wholesale. The group is headed by METRO AG, which acts as the central management holding company. It performs group management functions, particularly in the areas of finance, controlling, legal and compliance. Central management and administrative functions for METRO Wholesale are anchored within METRO AG. In its core wholesale business, METRO Wholesale is globally represented with 678 stores in 24 countries. In addition, METRO Wholesale is active with the delivery business (Food Service Distribution, FSD) in another 10 countries. The delivery business includes the METRO delivery service as well as the delivery specialists Classic Fine Foods, Pro à Pro and Rungis Express. So far, the retail company Real constituted the 2nd sales line of the group with 276 hypermarkets across Germany. Real forms the principal element of the discontinued business segment due to the decision of the Management Board of METRO AG to dispose of the hypermarket business. The group’s digitalisation activities are bundled under Others. These initiatives primarily refer to the activities of the Hospitality Digital business unit, which was established in 2015. The unit develops digital solutions for customers from the hospitality industry and creates interfaces for the digital products conventionally used by wholesale traders. The Others segment also includes the service companies METRO PROPERTIES, METRO LOGISTICS, METRO-NOM, METRO ADVERTISING and METRO SOURCING. These companies provide real estate, logistics, IT, advertising and procurement services within the group. OVERVIEW OF METRO METRO METRO Wholesale Others METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia – Hospitality Digital – METRO PROPERTIES – Other service companies Discontinued operations: hypermarket business, METRO China M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 50 METRO Wholesale As an omnichannel operator, METRO Wholesale combines a wide network of modern wholesale stores with a wide- ranging delivery service (FSD). It is an internationally leading player in this field. With its segments METRO Wholesale Germany, METRO Western Europe (excluding Germany), METRO Russia, METRO Eastern Europe (excluding Russia) and METRO Asia, METRO is active in 34 countries. The sales line METRO Wholesale operates 678 wholesale stores in Europe and Asia under its brands METRO and MAKRO. Its more than 16 million commercial customers worldwide are mainly hotels, restaurants, catering companies, independent retailers, as well as service providers and authorities, to which METRO Wholesale offers a portfolio of products and solutions that has been tailored to their specific requirements. In the area of Food Service Distribution (FSD), METRO Wholesale maintains a strong presence with its METRO Delivery Service and the delivery companies Classic Fine Foods, Pro à Pro and Rungis Express. Classic Fine Foods is an Asian delivery company for a wide range of deli food. The company’s customers include premium customers such as 5-star hotels and upmarket restaurants in Asia and the Middle East. Pro à Pro delivers products to commercial customers across France, in particular in the fields of corporate catering, canteens and system catering. Rungis Express is an important upmarket food delivery company in Germany that mainly caters to HoReCa customers. Others The Others segment includes the Hospitality Digital business unit and the METRO PROPERTIES service company among others. Hospitality Digital pools the group’s digitalisation activities for customers from the hospitality sector. These activities include the development of digital solutions, which are created to meet the needs of the HoReCa customers, and the promotion of innovative, progressive food solutions. With its real estate expertise, METRO PROPERTIES has established itself on the market as a reputable real estate company. It develops, operates and markets an international portfolio. METRO benefits from opportunities for adjacent businesses, such as sub-licensing of its comprehensive market expertise and the reputation of METRO PROPERTIES. The real estate segment makes a long-term and significant contribution to the overall business success of METRO. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 51 STORE NETWORK BY COUNTRY AND SEGMENTS as of the closing date of 30/9 METRO Germany Austria Belgium France Italy Netherlands Portugal Spain METRO Western Europe (excl. Germany) METRO Russia Bulgaria Croatia Czech Republic Hungary Kazakhstan Moldova Poland Romania Serbia Slovakia Turkey Ukraine METRO Eastern Europe (excl. Russia) India Japan Pakistan METRO Asia Total METRO1 2018 103 12 17 98 49 17 10 37 240 93 11 9 13 13 6 3 29 30 9 6 33 31 193 27 10 9 46 675 New store openings Closures METRO 0 0 0 0 0 0 0 0 0 1 0 1 0 0 0 0 0 0 0 0 1 0 2 0 0 0 0 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2019 103 12 17 98 49 17 10 37 240 94 11 10 13 13 6 3 29 30 9 6 34 31 195 27 10 9 46 678 1 The locations and countries of Classic Fine Foods and those of Pro à Pro and Rungis Express are not shown in the table as they relate to distribution centres and warehouses whereas this table only covers sales locations. 2.2 Management system METRO’s strategic focus on creating additional customer value for the wholesale business and the objective of sustainably increasing the value of our company are also reflected in our internal management system. We use the key performance indicators described in the following for the planning, management and control of our business activities. Selected key performance indicators of our management system (like-for-like sales growth, EBITDA and M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 52 Return on Capital Employed) form the basis for the Management Board’s variable remuneration component. The focus of the group’s operational management is on those value drivers that have a direct effect on the medium- and long-term corporate objectives and are directly related to the strategy. The first important key performance indicators for METRO are exchange rate-adjusted sales growth (as a total figure and a like-for-like figure) and the EBITDA excluding earnings contributions from real estate transactions. Our management system also makes use of other significant performance indicators, which are explained in the following. MANAGEMENT SYSTEM Like-for-like sales Total sales Growth EBITDA EBIT Profit or loss for the period Earnings per share Investments Net working capital Net debt Free cash flow conversion Return on Capital Employed Operational earnings power Company value Capital deployment Key performance indicators describing the earnings position The first of our most important key performance indicators for our operational business is the exchange rate-adjusted sales growth (respectively as a total figure and a like-for-like figure). The like-for-like sales growth represents the sales growth measured in local currency generated on a comparable selling space or in relation to a comparable panel of locations or merchandising concepts, such as online shopping and delivery. The figure only includes sales of locations with a comparable history of at least 1 year. It follows that revenues generated by locations that were affected by openings, closures, significant redevelopment works or other conceptual changes in the reporting year or the comparison year are excluded from the analysis. The second of our most important key performance indicators, in addition to sales growth was introduced in financial year 2017/18 and is the EBITDA excluding earnings contributions from real estate transactions. This key performance indicator gives transparent account of METRO’s operational performance. The development of real estate assets and the proceeds from divestments nevertheless remain core components of the group’s real estate strategy. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 53 In light of the strategic portfolio streamlining and the corresponding focus on the wholesale business, METRO is implementing the following changes: starting with financial year 2019/20, METRO will present the business result and the situation of the group without accounting for transformation costs that will result from certain one-time expenses in connection with the efficiency measures. Other important key performance indicators of METRO are the profit or loss for the period and the earnings per share. These key performance indicators ensure that the tax and net financial result are given consideration in addition to the operational result and thereby allow for a holistic assessment of METRO’s earnings position from the perspective of the shareholders. For more information about these key performance indicators, see chapter 3 economic report − 3.2 asset, financial and earnings position – earnings position page 93 . Key performance indicators relating to the financial and asset position The management of METRO’s financial and asset position aims at sustainably assuring liquidity and arranging cost-effective sources for the financing requirements of our subsidiaries. For more information about the financial and asset position, see chapter 3 economic report − 3.2 asset, financial and earnings position – financial and asset position page 87 . The key performance indicators used in this area also include the investments, which are planned, reported and audited both in aggregate for the group as well as separately for the segments. Investments are defined as additions to non-current assets (excluding financial instruments and deferred tax assets). Another focal point in the area of the financial and asset position are regular analyses of the net working capital, which are carried out for the purpose of managing the operational business and capital deployment. Developments in net working capital over time result from changes in stock inventories, trade receivables and trade liabilities. Receivables due from suppliers are recognised in the items other miscellaneous financial assets and non- financial assets. The net debt and the cash flow before financing activities are also used as key performance indicators to manage METRO’s liquidity and capital structure. The net debt results from the balance of financial liabilities (including finance leases), cash or cash equivalents and short-term financial investments. METRO also analyses the free cash flow conversion to measure the group’s success in transforming the generated income into cash inflows. The free cash flow conversion results from the ratio between the simplified free cash flow and the reported EBITDA. To determine the free cash flow conversion, the free cash flow results from the reported EBITDA less cash-effective investments (excluding finance leases and mergers and acquisitions) +/- changes in net working capital. Value-oriented key performance indicators The key performance indicator Return on Capital Employed (RoCE) is still used to assess the operational business. This key figure measures the Return on Capital Employed (RoCE = EBIT / average capital employed) in a certain period under review and also allows for an assessment of the performance of the group’s individual segments. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 54 The resulting RoCE is then benchmarked against the respective segment-specific cost of capital before taxes, which represents a minimum yield on the employed capital at market rates and is based on capital market models. METRO also frequently uses value-oriented key performance indicators to assess both prospective and past investments. METRO uses the discounted cash flow method, the key figure economic value added (EVA) and other liquidity-oriented key performance indicators such as the amortisation period to form its investment-related decisions. As of financial year 2019/20, METRO AG will apply the accounting standard IFRS 16 (Leases), which will be introduced retrospective in its entirety. In the future, this accounting standard will affect various key performance indicators, such as ‘earnings before deduction of interest, taxes, depreciation and amortisation (EBITDA)’, ‘net debt’, ‘cash flow before financing activities’ and ‘Return on Capital Employed (RoCE)’. A complete overview of the adaptation of the earnings in financial year 2018/19 in accordance with IFRS 16 will be provided in January 2020. 2.3 Innovation management METRO takes pride in driving innovation. Innovations are essential for new solutions, which METRO develops for its operational business and also for its customers. With Hospitality Digital and METRO-NOM, we are pursuing the goal of developing these types of solutions and making workflows more efficient. Hospitality Digital: supporting the digitalisation of our business customers In October 2018, METRO launched the DISH (dish.co) platform to further accelerate the digitalisation of the hospitality industry. The platform enables restaurateurs to quickly access digital products, such as tools to create an internet presence operated by Hospitality Digital or an online reservation tool. The digital solutions offered by DISH were developed by Hospitality Digital and external providers. Membership on DISH is free and accessible to all restaurateurs, even if they are not yet METRO customers. Restaurateurs are encouraged to connect via the platform and find out about current gastronomic trends and events. DISH is already available in 14 countries with more than 170,000 restaurateurs using the solutions on the platform. Since April 2019, METRO has also been offering the DISH app, which provides users mobile access to all digital DISH tools without having to log in for each individual product. Moreover, the app features a free personnel management tool, which allows restaurateurs to easily control their entire personnel management online. In addition, Hospitality Digital is conducting various pilot projects aimed at increasing the revenue of the participating hospitality businesses. One example is a loyalty programme that allows consumers to collect loyalty points in restaurants in Berlin. The goal is to increase both the attractiveness and the sales of the participating restaurants. Another project is the cooperation with Google, which began in 2018 with the support of Hospitality Digital regarding the verification of ‘Google My Business’ accounts. In 2019, the cooperation continued by connecting the online reservation tool to ‘Reserve with Google’. This link allows the consumer to reserve a table using the online reservation tool within the Google search function. This has led to a 20% increase in reservations via the online reservation tool at participating restaurants. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 55 In addition to the already established accelerator programmes in the hospitality and retail sectors, METRO launched the ‘METRO Target Retail Accelerator, Certified by Techstars’ in May 2019. International start-ups have participated in the programme, which took place at the METRO Accelerator in Berlin and at Target, the American retail company based in Minneapolis. Furthermore, Hospitality Digital invests in promising technology companies through the LeadX Capital Partners brand. It often collaborates with other external investors. METRO-NOM: innovative solutions for the operational business METRO is also forging ahead with the digitalisation of its operating business in order to better meet individual customer needs, deploy resources profitably and utilise data for its operations. Digital solutions also support METRO’s sustainability initiatives by making processes more efficient and, for example, minimising the use of paper. In line with this initiative, METRO-NOM develops innovative approaches for the 24 national subsidiaries in which METRO Wholesale is represented with wholesale stores. By standardising processes, synergy effects are used in the introduction of central IT solutions. At the same time, METRO-NOM accounts for the special requirements of the individual business models in the individual countries. In Romania, METRO-NOM cooperates with the IT service provider Spryker in setting up a tailor-made online shop for Trader customers. This online shop will now also be transferred to Russia, where Traders customers represent the key target group. In addition, the digital ordering process via M- Shop is currently available to – or in the process of being activated for – professional customers in 17 countries. In financial year 2018/19, around 5.3 million orders were recorded via M-Shop. The METRO Companion app was developed to improve the shopping experience for customers. Customers can use the app to search for products, check their in-store availability and create individual shopping lists. The app also serves as a digital customer card and includes digital coupons that replace a plastic card or paper receipts. As part of a test project, METRO-NOM is testing blockchain technology for secure archiving of irrevocably decentralised stored data. The solution enables storing and comprehensively analysing raw data, such as POS data. This analysis helps predict shopping behaviour of customers to adjust product inventories in advance. In addition, METRO-NOM is testing in France whether using robotics to analyse stock levels in the stores generates added value. They expect the robot to detect inventory gaps faster and more accurately than conventional methods. If this pilot project proves to be successful, the concept will be implemented across the board. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 56 NX-Food: The innovation hub for promotion of start-ups Another important task for METRO is the promotion of young companies in the food industry. The innovation hub NX-Food was founded in March 2018 to develop innovative and sustainable food concepts in the retail and hospitality sectors. Via NX-Food, METRO offers start-ups a platform to market their innovative food products. More than 600 start- up companies have already submitted their applications to METRO Germany and METRO Austria to have their products featured in the product range for a 3-month test phase. More importantly, they hope to stay on the shelves permanently, if the test phase is successful. NX-Food also cooperates with the airline Eurowings and with Retail in Motion. From August 2018 to October 2019, products from up to 4 start-ups have been featured in Eurowings’ magazine ‘Wings Bistro’ for one quarter. NX-Food is also very engaged in community and partnership programmes. Amongst other things, NX-Food has hosted more than 30 events bringing together over 2,000 industry experts, start-up entrepreneurs, restaurateurs and people with a passion for innovative food. To reinforce this commitment, NX-Food decided in 2019 to partner with Europe’s leading food innovation initiative, the European Institute of Innovation & Technology (EIT) Food. NX-Food advises the start-ups of the RisingFoodStars Association and supports them with extensive market expertise. NX-Food and METRO are also founding members of the new Association for Alternative Protein Sources (BALPro). The association brings together more than 60 representatives from trade, industry, science and research to provide transparent and traceable information on animal and plant protein sources. 2.4 Combined non-financial statement of METRO AG With this chapter, METRO AG fulfils its duty to produce a non-financial statement (NFS) for the holding company, pursuant to §§ 289b–e of the German Commercial Code, and a non- financial group statement, pursuant to §§ 315b–c together with §§ 289c–e of the German Commercial Code, in the form of a consolidated non-financial statement. As a separate chapter, this declaration constitutes a part of the combined management report. Unless stated otherwise, the concepts described here apply to the entire group as well as the holding company. Unless expressly stated otherwise, all presentations in the combined management report refer to continuing operations (excluding the hypermarket business and excluding METRO China). The Management Board of METRO AG is fully involved in all topics presented here and is regularly updated about their progress. The NFS is integrated in the combined management report. It was produced in consideration of the GRI standards for Corporate Responsibility Reporting and the UN Global Compact. The contents are not subject to statutory audits of the annual and consolidated financial statements, but are part of the limited assurance business audit according to ISAE 3000 by KPMG AG Wirtschaftsprüfungsgesellschaft. The assurance statement of the independent auditor is available at www.metroag.de/cr-report-2018-19/ assurance Business model For more information about METRO’s business model, see chapter 2 principles of the group − 2.1. group business model page 49 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 57 METRO SUSTAINABLE Our society is more exposed than ever to economic, environmental, social and cultural challenges. Similarly, we experience every day that sustainability is the key to transforming these challenges into opportunities. It is our vision to make wholesale more sustainable along the value chain in our work with small and medium-sized independent suppliers and customers in contact with consumers. By reconciling our business imperative and goals with the needs of nature, people and future generations, we can act responsibly, remain successful in the long term and overcome the conventional limits of growth. Through information, inspiration, motivation and support from our employees, customers and partners, this visionary approach has the potential to reach millions of people. METRO SUSTAINABLE – OUR CONTRIBUTION TO SUSTAINABLE DEVELOPMENT As a partner for independent businesses along the entire value chain, we thus do more for business-passionate people – in a responsible way. This reflects the core of our business and means that, for our sustainability approach, we not only practice METRO SUSTAINABLE in our own business, but also support our customers in making their businesses more sustainable through sustainable value creation. We strengthen local communities and call for more conscious nutrition. As an innovation driver for sustainable solutions, we contribute to a sustainability movement. For example, by using the digital solution of Too Good To Go in our stores as well as offering it to our customers, we reduce food waste on different levels in our value chain. This is how we achieve our goal of becoming part of an ecosystem analogous to nature through METRO SUSTAINABLE and making an impact for increased sustainability. To ensure that our sustainability approach addresses the aspects and issues that most affect our business and that we can leverage through our business activities, we conducted a materiality analysis in the course of financial year 2017/18 in accordance with the requirements of the CSR Directive Implementation Act. Assessment of the facts was based on the legally required materiality definition. The aspects and issues identified in the analysis are the content of this NFS and comply with the requirements of the CSR Directive Implementation Act for the reporting of non-financial content. The results of this materiality analysis were confirmed in financial year 2018/19 by our customer survey conducted in 23 countries with a focus on sustainability and in a 1-day sustainability strategy workshop with the participation of the Management Board of METRO AG, other senior management positions and other expert functions of the entire METRO group. With our focus on the food sector, we emphasise on 3 main topics: M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 58 1. We want to make our range of products and services more sustainable by positively influencing the availability, quality and wholesomeness as well as the social and environmental safety of food. 2. We promote more conscious consumption, including the use of a diverse range of proteins. 3. By pooling our partnership strengths, we are fighting against food waste. For us, this means improving our ‘foodprint’ while minimising our ecological and social footprint by treating people and resources responsibly and creating positive effects for society as a whole. Not only through the discourse with internal and external stakeholders such as employees, customers, suppliers and business partners, local communities, NGOs, political representatives, investors, competitors and committees do we know that further material issues, such as the protection of human rights, the use of more sustainable packaging and less conventional plastic, our actions to improve climate protection and responsible procurement as well as the pursuit of diversity and inclusion naturally remain within our responsibility. More information about METRO SUSTAINABLE is available online at www.metroag.de/cr-report-2018-19/ approach. The guiding principles for us are the United Nations Sustainable Development Goals (SDGs). These goals also form the global action framework of our corporate strategy, which is shaped by the principle of sustainability. Along our areas of responsibility (Empower) People, (Secure) Planet, (Unfold) Prosperity and (Enhance) Partnerships, we support the SDGs, in particular the goals in which we are most directly involved: 2 (Zero Hunger), 8 (Decent Work and Economic Growth), 12 (Responsible Consumption and Production), 13 (Climate action) and 17 (Partnerships for the goals). Through the diversity of our activities and the interdependence between these projects and the SDGs, we contribute to the 17 goals of the global agenda with our commitment to sustainability. As a member of the UN Global Compact, we also incorporate the 10 principles of the UNGC into our work, strategy and corporate culture. By taking these international initiatives into account, we highlight our actions as a responsible, global and locally active company. We consider ourselves to be a value- creating part of society and we contribute to achieving sustainable economic, social and environmental development. Actively managing sustainability The sustainability management serves the purpose of systematically and organisationally anchoring the notion of sustainability in our core business operations and to consider the interdependencies between economic, environmental and social aspects in an efficient, solution-oriented manner. Via the formalised reporting and evaluation of sustainability- related opportunities and risks, which have been evaluated in the materiality analysis, it is closely linked to our overall opportunity and risk management. This enables the Management Board to systematically identify, evaluate and control deviations from the sustainability goals and the ensuing opportunities and risks. No risks subject to mandatory disclosure pursuant to § 289c Section 3 Nos. 3 and 4 of the German Commercial Code (HGB) were identified. The sustainability risk that was reported in the opportunity and risk report does not fulfil the criterion of double materiality. However, a carbon price or increased energy prices in general could negatively affect the financial situation of METRO in the short and long term. The existing, company-own climate target will further help in M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 59 managing this risk. Since 2019 this target has additionally included the supply chain as the highest environmental impact accumulates here. The Sustainability Committee sets the strategic framework, facilitates the exchange of information on sustainability issues at the highest level (also with external input) and defines group-wide objectives. To adequately respond to the specific market and customer requirements, the METRO companies manage the operational implementation of sustainability within this framework. They are responsible for working on the relevant sustainability issues, for defining specific targets and measures and for monitoring their success. They report on current developments and achieved progress to the Sustainability Committee. The committee is chaired by 2 representatives from the top management, who are frequently regularly rotated. Other members of the committee are: People in charge of corporate responsibility at METRO AG Representatives of the core functions purchasing, own brands, communication as well as investments and technical solutions Representatives of the METRO Wholesale national subsidiaries Ad hoc expert groups prepare specific issues on the operational level and then present them to the Sustainability Committee for decision. Depending on the issue, participants include experts from the METRO Wholesale national subsidiaries and the head office. Additional interfaces between the strategic and operational levels of sustainability are periodic telephone calls of the sustainability experts and 1-to-1 responsibilities of the sustainability colleagues of METRO AG for all METRO Wholesale national subsidiaries through individual country support. Much like the ad hoc expert groups, the activities promote exchange and support to implement decisions made by the Sustainability Committee. In addition, we integrate sustainability aspects into relevant business processes and decision making processes, among other things via guidelines such as the new policy on the procurement of sustainable soy. We also involve our employees via our quarterly employee survey, various sustainability activities such as our Sustainability Day as well as via our social network platform. We strive to enable our employees to understand the significance of sustainability with respect to both themselves and their professional environment, and to conduct themselves accordingly. For example, to support this goal we have our principles, self-commitments and positions that provide directional guidance and include compliance with laws as well as meeting additional requirements. Employee development programmes that integrate sustainability issues are an important aspect. For example our ambassador programme METRO Sustainable Leadership Programme, which enriches management development with a focus on sustainability. While METRO may be able to drive the issue in a top-down approach, each one of the more than 100,000 employees is our ambassador and can effectively contribute to our impact on sustainability. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 60 Our stakeholders evaluate the sustainability measures implemented by us, for example, through ratings. These evaluations by independent third parties are an important motivator to us and serve as a management tool, because they demonstrate the progress and potential to improve our activities. An example of this is the linking of the remuneration of the Management Board and the global senior management to the valuation of METRO’s sustainability performance in the rating of the Dow Jones Sustainability Index (DJSI). Oekom Research (now called ISS-oekom) awarded the prime status C+ (on a scale from D- to A+) to METRO in August 2018. Having been ranked as the best in the industry for 4 consecutive years by the internationally significant Dow Jones Sustainability World index, we attained second place in financial year 2018/2019 in the Food & Staples Retailing Group. In the Dow Jones Sustainability Index Europe however, we were ranked best in the industry for the fifth consecutive year. METRO is also listed in the FTSE4Good index. METRO has been issuing public statements on climate protection and water for many years through CDP. For the 2 topics, METRO achieved a rating of A- and B- respectively (scale F to A) in 2018 and is thus well above the industry average. METRO participated in CDP Forest for the first time. The results for 2019 were not yet available on the publication date. Environmental matters A responsible consumption of energy and other natural resources is crucial for all of us. The use of resources has a direct effect on our operating costs and may entail undesirable environmental impact, such as the emission of climate-damaging greenhouse gases. Our approach is to significantly reduce the climate-relevant emissions caused by our business operations and resulting from our supply chain as well as to decrease our consumption of natural resources1. We do this by focusing on behavioural change (Energy Awareness Programme) and investment aimed at increasing our energy efficiency (Energy Saving Programme). We also operate a global energy management system to identify potential savings in our stores and monitor our overall savings targets. At METRO Wholesale, we reduced electricity consumption in our stores by 3.4% in year-on-year comparison in the past financial year and thus clearly exceeded our target of 2.2%. Wherever possible, we are also converting our cooling systems to natural refrigerants (F-Gas Exit Programmes). This reduces our energy requirements as well as our costs. In financial year 2018/19, among other things, we invested €14.9 million in METRO Energy Saving Programme, which saves us approximately €5.3 million in energy costs each year. Examples of measures in the reporting year are: Commissioning of other transcritical ejector refrigeration plants, including in Germany, France, Italy, Bulgaria, Romania, Croatia and Russia Initiated roll-out of LED store lighting in Russia with an investment volume of €7.6 million, but also numerous diverse lighting optimisations in Germany, France, Romania, Poland, the Netherlands, Portugal, Ukraine and Moldova Installation of additional photovoltaic systems and expansion of the total capacity to more than 11,500 kWp in Germany, France, Pakistan and Japan. 1 Due to the company size and alignment (management), the aspect of environmental concerns is not significant for the holding company, METRO AG. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 61 Heat recovery measures in connection with the installation of new refrigeration plants, including in Bulgaria, Croatia and Russia Improvement of building management system by installing a lighting control system in Spain Construction of charging stations for electric vehicles for METRO customers, especially in Germany, Poland and Austria At the Düsseldorf Campus, we commissioned a total of 80 electric chargers for customer, employee and company vehicles METRO uses an internal carbon price that was originally set at €25 and increased to €50 in 2019 due to general market expectations. We use the carbon price to approve energy- efficient projects with lower financial savings. This is METRO’s response to risks identified in initial scenario analyses (as recommended by Task Force on Climate-related Financial Disclosures TCFD) in our business operations as well as in our supply chain: Physical risks resulting from extreme weather events and water damage (scarcity or flooding) Business disruptions due to extreme weather events and declining economic power pose a risk to our customers’ businesses and thus to our sales. Transition risks such as rising prices for CO2 emissions (with short-term impact on costs and product prices) Shortage of resources (rising prices for agricultural products over the next 5 to 10 years) Investments in new technologies (carbon-neutral cooling units planned worldwide until 2030) and in the generation of renewable energies (extensive installation of solar systems planned until 2030) We consider these risks in our medium-term risk management and assess risks for revenues and costs based on rising prices and decreasing availability of resources. No risks subject to mandatory disclosure pursuant to § 289c Section 3 Nos. 3 and 4 of the German Commercial Code (HGB) were identified. The climate-change-related risk listed under sustainability risk in the opportunity and risk report does not meet the requirement of double materiality. Furthermore, we assess potential approaches to perform a comprehensive climate change scenario analysis for METRO. Further key focal issues in relation to sustainable business operations are the prevention of waste, the reuse of resources and their recovery by means of recycling. The reduction of food waste is an issue of particular importance to the operations of METRO. Every food product that is rejected or discarded instead of being eaten represents wasted economic, social and environmental resources. METRO has therefore committed itself to the Resolution on Food Waste by the Consumer Goods Forum (CGF) and thus to eliminate 50% of wasted food in our own operations by the year 2025 compared to 2016. Therefore for example, the ‘Food Loss and Waste Protocol’ was successfully implemented in Turkey in financial year 2017/18, and other countries are currently being discussed. In 22 countries we cooperate with food service organisations and social institutions in order to avoid food waste in the stores, including our restaurants and warehouses. In addition, 6 of these countries cooperate with Too Good To Go. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 62 In connection with the METRO Water Initiative, the goal was set to save 5% of water by 2025 compared to the base year 2016/17. In 2019, we were able to reduce the consumption in our METRO wholesale stores by 6% calculated per square metre of net operating area compared to the previous year. Since the greatest impact for water is also in the supply chain, we use the CDP Supply Chain Programme to recognise potential opportunities and risks with our suppliers at an early stage. Status of climate protection target From October 2018 to September 2019, METRO generated 267 kg of CO2-equivalents per square metre of selling and delivery space. This figure is down from 299 kg in the previous year’s period. In financial year 2018/ 19, we retroactively switched to a different emission factor set for energy. We also report figures excluding discontinued operations. Our goal is to reduce these emissions by 50% to 188 kg by 2030 compared with 2011, and with 29% we are on the right track in the reporting period. In particular, we focus on the aforementioned programmes. In financial year 2018/19, METRO expanded the climate target to the supply chain and as the first German retailer set a recognised science-based target for CLIMATE PROTECTION TARGET STATUS Greenhouse gas emissions in kg CO2 (CO2 equivalent) per m2 of selling and delivery space 376 311 299 267 188 2030 (target year) 2011 (reference year) 2016/17 2017/18 2018/19 Scope 1 & 2 Scope 3 itself. METRO AG undertakes to reduce its Scope 1 and Scope 2 CO2 emissions by 60% per square metre selling and delivery area by 2030 compared to 2011. Our goal is thus in line with the reductions required to keep global warming well below 2 °C. A reduction of 26% has been achieved in this area since 2011. Furthermore, METRO AG is committed to reducing absolute Scope-3-CO2 emissions (supply chain) by 15% by 2030 compared to 2018. Employment matters With regard to the legally required content in relation to the aspect of employee matters, we refer to the chapter employees of the combined management report. Further information can be found in the combined management report − 2 principles of the group − 2.5 employees page 70 . Social matters Compliance with social matters within our own company, especially within the supply chain, is a complex challenge that may affect internal and external perception as well as the performance of our supply chain, and thus of our own company, both positively and negatively. With the procurement of the products that we offer our customers in terms of availability, quality and sustainability, especially with regard to social matters, we are dependent on this very efficiency of the supply chain. Simultaneously, we have influence on it through direct contact with our suppliers as producers and manufacturers. We have been committed to accepting this responsibility for many years. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 63 With regard to the description of risks associated with non-compliance of standards by our suppliers, we refer to the section on ‘supplier and product risks – quality risks’ in chapter 5 opportunity and risk report page 108 . We did not identify any significant risks. Respect for human rights Respect for human rights is one of the fundamental values of METRO, as formalised in our Policy for Human Rights. We pledge to respect all human rights, as set out in the United Nations’ Universal Declaration of Human Rights, the International Bill of Human Rights, the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights and the Declaration on Fundamental Principles and Rights at Work of the International Labour Organization (ILO). This obligation applies to our own employees (see chapter 2.5 employees – human rights and employer-employee relationships and to our business partners within our value chain2. page 78 ) Since we expect our business partners to adopt and honour similar values, the METRO Code of Conduct for Business Partners is an integral part of every business relationship. This code of conduct includes compliance with human rights according to the International Bill of Human Rights, the OECD Guidelines for Multinational Enterprises, UN and ILO standards, occupational and social matters based on the principles of the International Labour Organization’s 4 core labour standards, environmental protection and corporate ethics, in particular anti-corruption and anti-bribery, antitrust and competition laws as well as data protection. Furthermore, all of our own-brand contracts contain a social standards clause that gives us legal means to enforce our requirements. In case of violations of our basic human rights principles, our employees can contact their supervisors or the company’s compliance officers. Using a tool that is publicly accessible via the METRO compliance page, every internal and external individual, including stakeholders of our suppliers, can report situations that do not comply with the values and guidelines of METRO or with statutory provisions. We also expect our suppliers to establish a grievance channel and to convey the same expectation to their own suppliers. The reported incidents will be promptly investigated and processed by our experts to take appropriate action, if necessary. We are also committed to working with our suppliers to remedy impacts and not obstructing access to other legal remedies. We believe that collaborating with other initiatives and stakeholders to deal with reported incidents is more successful than working alone. 2 For the METRO AG holding company, the aspect of human rights in the supply chain is not essential because of its business orientation, but rather only in relation to its own employees. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 64 Global labour and social standards in the supply chain and supplier development We aim to contribute to ensuring socially acceptable working conditions within our sourcing channels. Therefore, in addition to a contractual manifestation of our requirements, the application of social standards systems is an integral part of the listing process as well as an important tool. Social standards systems enable us to take effective action against any potential violations. Irresponsible practices within the supply chain can damage the confidence in our conduct and, consequently, also our business. We will therefore require our producers to be audited in accordance with the supply chain management standard set out by the Amfori Business Social Compliance Initiative (Amfori BSCI), the Sedex audit according to SMETA or an equivalent social standards system. This applies to all producers in defined risk countries (based on the Amfori BSCI assessment) in which METRO SOURCING and METRO Food Sourcing have imported goods manufactured. It also applies to all other producers who manufacture own brands or imports for our sales lines. For many years now, a corresponding process has been worked on for our non-food producers3. With effect from 1 June 2019, these requirements were established analogously for all food and near-food producers in the own-brand sector. To this end, all national subsidiaries are requested to develop country-specific development plans in the coming financial year, if possible, so that METRO can reach the goal of ensuring social compliance for all own-brand suppliers by 2030. As of 30 September 2019, 1,077 non-food producers were audited, with 99% (1,071 producers) passing the audit. Effective 1 January 2019, non-food producers who fail the audit cannot be commissioned until they achieve an acceptable audit result. In other words, they have to receive an A, B or C for the Amfori BSCI assessment or an audit that is acknowledged as equivalent.4 The verification of compliance with our requirements is performed via an internal IT- based process management database, which is synchronised with the audit results in the Amfori BSCI database. By working with our database, the responsible employees of our METRO national subsidiaries carry out the portfolio management of the affected suppliers and the associated producers and strive to integrate the procedures for compliance with social standards and human rights into their daily work routines. On the other hand, the process management is automated, for example, to warn our suppliers of expiring audits and to initiate the individual review of Amfori BSCI D or Amfori BSCI E audits or equivalent audits by METRO and to effect improvements. The database is also used as a contract compliance mechanism during initial negotiations or suspension of ongoing business, since the required documents are uploaded and reviewed before conclusion of the contract or suspension of the supplier is triggered in case of misconduct by deal-breakers specified by METRO. This includes findings in the areas of child labour, forced labour, occupational safety hazards with regard to fire safety and ethical behaviour. If there is a misconduct discovered at suppliers and their producers concerning one of these areas, they are required by METRO to develop short-term and long-term solutions. New orders or follow- up orders are suspended until the findings in the deal-breaker process have been resolved. 3 This includes merchandise producers (non-food own-brand products and own non-food imports) in high-risk countries that carry out the final value- creating production step, for example produce the final item of clothing. 4 2 METRO Wholesale companies were granted the exception until the end of the financial year to continue using individual producers with D audit results. These producers were trained by special training units in order to arrive at an acceptable audit result. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 65 Supplier development was also identified as a material topic for the business activities of our operational business. By training small and medium-sized suppliers on aspects of food safety, hygiene, processing and implementation of fair working conditions, we enable them to meet relevant standards and thus help them merchandise their goods. This increases their revenue and simultaneously secures our product range.5 In order to not only ensure the social requirements of our suppliers, but also contribute to improving them and thereby further increasing the proportion of valid social audits, METRO SOURCING works with our local non-food producers and supports them through training courses designed to understand and comply with social standards. In financial year 2017/18, METRO Turkey and METRO Pakistan piloted a 1-day training course for employees in key positions, which was then completed at METRO Ukraine and METRO Bulgaria in the reporting year. The intention is to reintroduce the importance of the topic into our organisation and to empower our employees to identify, process and prevent potential and/or actual forced labour incidents in the supply chain. The development and execution of the training is carried out in collaboration with the Amfori Business Social Compliance Initiative (BSCI). By 30 September 2020, all METRO Wholesale national subsidiaries are expected to have completed this training. SOCIAL AUDITS RELATING TO OWN IMPORTS BY METRO SOURCING AND NON-FOOD OWN-BRAND PRODUCTS OF THE METRO SALES LINES As of the closing date of 30/9 Producers with a valid audit (number) Thereof with passed audit (in %) 1,080 138 89 92 99 2016/17¹ 2017/18¹ 2018/19 Total 1,218 1,173 101 Gesamt 1.557 Total 1,274 1,071 6 Total 1,077 Thereof with passed audit Thereof with failed audit 2016/17¹ 2017/18¹ 2018/19 Producers that have passed the audit can prove the successful implementation of the Amfori BSCI system of social standards or an equivalent system by providing a certificate issued by an independent third party. ¹ Figures presented here include Real and METRO China. Combating corruption and bribery The Management Board of METRO AG is committed to complying with applicable laws, rules and regulations. METRO employs a group-wide compliance management system (CMS) to ensure compliance with laws and a self-imposed code of conduct, including key risks such as combating corruption and bribery and the prevention of antitrust law violations. The aim of the CMS is to systematically and sustainably prevent, detect and sanction regulatory infringements within the company. 5 Due to the company alignment, the aspect of supplier development is not significant for the holding company, METRO AG. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 66 The METRO Business Principles are at the heart of our compliance initiatives and are firmly anchored throughout the group particularly by ongoing training measures. The CMS is based on the METRO Business Principles. Business Principle no. 2, for example, explicitly prohibits corruption and bribery in dealing with business partners and authorities. To set up the CMS, METRO was guided by the basic elements of such a system described in the IDW PS 980 audit standard. It operationalises the 7 CMS elements on a risk basis applying a wealth of organisational, structural, procedural and individual measures for all major group companies. The Management Board of METRO AG and the General Management of the relevant METRO group companies demonstrate proper conduct and lead by example. In addition to informal role model behaviour, frequent ‘tone from the top’ messages are foreseen in the organisations. New members of management committees and other executives undergo compliance onboarding at the beginning of their job. Indications of compliance incidents are investigated in a clearly defined and objective process involving all relevant functions including compliance, legal, auditing and HR. The defined goal of the CMS is additionally implemented in the organisation via human resources management tools. As part of the regular performance reviews, compliance aspects are included in the evaluation as part of the METRO Guiding Principles. Generally, the CMS compliance risks control is risk-based. As part of regular risk audits, for example in the form of workshops with relevant stakeholders in the respective units, the compliance risks are continuously checked for completeness and relevance. In addition, each relevant group unit is classified in 1 of 3 risk classes. External and internal indicators are used for this purpose, such as Transparency International’s indices, employee turnover rates and compliance maturity in past periods. A compliance programme with different intensities is defined for each risk class. It is based on the guidelines developed for each significant compliance risk and adopted by the Management Board. When it comes to combating corruption and bribery, this is one guideline for dealing with business partners, including a business partner assessment, and dealing with public officials. The CMS is implemented by the compliance organisation. A compliance officer has been appointed to each relevant METRO group company for this purpose, who reports directly to the METRO AG Corporate Compliance department as part of Corporate Legal Affairs & Compliance. The overall responsibility lies with the Chief Compliance Officer of METRO AG, who reports directly to the Chairman of the Management Board of METRO AG. The compliance organisation is centrally managed by Corporate Compliance. Corporate Compliance keeps the CMS conceptually on a risk-appropriate level and provides the concepts and tools for implementation in the METRO group companies of each CMS element. The disciplinary and technical leadership of the compliance officers takes place via institutionalised reporting dates as well as target agreements. The compliance officers regularly report directly to the local management in their units. Moreover, identified key compliance risks are recognised within the GRC subsystems Internal Control Operations and Internal Control Finance and integrated into the systems there. An IT-based whistle-blower system provides employees and external third parties with an opportunity to provide information (under the protection of anonymity, if preferred) on regulatory infringements within the company. All reported regulatory infringements, irrespective of whether the measures for ensuring compliance with these rules fall within the area of responsibility of the compliance organisation, are investigated and sanctioned systematically by the compliance management system, which relies on the compliance incident handling system operated by the compliance organisation. The respective M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 67 departments are responsible for regulatory compliance measures that fall outside of the area of responsibility of the compliance organisation, with the exception of compliance incident handling. Compliance topics and measures are systematically communicated to the workforce through a variety of channels in the company in a targeted manner. A core tool is compulsory compliance training, which is either carried out in person or through e-training. In financial year 2018/19, compliance training was executed in all relevant METRO group companies. The selection of relevant employee groups is risk-based with practical training content. A variety of other communication formats are used in addition to training, such as compliance talks, posters, flyers, intranet, department visits, function and leadership conferences as well as personnel development events. The METRO companies cooperate with a large number of third-party business partners. Before entering into specific contractual relationships, a risk-based examination is performed to determine whether there are reasons from a compliance perspective not to engage a third party. Certain groups of business partners, such as consultants with contact to public officials as part of the order fulfilment, require an in-depth audit that is appropriate for the risk. To this end, the existing process has been digitalised and an IT tool is currently being rolled out throughout the group for auditing purposes. The audit approach is risk-based in various degrees of intensity, for example in the form of self- disclosure, but also by examining external databases with relevant risk information. Proper implementation of the defined risk-based measures for the implementation of the CMS is ensured through frequent KPI reporting for each relevant METRO group company. Through KPI reporting, a compliance maturity level is determined annually, which in turn is incorporated into risk classification and definition of measures. The efficacy of our internal compliance controls is regularly assessed by our Internal Audit unit. As part of METRO’s GRC approach, the Group Audit department evaluates the effectiveness of the group-wide CMS every year. This assessment is presented to the Management Board and the Supervisory Board as part of the regular reporting on compliance issues. Besides internal reviews and audits, the need for further development of the compliance management system is ascertained from the results of regular employee surveys. Overall, the mentioned control and monitoring measures demonstrate an appropriate level of compliance maturity. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 68 Customers Customer satisfaction and innovation management METRO is a leading international food wholesaler and global market leader in the cash-and- carry format. METRO’s strategy as a fully-fledged wholesale group is aimed at long-term, consistent growth of (like-for-like) sales and earnings. METRO focuses on identifying and addressing customers’ current and future challenges at an early stage in a constantly changing environment. It is thereby elevating the customer relationship from a transactional merchandise trade to a sustainable and holistic partnership. Customer focus and customer satisfaction are central elements of our strategy. In order to continuously measure and consistently improve customer satisfaction at METRO Wholesale, we have implemented the Net Promoter Score across the board, in other words in all 24 METRO Wholesale countries in which METRO is represented with wholesale stores. Since its introduction, METRO has received about 2.2 million customer feedbacks. Besides the purely quantitative measurement of the current satisfaction values, suggestions from customers can be systematically recorded and evaluated. They can be used to identify further potential to improve the shopping and delivery experience, which is reflected in the design of our stores, product ranges and delivery services, etc. Moreover, METRO aims to increase our operating efficiency in order to reduce our cost base. To this end, on the one hand, the group-wide synergy potential is to be exploited. On the other hand, cost advantages are to be realised through strategic cooperation projects with international retail and wholesale companies, for example by reducing procurement costs through international purchasing alliances. We also value our customers and their opinions in the area of sustainability. Therefore, from February to June 2019, we conducted a customer survey in 23 countries in which METRO is active, which showed us the importance of sustainability for our customers across all customer groups. This enabled us to verify the findings of the materiality analysis conducted in 2018. Out of almost 50,000 interested customers, almost 7,500 responded and confirmed the importance of our activities to improve our impact on the environment and society. Today, our professional customers and their customers attach great importance to acting responsibly. In order to exploit the opportunities derived from digitalisation and to realise synergies, we are bundling our digitalisation initiatives with the business units Hospitality Digital and METRO-NOM. To this end, METRO is expanding the range of professional services and digital solutions that support professional customers in the successful execution of their business activities and strengthen their competitiveness. Hospitality Digital develops customer- and user-oriented solutions, for example for the calculation of menus, a free online reservation tool or other digital solutions specifically designed for the gastronomy sector. In addition, innovative start-up companies are supported through initiatives such as the various METRO accelerator programmes. Since October 2018, restaurateurs have had access to relevant digital solutions such as the free online reservation tool via the new DISH online platform. The solutions were developed by Hospitality Digital as well as third-party providers. In addition, restaurateurs can find out about new gastronomic trends and events on DISH. Since April 2019, DISH has been available as an app, which includes a free personnel planning tool, making it easier for the restaurateur to manage his or her business on the move. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 69 With our METRO-NOM business unit, we continue to digitalise our core business. METRO-NOM supports, develops and optimises all digital solutions used by our customers, such as the online shop of METRO Wholesale or the METRO Companion app, as well as by our colleagues. The internally used solutions cover the entire value chain. Protection of personal data The protection of personal data of customers, employees and business partners is extremely important to METRO. This is particularly true considering the fact that corporate processes are increasingly being digitalised, requiring data collection, processing and storage. However, this can only work efficiently if the data-processing subjects can trust that their data will be handled with care and that their personal rights will be respected. METRO therefore always undertakes to comply with the respective data protection laws of the countries in which METRO is active. In addition, METRO has created a group-wide privacy policy that contains uniform standards for the handling of personal data and is binding for all group companies. The requirements of the internal privacy policy and national laws apply to all METRO employees. For companies operating in Europe, the European Union has already established Europe-wide uniform regulations on the handling of personal data by passing the General Data Protection Regulation (GDPR), which has been in force since 25 May 2018, which leads to more transparency in the processing of personal data. Within the scope of 2 projects, all data protection processes of all respective METRO companies throughout the group were reviewed with regard to the new requirements of the General Data Protection Regulation (GDPR). Company solutions were adapted to the requirements of the GDPR where necessary (among other things declarations of consent, data protection regulations, IT systems, privacy default settings). METRO has also created a group-wide data protection organisation, consisting of local data protection officers and data privacy managers responsible for corporate data protection. It facilitates the pursuit of overarching and national data protection and digitalisation developments in order to continue to meet the statutory data protection requirements across the group. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 70 2.5 Employees Sustainable human resource strategy With focus on METRO Wholesale, METRO is targeting long-term, consistent growth of sales and earnings. In addition to expanding our core business, we intend to use our Wholesale 360 approach to further strengthen the competitiveness of our customers in order to build long-term customer retention and establish ourselves as a partner for our key customers. We are therefore aligning our human resources strategy with our corporate strategy and continuously developing our employees. As a foundation for sustainable employee development, we have been investing in our leadership culture and management development for years. Our engagement levels, which have been rising since 2011 and are well above the industry average, are proof that our employees are doing their best every day to achieve the goals of the group. With our efforts in human resources, we are contributing to reinforce this motivation, to encourage teamwork and to promote entrepreneurial thinking, open-mindedness and taking responsibility in the company. Our focus is on the following areas: Development of our talent management and investments in our employer brand in order to fill positions in our company with the most talented employees. Evolution to an adaptive, learning organisation that responds quickly to market and customer needs and participates in shaping trends. Therefore we make significant investments to accomplish this. Creating an appealing, open-minded and inspiring work environment for our employees. We firmly believe: only satisfied employees who are treated in accordance with their capabilities and engagement can offer a first-class customer experience. Increasing efficiency through conscious use of our resources and continuous improvement of our processes. Our underlying holistic approach to human resources with customised initiatives and programmes spans the entire career of an employee – from recruitment through various career and life stages to retirement models. Involvement of the Management Board or country boards or management of the service companies respectively often already takes place during the development phase of the personnel concepts and thus ensures proper balance between adaptation to local conditions and standardisation throughout the group. One example is METRO-NOM’s new M-Trails career model. It was developed in collaboration with members of the management team, human resources managers and the works council. It is a role-based model that emphasises self-responsibility, reduces hierarchies, focuses on employee expertise and aims to improve fairness, transparency and collaboration. M-Trails thus creates a framework for the modified organisational structures and principles of METRO-NOM. It reflects agile operating principles in order to be able to act more efficiently and flexibly and to respond to changes. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 71 Recruiting employees In the competition to hire the best specialists and executives, our goal is to position METRO as an attractive employer and to attract qualified, talented people to our company. By training junior employees for the wholesale sector, we are able to develop leaders from our own ranks. At the same time, METRO is constantly exploring the market for motivated specialists in order to strengthen its own workforce and to make the best possible progress in the business. Initial training at METRO We assign great importance to the comprehensive, sustainable training of our employees in all national METRO subsidiaries and service companies. It allows us to make an important social contribution while our customers benefit from competent contact partners throughout the company. Prioritising needs-based vocational training allows us to hire a large portion of graduates at the end of the programme. In Germany, the company management and the Group Works Council have thus agreed that apprentices who complete the initial apprenticeship programme with a positive aptitude assessment will generally be offered permanent, full-time positions. The individual METRO companies in Germany have defined their own specific requirements and possible exceptions. The organisation and implementation of the initial apprenticeship programmes and the specification of their curricula are the responsibility of the companies. They offer various projects and programmes for their junior employees. For example, on 1 August 2019, 8 apprentices started at the METRO Campus in Düsseldorf, 6 of them at METRO-NOM and 1 apprentice each at METRO ADVERTISING and METRO Campus Services. In addition to the apprenticeship programme, it is also possible to complete a dual study programme that includes practical modules. Talent development In order to systematically develop our future executives from our own ranks, our initiatives and programmes are focused on our junior employees. Since 2014, METRO Wholesale has been offering the METRO Potentials Programme in all countries in which the sales line operates. The programme targets the best university graduates and young professionals worldwide with 2 to 3 years of work experience. During the 2-year trainee programme, the participants have an opportunity to expand their knowledge of our core business by participating in various hands-on projects. The trainees complete various stations in their own country and abroad as well as at the company’s headquarters in Düsseldorf. They are also mentored by a member of the respective country board who supports them as contact person and coach during that time. After completion of the programme and depending on availability and qualification, they can assume a management position, for example as store manager. But the career prospects go far beyond that, up to a position on the Management Board of the respective country. 11 trainees completed the programme in financial year 2018/19. Employer brand and human resources marketing In financial year 2018/19, we implemented various measures to position the METRO employer brand in a targeted manner. METRO offers interested applicants various opportunities to obtain information and establish contact via trade fairs, for example by attending the ”Absolventenkongress” in Cologne, as well as via social networks and in- house events. Moreover, this was the first time METRO contributed to the World Business Dialogue, the world’s largest voluntary student business conference. Interested students M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 72 had the opportunity to interact with METRO in a ‘Creation Lab’ lasting several days, while working on the development of an integrated business plan for a ‘green restaurant’. In addition to that 7 national subsidiaries, and for the first time METRO AG and METRO- NOM received the ‘Top Employer’ award in the reporting period. The Top Employers Institute certifies outstanding employee environments worldwide. At METRO AG, the wide range of offers and services for all employees was particularly rated positively: It ranges from an extensive training catalogue and development programmes such as MyRevolution or Invest-In-Me to kindergartens, the METRO Activity Centre and the home office agreement. Succession planning and remuneration models Our systematic succession planning enables our skilled employees and managers to develop attractive careers within our company. Our remuneration models also provide incentives for employees to perform and to align their work practices with our guiding principles. Executive development The systematic development of executives is a core responsibility of all general management teams of the respective METRO group companies. By taking this approach, we ensure that the skills and abilities of our managers are consistently aligned with the requirements and strategic objectives of our company. At the same time, we establish specific international career paths for our executives in collaboration with the METRO country organisations, subsidiaries and METRO AG. Our career-planning processes also allow us to identify and support internal candidates for key positions in the company. This way, vacant positions can be filled from our own ranks. In financial year 2018/19, the internal succession rate for the country boards of METRO Wholesale was 70.8%. To bolster our management capabilities and to achieve sustainable growth, we launched the Lead & Win programme at METRO in financial year 2016/17. The integrated learning concept is used to develop approximately 11,500 executives and is divided into 3 to 4 modules for different management levels. The participants learn about group-specific topics. The objective is for all executives to have completed the programme by the end of 2022. 5,003 executives started the programme in financial year 2018/19. In the coming years, the focus will increasingly be on levels 3 and 4 in the stores, namely the business, operations and department managers. Furthermore, our young talents and top executives – employees who have highly complex tasks with special significance to the success of our company – are asked to define their own individual development plan based on a structured self-assessment of their personality focused on the management competencies relevant to the position. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 73 For further support, we introduced the METRO competencies in financial year 2018/19 and defined 5 leadership dimensions as the basis for management training and talent programmes at METRO. The 43 METRO competencies are allocated to the following 5 dimensions of leadership: Lead Self Guide Develop Culture Build Momentum Deliver Results This highlights that all employees are responsible for their own development and also business success. In another major initiative, the METRO Sustainable Leadership Programme (MSLP) supports approximately 30 international executives each year over a period of 1.5 years to improve their self-management and proactive change management and to implement an individual sustainability project. The projects address environmental and social matters such as e-mobility, waste reduction and sustainability in the supply chain. Individual job performance reviews As part of our Results & Growth process, we conduct individual performance reviews for the entire group once a year. This allows us to better assess progress and skills and establish a strong feedback and development culture. We define the corresponding priorities at the beginning of each financial year, which are then examined and adjusted as necessary through mid-year reviews. The final performance review is then conducted at the end of each financial year in a feedback session, in which compliance with the group-wide guiding principles is also addressed. Systematic succession planning With the Leadership Talent Review, we have established a long-term process to identify and support talented employees at an early stage with the goal to fill top positions. Once a year, we use this review to discuss succession planning for key positions with the various METRO national subsidiaries. The competencies, skills and experience of each candidate are assessed and compared with the updated job specifications of the corresponding positions. These interviews form the basis for filling all top positions. In financial year 2018/ 19, we focused in particular on identifying young talent and we managed to find the top 500 junior managers worldwide. We now take specific measures and set up programmes to promote the development of young employees. Performance-based remuneration for executives (with the exception of members of the Management Board)6 Our remuneration system ‘Perform & Reward’ comprises a monthly fixed salary as well as 1-year and multi-year variable remuneration components whose payment amounts are essentially linked to our company’s business performance. Additionally, the 1-year variable remuneration considers our executives’ individual achievements, generation of additional value for customers as well as their implementation of our guiding principles in their daily work. The multi-year variable compensation components include a sustainability component and allow executives to participate in METRO’s share price development. 6 See chapter 6 remuneration report M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 74 Remuneration principles The remuneration model for top executives is based on the following 4 principles: Fair and internally consistent remuneration Performance-based pay Market-driven and appropriate salaries Encouragement of role model behaviour With the 1-year and multi-year variable remuneration, top executives participate directly in the success of their respective units. The 1-year variable remuneration is based on sales, profit (EBITDA) and cash flow. In addition, customer satisfaction is a relevant key performance indicator. As part of the multi-year variable remuneration (long-term incentive, LTI), a specific plan has been created for top executives of the group with focus on the increase in value of METRO. The LTI is based on the relative total shareholder return (TSR) of the METRO AG share compared to a benchmark (MDAX and a group of selected benchmark companies7). The economic success of each company during the performance period of the plan is another indicator. Furthermore, sustainability is measured by the rank METRO achieves in the Dow Jones Sustainability Index. Additionally, a mid-term incentive (MTI) was set up for top executives to support the transformation at METRO over a period of 2 years. The plan allows participants to join in on METRO’s success and rewards the achievement of important internal transformation goals, such as customer satisfaction and the quality of our master data. Top executive remuneration is complemented by benefits, such as an attractive pension model, promotion of health care and a mobility budget that can be used for a vehicle or train rides as part of METRO’s ‘Green Car Policy’. Continued development of employees Our in-house corporate academy House of Learning has been awarded the internationally renowned CLIP certification from the European Foundation for Management Development (EFMD) for the learning and development programmes offered by METRO. The foundation was particularly impressed with the consistent employee development and proximity to the business. The House of Learning division offers customised personnel development measures, learning solutions and services that target the corporate strategy of METRO as well as the special features of the wholesale business. House of Learning focuses on learning and development programmes about customer orientation, leadership, transformation, sales, field service, supply, purchasing, finance and human resources. The focus is on employees and managers of METRO AG as well as the national subsidiaries. 7 BidCorp; Bizim Toptan; Marr; Eurocash Group; Performance Food Group; US Foods Sysco; Sligro M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 75 TRAINING COURSES AT METRO Number Participants Participant hours TRAINING COURSES AT METRO AG E-Learning modules, webinars and online courses Seminars, on-the-job training 285,518 286,964 171,483 9,913 134,278 862,420 Number Participants Participant hours E-Learning modules, webinars and online courses Seminars, on-the-job training 1,774 1,891 1,055 242 886 11,590 Total 295,431 421,242 1,033,903 Total 2,016 2,777 12,645 In financial year 2018/19, we enhanced our learning opportunities. Moreover, we designed and launched internal master programmes for the first time in order to prepare high- potential employees in the company for the challenges of future management tasks in the wholesale business and to ensure long-term succession planning. One example of programme is the ‘Master in Store Operations’ course. It was launched in June 2019 after a balanced nomination process by the employees, the management of the respective country and a committee in the corporate headquarters with store managers from 15 different METRO countries. This intensive, multi-month study course will run until February 2020 and will be supported by numerous sponsors from the Management Board and Operating Board. Comparable academic concepts with master programmes are currently being developed in other areas as well (for example, Purchasing and HR). Employee engagement Our global employee survey METRO ‘Voice it!’ is an important tool used to determine the engagement of the workforce and their loyalty to the company. We conduct it in the national subsidiaries and service companies and at METRO AG. Since 2019, the employee survey takes place quarterly and will therefore reflect the mood in the company at fairly short intervals. Another objective of the new concept is to promote constant communication within the teams and thus contribute to continuous improvement of the work environment. Under the motto ‘Our start for a continuous dialogue’, more than 80,000 employees were invited to participate in the survey in May and August 2019. 81% of employees at the surveyed business units took part in the survey in May. In August, 74% of employees took part in the survey despite the summer holiday season. The level of engagement, which indicates the level of solidarity, loyalty to the company and willingness to perform, increased from 72% in May to 74% in August in financial year 2018/19. This is still well above the Global Retail Benchmark of the consulting firm Kincentric (65%). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 76 DEVELOPMENT OF THE ENGAGEMENT SCORE in % 73 75 64 63 63 64 72 65 64 74 65 64 58 45 37 2010 2017 2018 5/2019 8/2019 METRO Engagement Score Global Retail Benchmark Global All Industries Benchmark Occupational safety and health management The demographic evolution of society, profound changes in the work environment and increasing competition for a good workforce require sustainable and forward-looking concepts for occupational safety as well as viable health management. In order to identify areas with high accident rates or particularly vulnerable groups, to evaluate the causes of accidents and to define targeted countermeasures, METRO has implemented an appropriate reporting system that records employee accidents at 74% of METRO companies worldwide. Due to different definitions and legal requirements in the countries in which METRO is active, we are continuing to work on a central solution that meets local requirements and simultaneously facilitates uniform and comparable data collection throughout the company. In financial year 2018/19, 94% of the employees in the German METRO companies were recorded via accident reporting. These companies have been able to reduce the number of accidents compared to the equivalent period in financial year 2017/18. The Lost Time Injury Frequency Rate (LTIFR) for German METRO companies in financial year 2018/19 was 20 (2017/18: 27.48). This system records the number of accidents that cause a downtime of at least 1 day (without the day of the accident) per 1 million working hours. Deaths and long-term incapacity or disability are included, but commuting accidents are not. In order to increase awareness among our employees that occupational safety is also the responsibility of each individual employee, we conduct numerous programmes and events in our sales lines and service companies as well as METRO AG on topics like nutrition, sports, medical screening and mental health. Furthermore, in our national subsidiaries, the employees responsible for occupational safety and health management are increasingly collaborating in an international network to discuss and improve occupational health and safety measures and to achieve positive results for employees in a timely manner. 8 Prior-year adjustment due to discontinued operations M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 77 Diversity management We strongly believe that diversity and inclusion lead to better business results. In order to establish a diverse and inclusive corporate culture and to gain better access to more talent, METRO has developed a company-wide diversity approach. Our goal is to create an open work environment in which individual differences are respected, valued and promoted. We strive to build a workforce in which each individual can develop and use their unique potential and strengths. Equal opportunities at work We promote equal opportunities at work for men and women. METRO aims to further increase the proportion of women in executive positions. We have made progress towards this goal again during the past financial year. The objective is for 20% of employees on the 1st management level below the Management Board and 35% of employees on the second management level below the Management Board of METRO AG to be women by June 2022. At the end of financial year 2018/19, a share of 11.6% of women were employed in the first management level below the Management Board and 34.1% in the second management level below the Management Board. Additionally, the Supervisory Board has stipulated the objective of having at least one female member appointed to the Management Board of METRO AG by June 2022. As of 1 November 2019, Andrea Euenheim was appointed to the Management Board of METRO AG as the new labour director. She is succeeding Heiko Hutmacher, who is leaving the company as of 31 December 2019 at his own request. METRO AG will achieve the target set by the Supervisory Board already in 2019. Furthermore, METRO has set a voluntary target for the share of women in executive positions at METRO Wholesale. By June 2022, 25% of managerial positions on levels 1–3 (including store managers) of METRO Wholesale locations worldwide will be filled by women. At the end of the financial year, the proportion of women in management positions in levels 1 to 3 (including store managers) at METRO Wholesale was 24.2%. We will incorporate these goals in our succession planning and recruitment activities. In 2017, METRO established a Diversity and Inclusion Committee, which created a long- term strategy and is pursuing to promote diversity within the organisation and harness it to benefit the business. As part of this strategy, the committee agreed on individual goals for the group companies with the Management Board of METRO AG, which are monitored using specific key performance indicators. Another task of the aforementioned committee is to support the METRO companies in achieving their goals with best practice sharing and newly developed initiatives. In 2019, METRO AG held its first Diversity & Inclusion Days at the Düsseldorf Campus in order to make diversity and inclusion in the corporate environment more tangible for employees. With a total number of 350 participants events on 5 dimensions (sexual orientation, disability, gender, ethnicity, age), the event was very successful and will be repeated in 2020 at the METRO Campus in Düsseldorf. METRO is actively participating in various initiatives, such as the Diversity Charter, the LEAD Network and Prout at Work. Beyond that, various employee networks have been established. In 2018, METRO launched the Women Leadership Programme (WLP). Following the successful completion of a pilot programme in June 2018, the Women Leadership Programme was rolled out at METRO AG, METRO Wholesale and the service companies in 2019. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 78 Life phase-oriented programmes We offer various opportunities for part-time employment and support our employees in caring for relatives. In addition, the head office in Düsseldorf operates 3 kindergartens with spaces for children from the age of 4 months. The staff speak German and English to the children. Human rights and employer-employee relationships Our guiding principles on fair working conditions and social partnership are a crucial component in shaping our employer-employee relations. These principles are based on the UN Guiding Principles on Business and Human Rights, the core labour standards of the International Labour Organization (ILO) as well as the 3 main principles of the Resolution on Forced Labour by the Consumer Goods Forum. Accordingly, our guiding principles contain the right to free unionisation and collective agreements, structured working hours and wages, occupational safety and health management as well as the prohibition of forced labour, child labour and discrimination. We ensure that our sales lines and their national subsidiaries comply with the principles of fair working conditions by auditing our regional headquarters, stores and logistics centres. In order to improve the working conditions in the national subsidiaries, corrective action plans are defined with the local colleagues, in which substantive measures with clear responsibilities and timetables are defined and executed. Since financial year 2016/17, extensive audits on compliance with the METRO principles were performed in 15 national subsidiaries (Pakistan, Bulgaria, Japan, Hungary, Italy, Serbia, India, Slovakia, Moldova, Spain, Russia, Croatia, Kazakhstan, Portugal and France). Many areas returned satisfactory results, while others showed potential for improvement, in particular in the area of occupational safety. The on-site audits were followed by comprehensive training on the METRO principles on fair working conditions. Additional audits of the METRO Wholesale companies are planned for financial year 2019/20 with the objective of auditing all METRO companies and continuously working on improvement measures. In cooperation with the Amfori Business Social Compliance Initiative (Amfori BSCI), a special course on forced labour was piloted at the national subsidiaries in Turkey and Pakistan in financial year 2017/18 and continued in Ukraine and Bulgaria in financial year 2018/19. The objective is to train METRO employees to recognise forced labour within the supply chain and to support the appropriate ability to act. The training will be introduced in all METRO countries by 2020. On a national and international level, METRO maintains constant communication with works councils and unions and encourages management to engage in constructive and mutually informative dialogue with our employees and their representatives. This dialogue resulted in several collective employment agreements at the level of business units, countries or individual stores – depending on local laws and customary practices. Based on a survey at METRO Wholesale as well as a few service companies in the previous 2 financial years, 73% of METRO employees were globally represented by works councils, employee representatives and trade unions or covered by collective agreements. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 79 Development of employee numbers During the reporting period, METRO employed an average workforce of 93,133 full-time equivalents (2017/18: 96,344). This is a decrease of 3.3% from the same period of the previous year. The majority of our employees work outside of our home market Germany. Internationally, we had 75,943 full-time equivalents, 3.7% fewer than during the same period of the previous year. In Germany, the workforce by full-time equivalents decreased slightly to 17,190 (2017/18: 17,508). During the reporting period, METRO Wholesale employed an average of 85,261 full-time equivalents. This represents a decrease of 3.6% over the same period of the previous year. The workforce by full-time equivalents at METRO AG declined by 2.7% to 855 while the number of full-time equivalents in the Others segment decreased by 0.4% to 7,017. DEVELOPMENT OF EMPLOYEE NUMBERS BY SEGMENTS By headcount1 as of closing date of 30/9 METRO METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others METRO AG Total 1 Excluding METRO China. DEVELOPMENT OF EMPLOYEE NUMBERS BY SEGMENTS Full-time equivalents1 as of the closing date of 30/9 METRO METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others METRO AG Total 1 Excluding METRO China. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 2018 92,603 13,711 27,207 13,960 29,060 8,665 7,008 909 100,520 2018 86,239 11,816 24,073 13,884 28,264 8,202 6,916 863 94,018 2019 89,574 13,606 27,227 12,357 28,375 8,009 7,152 880 97,606 2019 82,979 11,760 24,044 12,288 27,589 7,298 7,067 837 90,883 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 80 2.6 Characteristics of the accounting-related internal control and risk management system and explanatory report of the Management Board METRO’s accounting-related internal control and risk management system employs coordinated instruments and measures for the prevention, early detection, assessment and management of risks. The Corporate Accounting department of METRO AG is responsible for the group-wide implementation of these instruments and measures. Overarching responsibility for all processes related to the preparation of the consolidated and individual annual financial statements as well as the combined management report of METRO AG rests with the Board department headed by the Chief Financial Officer of METRO AG, Mr Christian Baier. The actual preparation of the financial statements as well as the combined management report, however, is the legal responsibility of the Management Board of METRO AG. The consolidated and individual annual financial statements as well as the combined management report are audited and approved by the auditor during and after their preparation. They are then discussed and reviewed by the Supervisory Board of METRO AG. The auditor attends this Supervisory Board meeting. The auditor reports on the key findings of his audit and is available for additional questions. Provided that the Supervisory Board has no objections, it approves the annual financial statements and the combined management report. The annual financial statements of METRO AG are adopted once the Supervisory Board has issued its approval. Group-wide framework Building on the ‘Internal Control – Integrated Framework’ concept of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), the Group Governance department within the Corporate Accounting department of METRO AG has defined group- wide minimum requirements regarding the design of the accounting-related internal control system of METRO AG, the sales lines and the major service companies. With these requirements, the company particularly wants to ensure adherence to the relevant accounting standards and the respective internal guidelines (for example the IFRS accounting guideline). Among others, these requirements cover the design and implementation of controls, monitoring the effectiveness of controls and reporting on effectiveness analyses. Design of controls: Taking a top-down approach, the company has identified the risk of material errors relating to the financial reporting for significant financial and accounting- related processes. In addition, the Corporate Accounting department has stipulated binding group-wide control objectives which the group companies must meet by employing company-specific control activities. Implementation of controls: The group companies must keep records of the implementation of these controls. Effectiveness of controls: The major group companies are obligated to evaluate the effectiveness of controls at the end of each financial year (self-evaluation). In the process, they must apply the uniform, group-wide method stipulated by the Corporate Accounting department. In addition, the effectiveness of controls is reviewed as part of the risk-oriented, independent audits conducted by the Group Internal Audit department. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 81 Reporting: The results of the self-evaluations must be reported to the Corporate Accounting department using a standardised reporting format. The companies’ individual reports are validated by the Corporate Accounting department and compiled in an overall report on METRO’s accounting-related internal control system. This is reported to the Governance, Risk and Compliance Committee (GRCC) as well as the Management Board of METRO AG. The key requirements (for example the IFRS accounting guideline), accounting processes, individual controls and independent review by the Group Internal Audit department and the auditor are described in detail below. IFRS accounting guideline The interim consolidated financial statements and the consolidated financial statements of METRO AG are prepared in accordance with the International Financial Reporting Standards (IFRS) as applicable in the European Union. A group-wide IFRS accounting guideline that is compulsory for all companies included in the consolidated financial statements ensures the uniform METRO group-wide application of accounting procedures in accordance with IFRS. To monitor compliance with the IFRS accounting guideline, the management of each major group company is obligated to confirm compliance by means of a letter of representation. The IFRS accounting guideline covers all IFRS relevant to METRO AG. Amendments to IFRS are continually updated in the IFRS accounting guideline and communicated to all companies included in the consolidated financial statements. Accounting processes of companies included in the consolidated financial statements The preparation of the individual financial statements of consolidated companies according to IFRS for consolidation purposes is principally carried out in SAP-based accounting systems (SAP FI). The organisational separation of central and subledger accounting, such as fixed asset, receivables and payables accounting, provides for clear assignments of individual tasks related to the preparation of the financial statements. It also provides for a functional separation that ensures the efficacy of control processes, such as the 4-eye principle. Many group companies prepare their individual financial statements in these accounting systems on the basis of a centrally managed table of accounts using uniform accounting rules. Aside from failure to comply with accounting rules, risks can also arise from failure to observe formal deadlines. An online planning tool was introduced to help avoid these risks and document the obligatory processes required as part of the preparation of individual and consolidated financial statements under IFRS, their chronological order and the responsible persons. The online planning tool can be used to monitor the workflows for preparing individual and consolidated financial statements in accordance with IFRS in terms of content and time. The planning tool divides the process of preparing the individual financial statements into key milestones, which in turn are divided into individual activities. In terms of content, these milestones and activities are geared towards METRO’s IFRS accounting guideline and thus reflect its implemented state. The scheduling and monitoring of the milestones and activities required to achieve these group milestones in the preparation of individual financial statements are part of the responsibilities of the respective company’s management. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 82 The consolidation of accounting-related data for the purpose of group reporting is performed by a centralised consolidation system (CCH Tagetik). Without exception, all consolidated METRO companies must work within this system. It provides a uniform accounts table to be used by all consolidated companies in accordance with the IFRS accounting guideline. Once they have been transmitted from the separate financial statements to the consolidation system, the financial data are subjected to an automated plausibility review in relation to accounting-specific contexts and dependencies. Any errors or warning messages generated by the system during this validation process must be addressed by the person responsible for the individual financial statements before the data are transmitted to the consolidation facility. An additional control instrument is the report comparing the most significant balance sheet and income statement positions against the previous period’s figures. This report must be submitted to METRO AG by all major group companies at the time of preparing their individual financial statements and must also provide comments on any considerable deviations. To warrant the security of the group’s information technology systems (IT), access to the accounting-related IT systems (SAP FI) is regulated. Each company included in the consolidated financial statements is subject to the regulations concerning IT security. These regulations are summarised in an IT security guideline, with group-wide compliance being monitored by the Group Internal Audit department of METRO AG. This ensures that users only have access to the information and systems needed to fulfil their specific tasks. Accounting processes for consolidation purposes The processes and controls in connection with preparation of the consolidated financial statements comprise all activities related to the preparation of the consolidated financial statements. This includes the completeness check of the consolidation group, verification of punctual, complete and correct data submission, avoidance of undesirable data changes, a complete and error-free execution of typical consolidation steps such as the elimination of interim results, the elimination of sales, expenses, income and liabilities, as well as capital consolidation. The group also relies on external service providers to handle support activities related to the preparation of the consolidated financial statements. These services essentially relate to the valuation of real estate assets, pension obligations and share-based remuneration. The consolidation measures required for the preparation of the consolidated financial statements are subject to various systematic and manual controls. The automated plausibility reviews (validations) used in separate financial statements data also apply to the consolidation measures. A 2-signature principle supported by the consolidation system was implemented for manual postings. In the end, reviews are carried out to ensure that the information in the annual report is complete and error-free. The control measures are documented in a central documentation system. Using the central consolidation system, compliance with deadlines and milestones that are centrally provided for the purpose of structuring and coordinating the preparation of the consolidated financial statements is monitored by METRO AG’s Corporate Accounting department. Additional monitoring mechanisms at group level include target-performance comparisons as well as analyses dealing with the composition and movements of individual items in the balance sheet and the income statement. An annual self-assessment is used to verify whether internal controls for the preparation and booking process are adhered to during the preparation of the consolidated financial statements. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 2 P R I N C I P L E S O F T H E G R O U P 83 Access regulations for the consolidation system are implemented to ensure adherence to IT security regulations (write/read authorisations). Access authorisations to use the consolidation system are centrally managed and are subject to customary approval mechanisms. They are reviewed annually by Corporate Accounting to ensure that users only have access to the data they need to perform their tasks. Independent audit/validation The Group Internal Audit department of METRO AG provides independent and objective auditing and consulting services within METRO and supports the Management Board of METRO AG and the management of the group companies in reaching their goals by subjecting the key management and business processes to a potential-oriented evaluation. In coordination with the Management Board and the group companies, Group Internal Audit develops a risk-oriented audit and project plan every 3 years, which is updated annually as needed. Based on the described principles, the Group Internal Audit department carries out independent audits of the controls monitoring the process of preparing the consolidated financial statements, the implementation of the IFRS accounting guideline and group accounting processes within METRO. For this purpose, focal topics are defined as part of risk-oriented planning for the annual audit. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 84 3 ECONOMIC REPORT 3.1 Macroeconomic and sector-specific parameters Global economy The growth of the global economy was clearly positive in financial year 2018/19, even if it was noticeably lower than in the same period of the previous year. While the Eastern European and Asian regions continued to show stable growth, albeit below the previous year’s level, the Western European countries in particular recorded lower growth rates. In the economic sectors, the service sector contributed to stabilising growth. Barriers to economic development continued to result from the uncertainties in international trade, which, among other things, can be attributed to trade policy conflicts and protectionism, primarily triggered by the USA. Germany In financial year 2018/19, the German economy grew across all industries, albeit at a significantly slower pace than in the previous year. This development particularly affected the 2019 calendar year. The economic development was supported by domestic demand and the continued positive consumer behaviour. The latter was boosted by a low unemployment rate and higher wages. The service sector also contributed to economic growth, which somewhat cushioned the decline in the industrial sector. Inflation remained at a low level. Direct trade conflicts with the USA and the dispute between the USA and China remain risk factors – as does Brexit. Western Europe In Western Europe, the economic trend deteriorated increasingly compared to the previous year as well as over the course of financial year 2018/19. However, the weaker development in private spending of the export sector was partially offset by stable growth in the service sector. Despite lower growth compared to the previous year, domestic demand was boosted by private consumption and by the continued good situation of the labour market. Price inflation was low in most countries during the reporting period, particularly in Italy and Portugal. The impact of Brexit has not yet been directly felt in the rest of Western Europe. Russia The Russian economy grew in financial year 2018/19, albeit at a much slower pace than in the previous year. Exports in particular collapsed and the rouble remained weak despite a slight appreciation against the euro, partly as a result of US trade restrictions. In addition, inflation rose considerably. Domestic demand and private consumption grew more slowly than in the same period of the previous year. The labour market, on the other hand, continued to develop positively. Other negative influencing factors included the increase in value added tax and pension cuts. Eastern Europe In the other Eastern European countries, growth was noticeably stronger than in Western Europe, albeit slightly lower than in the same period of the previous year. The downturn was particularly affected by Turkey, which was in the middle of a recession. Growth in the region was also reflected in private consumption, which, with the exception of Turkey, was M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 85 supported by very good labour market development, for example in Poland, Hungary and Romania. The inflation rate and the exchange rate against the euro developed differently in the countries, but overall at a stable, moderate level. Turkey, however, was excluded from this development. Asia Economic growth in Asia remained at a high level, albeit slightly below previous year’s level. China in particular remained on a steady growth course despite the trade conflict with the USA. India and Malaysia also exhibited strong development. Growth in private consumption was quite stable and the labour market situation remained positive. DEVELOPMENT OF GROSS DOMESTIC PRODUCT IN IMPORTANT WORLD REGIONS AND GERMANY Year-on-year change in % World Germany Western Europe (excl. Germany) Russia Eastern Europe (excl. Russia) Asia 20181 20192 3.6 1.5 1.9 2.3 4.1 5.6 2.9 0.6 1.3 1.1 3.6 4.9 Real GDP growth corrected for purchasing power. Source: Oxford Economics 1 The previous year’s figures may slightly deviate from the Annual Report 2017/18, since retrospective corrections are being made by the data provider. 2 Outlook. Wholesale sector development On a global scale, self-service wholesale trade sales were at a similar level to the previous year; however, the development varied across the countries in which METRO operates. The sectors of our core customer groups HoReCa and Traders developed positively again compared to the same period of the previous year. Strong growth in out of home consumption across all METRO regions played a major role in this trend. In Germany, self-service wholesale trade growth stagnated in financial year 2018/19. By contrast, the delivery sales business continued to grow strongly. Compared to financial year 2017/18, sales growth in the HoReCa and Traders sectors increased to a good level. This was driven by a particularly strong increase in out of home consumption and an increase in overnight accommodation services. In Western Europe, self-service wholesale trade recorded stable growth slightly below previous year’s level, with Austria and Spain growing particularly strongly. Self-service wholesale trade also continued to develop steadily in France, albeit below previous year’s level. Growth in the HoReCa and Traders sectors accelerated as a result of the increased trend of out of home consumption. After a downturn in the previous year, self-service wholesale trade in Russia recorded growth again in financial year 2018/19. The sales of our customer groups HoReCa and Traders also developed positively. Across Eastern Europe, self-service wholesale trade as well as the HoReCa and Traders sectors the development varied. Turkish self-service wholesale trade stagnated despite M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 86 high inflation, while the HoReCa and Traders sectors continued to grow. Romania and the Ukraine experienced high growth in all areas. In Poland, the cash & carry market grew, with both the HoReCa and Traders sectors showing growth. The Asian markets in which METRO operates outperformed financial year 2017/18. Growth in cash & carry and the HoReCa and Traders sectors in India accelerated particularly strongly. In Pakistan, the HoReCa and Traders sectors also grew significantly faster than in the previous year. In Japan, the HoReCa and Traders sectors recovered compared to the previous year and showed slight growth. 3.2 Asset, financial and earnings position Overall statement by the Management Board of METRO AG on the business development and situation of METRO In financial year 2018/19, the growth of the global economy was noticeably slower than in the same period of the previous year, but was still clearly positive overall. From a regional perspective, Western European countries in particular recorded lower growth rates, while the Eastern European and Asian regions continued to show steady growth despite falling short of the previous year’s level. However, the Management Board can look back on a successful financial year in which great progress was made in implementing the transformation strategy and sales growth was accelerated. In the outlook view, in particular Eastern Europe (excluding Russia), Western Europe (excluding Germany) and Asia contributed to the good development. Growth was also shaped by expansion of the core business, wholesale. The consistent focus on the 2 core customer groups HoReCa (hotels, restaurants and catering companies) and Traders (independent retailer) also made a noticeable contribution to the good sales trend. EBITDA developed in line with expectations. Accordingly, the Management Board is satisfied with the development of the business as a whole, especially with the good earnings performance in Western Europe and Asia. Earnings per share for continuing operations including METRO China increased from €1.22 to €1.44. Accordingly, an attractive dividend will also be proposed to shareholders for financial year 2018/19. In October 2019, METRO signed an agreement to sell a majority stake in METRO China to Wumei. As a result of the sale, METRO China is reported as a discontinued operation as of 30 September 2019 in accordance with IFRS 5. Unless expressly stated otherwise, all presentations in the combined management report refer to continuing operations (excluding the hypermarket business and excluding METRO China). Only the comparison of the outlook with actual business developments as well as the dividend proposal refer to the outlook issued for 2018/19 which includes METRO China. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 87 Financial and asset position Financial management Principles and objectives of financial activities The financial management ensures the long-term liquidity of METRO reduces financial risks where economically feasible and grants loans to group companies. METRO AG centrally performs and controls these activities for all group companies. The objective is to ensure that group companies can cover their funding requirements in a cost-efficient manner and, where possible, via the international capital markets. This objective will be pursued with regard to operating business as well as investment activities. The selection of financial products is based in principle on the maturities and terms of the underlying transactions. Intra-group cash pooling allows the surplus liquidity of individual group companies to be used for providing internal finance to other group companies. This reduces the group’s amount of debt and thus its interest expenses. The financial activities are based on a financial budget for the group, which covers all relevant companies. METRO’s current long-term investment grade rating of BBB- and short-term rating of A-3 by Standard & Poor’s both ensure access to international financial and capital markets. We are utilising this access within the scope of our Commercial Paper Programme as well as our ongoing capital market programme as required. Frequent dialogue with credit investors and analysts always takes place. The following principles apply to all group-wide financial activities: External presentation of METRO as a single financial unit Protection of our financial scope of action by limiting the volume of transactions with individual banks Centralised financial risk management Centralised risk monitoring Approval process for collaboration with contractual partners in the field of financial instruments Implemented functional separation For more information about the risks stemming from financial instruments and hedging relationships, see the notes to the consolidated financial statements in no. 44 – management of financial risks page 274 . Rating METRO AG has instructed Standard & Poor’s to assess and monitor its credit rating. Standard & Poor’s current assessment of METRO’s credit rating is as follows: Category Long-term Short-term Outlook 2019 BBB− A-3 stable1 1 The outlook was temporarily lowered by Standard & Poor to ‘CreditWatch negative’, particularly in light of the EP Global Commerce takeover bid. On 25 October 2019, the outlook was confirmed as stable again. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 88 Financing measures The company’s medium-term and long-term financing needs are covered by an ongoing capital market bond programme with a maximum volume of €5 billion. On 1 March 2019, a due bond of €500 million was repaid with a coupon of 3.375%. As of 30 September 2019, the utilised bond issuance programme amounted to a total of €1,901 million. Short-term financing requirements are covered through the Euro Commercial Paper Programme with a maximum volume of €2 billion. On average, the programme was used at €785 million during the reporting period. As of 30 September 2019, the utilisation amounted to €387 million (30/9/2018: €497 million). Bilateral credit facilities totalling €359 million were used as of 30 September 2019. As a cash reserve, 2 syndicated credit facilities worth €1,750 million and additional multi-year bilateral credit facilities worth €250 million were concluded. At no point during the reporting period were the syndicated credit facilities used. For more information about financing programmes and credit facilities, see the notes to the consolidated financial statements – in no. 36 – financial liabilities page 249 . UNDRAWN CREDIT FACILITIES BY METRO 30/9/2018 30/9/2019 Remaining term Remaining term € million Total up to 1 year over 1 year Total up to 1 year over 1 year Bilateral credit facilities Utilisation Undrawn bilateral credit facilities Syndicated credit facilities Utilisation Undrawn syndicated credit facilities Total credit facilities Total utilisation Total undrawn credit facilities 633 −383 250 1,750 0 1,750 2,383 −383 2,000 318 −318 0 0 0 0 318 −318 0 315 −65 250 1,750 0 1,750 2,065 −65 609 −359 250 1,750 0 1,750 2,359 −359 2,000 2,000 279 −279 0 0 0 0 279 −279 0 330 −80 250 1,750 0 1,750 2,080 −80 2,000 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 89 Investments / Divestments In financial year 2018/19, METRO invested €499 million, considerably less than the investment amount in the previous year. The decline in investments is mainly due to a more selective expansion activity. With 3 new store openings in financial year 2018/19, it declined compared to the previous year (2017/18: 9 new store openings), which is attributable in particular to the development in Russia. 1 new METRO store was opened in the current financial year, compared to 4 stores in the previous year. The 2 additional new openings are a smaller and more cost-effective store format in Turkey and Croatia. There were no closures in financial year 2018/19. In addition, the decrease in investments resulted, among other things, from special projects in financial year 2017/18, such as the expansion of the logistics network as well as project developments in Germany. These special projects were not offset by projects of a comparable magnitude in the reporting period. Further progress was also made in improving capital efficiency in the areas of concept conversions and delivery sales. The investment focus in financial year 2018/19 included IT and digitalisation. Investments in these areas increased compared to the previous year. In addition to investments in the newly established online marketplace METRO MARKETS, above all digital services for wholesale customers and IT solutions for the delivery sales were further expanded. Furthermore, an increase in lease extensions and investments in maintenance was recorded for the reporting year. Proceeds of €505 million (2017/18: €271 million) were received from divestments (including disposals of subsidiaries, but excluding cash investments), resulting mainly from the disposal of properties. For more information about divestments, see the cash flow statement in the consolidated financial statements as well as the notes to the consolidated financial statements in no. 41 – notes to the cash flow statement page 263 . 2017/18 2018/19 absolute Change 65 127 83 69 28 195 −2 565 69 128 35 63 26 180 −2 499 4 1 −48 −6 −2 −15 0 −66 % 5.7 0.9 −57.8 −8.4 −7.1 −7.5 −29.4 −11.7 METRO INVESTMENTS € million Germany Western Europe (excl. Germany) Russia Eastern Europe (excl. Russia) Asia Others Consolidation METRO M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 90 Liquidity (cash flow statement) Cash inflow from operating activities from continuing operations amounted to €796 million in financial year 2018/19 (2017/18: cash inflow of €766 million). Investing activities led to cash inflow of €46 million (2017/18: cash outflow of €292 million). Compared with the previous year’s period, this represents an increase in cash flow before financing activities of €368 million to €842 million. Cash outflow from financing activities exhibited a cash outflow of €1,122 million (2017/18: cash outflow of €587 million). Total cash flow from investing activities of discontinued operations amounts to €−88 million (2017/18: €−24 million). For more information, see the cash flow statement in the consolidated financial statements as well as the notes to the consolidated financial statements in no. 41 – notes to the cash flow statement page 263 . CASH FLOW STATEMENT1 € million 2017/18 2018/19 Cash flow from operating activities of continuing operations Cash flow from operating activities of discontinued operations Cash flow from operating activities Cash flow from investing activities of continuing operations Cash flow from investing activities of discontinued operations Cash flow from investing activities Cash flow before financing activities of continuing operations Cash flow before financing activities of discontinued operations Cash flow before financing activities Cash flow from financing activities of continuing operations Cash flow from financing activities of discontinued operations Cash flow from financing activities Total cash flows Currency effects on cash and cash equivalents Total change in cash and cash equivalents 1 Abridged version. The complete version is shown in the consolidated financial statements. 766 139 905 −292 −89 −381 474 50 524 −587 −74 −661 −137 −30 −167 796 157 953 46 −136 −90 842 21 863 −1,122 −109 −1,231 −368 17 −351 Capital structure As of 30 September 2019, the METRO group balance sheet reports equity attributable to continuing and discontinued operations in the amount of €2.7 billion (30/9/2018: €3.1 billion). The profit or loss for the period from continuing operations leads to an increase in reserves retained from earnings. The profit or loss for the period from discontinued operations as well as dividend payments for financial year 2017/18 have an opposite effect. The equity ratio stands at 18.9% (30/9/2018: 20.2%). Negative reserves retained from earnings are not due to a history of loss but to a reclassification of the equity item ‘net assets attributable to the former METRO GROUP’, recognised in the combined financial statements of the MWFS GROUP as of 1 October 2016, to the legally defined equity items. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 91 € million Equity Share capital Capital reserve Reserves retained from earnings1 Non-controlling interests 1 Adjustment of previous year according to explanation in notes. Note no. 30/9/2018 30/9/2019 31 3,074 363 6,118 −3,449 41 2,735 363 6,118 −3,778 32 For more information about our equity, see the notes to the consolidated financial statements in the number listed in the table. Net debt related to continuing operations decreased by €0.2 billion in the adjusted year- on-year comparison, amounting to €2.9 billion as of 30 September 2019 (30/9/2018: €3.1 billion after adjustment). Cash and cash equivalents decreased by €0.4 billion as of 30 September 2019 to €0.5 billion (30/9/2018: €0.9 billion after adjustment). By contrast, financial liabilities decreased by €0.6 billion to €3.4 billion (30/9/2018: €4.0 billion after adjustment). € million Cash and cash equivalents Short-term financial investments2 Financial liabilities (incl. finance leases) Net debt 1 Adjusted for effects of the discontinued business segment. 2 Shown in the balance sheet under other financial assets (current). 30/9/2018 30/9/2018 adjusted1 30/9/2019 1,298 2 4,010 2,710 906 2 4,010 3,102 500 11 3,369 2,858 As of 30 September 2019, non-current liabilities of the continuing operations amounted to €3.4 billion (30/9/2018: € 3.4 billion). While pension provisions increased by €76 million in year-on-year comparison, mainly due to the decrease in the applicable interest rate, financial liabilities decreased by €92 million. As of 30 September 2019, METRO’s current liabilities amounted to €8.2 billion (30/9/ 2018: €8.3 billion). The decrease of €0.4 billion compared to the adjusted previous year’s figure is mainly due to the repayment of a bond in the amount of €0.5 billion. The other balance sheet items showed a stable development; only trade payables increased by €69 million, mainly due to currency effects. Compared to 30 September 2018, the debt ratio increased from 79.8% by 11.3 percentage points to 81.1%. It should be noted here that current liabilities of €2.6 billion (30/9/2018: €2.4 billion) include liabilities related to assets held for sale. For more information about the maturity, currency and interest rate structure of financial liabilities as well as the credit facilities, see the notes to the consolidated financial statements in no. 36 – financial liabilities page 249 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 92 € million Non-current liabilities Provisions for post-employment benefits plans and similar obligations Other provisions Financial liabilities Other financial and other non-financial liabilities Deferred tax liabilities Current liabilities Trade liabilities Provisions Financial liabilities Other financial and other non-financial liabilities Income tax liabilities Liabilities related to assets held for sale 1 Adjustment of previous year according to explanation in notes. 2 Adjusted for effects of the discontinued business segment. Note no. 30/9/20181 30/9/2018 adjusted2 30/9/2019 3,427 3,426 3,419 32 33 34, 36 34, 37 25 34, 35 33 34, 36 34, 37 34 43 468 126 468 126 543 132 2,590 2,590 2,498 123 120 8,705 3,993 274 1,420 1,136 191 1,691 123 119 8,706 3,503 203 1,420 954 188 127 119 8,343 3,572 168 871 962 169 2,438 2,601 For more information about the development of liabilities, see the notes to the consolidated financial statements in the numbers listed in the table. Information about contingent liabilities and other financial liabilities can be found in the notes to the consolidated financial statements in no. 45 – contingent liabilities page 281 and no. 46 – other financial commitments page 281 . Asset position In financial year 2018/19, total assets of continuing and discontinued operations decreased by €709 million to €14.5 billion (30/9/2018: €15.2 billion). In financial year 2018/19, non-current assets from continuing operations decreased by €141 million to €6.7 billion (30/9/2018: €6.9 billion), primarily relating to property, plant and equipment. In addition to cost-efficient investment activities, this was mainly due to individual property sales, while currency effects increased the carrying amount. Note no. 30/9/20181 30/9/2018 adjusted2 30/9/2019 19 20 21 22 23 23 24 25 7,503 797 499 5,314 97 88 178 202 329 6,877 6,736 778 496 785 562 4,892 4,760 97 88 178 86 262 82 97 179 80 191 € million Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment properties Financial assets Investments accounted for using the equity method Other financial and other non-financial assets Deferred tax assets 1 Adjustment of previous year according to explanation in notes. 2 Adjusted for effects of the discontinued business segment. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 93 For more information about the development of non-current assets, see the notes to the consolidated financial statements in the numbers listed in the table. Current assets of continuing operations decreased by €569 million compared to the previous year's figures to €7.8 billion (30/9/2018: €8.3 billion). Cash and cash equivalents in particular contributed to this development with a decrease of €407 million to €0.5 billion (30/9/2018: €0.9 billion). € million Current assets Inventories Trade receivables Financial assets Other financial and other non-financial assets Entitlements to income tax refunds Cash and cash equivalents Assets held for sale 1 Adjusted for effects of the discontinued business segment. Note no. 30/9/2018 30/9/2018 adjusted1 30/9/2019 26 27 24 29 30, 43 7,703 2,108 571 1 913 206 1,298 2,605 8,329 1,905 496 1 796 202 906 7,761 1,946 482 4 881 190 500 4,024 3,758 For more information about the development of current assets, see the notes to the consolidated financial statements in the numbers listed in the table. Discontinued operations The assets held for sale amount to €3.8 billion (30/9/2018: €2.6 billion as reported). The liabilities recognised in this connection amount to €2.6 billion (30/9/2018: €1.7 billion as reported). Of the resulting net assets, €0.5 billion (30/9/2018: €0.9 billion) relate to the hypermarket business. In particular, write-downs on the carrying amounts of the disposal group led to a reduction in the net assets carried in the balance sheet. METRO China was reported as a disposal group for the first time as of 30 September 2019 which accounts for €0.7 billion in net assets. For more information, see the notes to the consolidated financial statements in no. 43 discontinued business sectors page 266 . Earnings position Overview of group business development In financial year 2018/19, METRO’s like-for-like sales rose by 2.1%. The growth was particularly pronounced in Eastern Europe (excluding Russia), Western Europe (excluding Germany) and Asia. Sales in local currency grew by 2.2%. Due to adverse exchange rate developments in Eastern Europe, Russia and Asia, reported sales increased by only 1.1% to €27.1 billion. The earnings before depreciation and amortisation (EBITDA) excluding earnings contributions from real estate transactions of METRO totalled €1,021 million in financial M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 94 year 2018/19 (2017/18: €1,088 million). The exchange rate developments of primarily the Turkish and Russian currencies had a negative impact on earnings. Adjusted for currency effects, the decrease was €−49 million less than in the previous year. As expected, the ongoing repositioning of the Russian business and increased costs for digitalisation/IT had a negative impact on earnings. The positive earnings development in Western Europe (excluding Germany), Germany and Asia had a compensating effect. Earnings contributions from real estate transactions totalled €338 million (2017/18: €128 million). EBITDA reached €1,359 million (2017/18: €1,216 million). € million Sales EBITDA excluding earnings contributions from real estate transactions Earnings contributions from real estate transactions EBITDA EBIT Investments Stores Selling space (1,000 m²) 1 Adjusted for effects of the discontinued operations. 2017/181 26,792 1,088 128 1,216 713 565 675 4,665 2018/19 27,082 Change 1.1% 1,021 338 1,359 828 499 678 4,728 −6.1% – 11.8% 16.1% −11.7% 0.4% 1.3% The reconciliation from sales to like-for-like sales in local currency is shown in the following: € million Total sales Total sales in local currency1 Sales of stores that were not part of the like-for-like panel in 2018/192 Like-for-like sales in local currency Continuing operations 2017/18 26,792 26,504 197 26,307 2018/19 Change 27,082 27,082 224 26,858 1.1% 2.2% - 2.1% 1 Sales in local currency of the previous year were calculated by converting reported sales of the previous year at the average exchange rate of the current financial year. 2 Not included in the like-for-like panel are, among others, new openings, stores in start-up phase, closures, service companies and major refurbishments. Comparison of outlook with actual business developments The comparison of the actual business development with the outlook for financial year 2018/19 relates to the continuing operations of METRO including METRO China. The contract for the sale of the majority share in METRO China was signed on 11 October 2019. The outlook was based on the assumption of stable exchange rates without adjustments to the portfolio. Our reporting also assumed a continuously complex geopolitical situation. Despite the persistently challenging economic environment particularly in Russia, METRO expected to see an increase in overall sales in the range of 1% to 3% for financial year 2018/19, to which Eastern Europe (excluding Russia) and Asia in particular were supposed to contribute. With total revenue growth of 2.5% in local currency, METRO met this target. The expected measurable trend improvement in Russia was also achieved. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 95 METRO equally expected an increase in like-for-like sales in the range of 1% to 3% in financial year 2018/19, which was also supposed to be driven by Eastern Europe (excluding Russia) and Asia. With like-for-like sales growth of 2.4%, this target was met as well. The expected measurable trend improvement in Russia could be realised as well. For both sales figures, the segment outlook was also achieved in each case except for the sales trend in the Germany segment, which remained slightly below expectations. The Management Board of METRO AG expected a slight decline in EBITDA (adjusted for currency effects and excluding earnings contributions from real estate transactions) of around 2% to 6% compared to financial year 2017/18 (€1,242 million). In particular, a decline in the double-digit percentage range was expected in the Others segment (2017/18: €−129 million) and a decline in the mid to high single-digit percentage range in the Russia segment. For all other segments, an EBITDA around previous year’s level was expected. This outlook for the Russia segment was adjusted in the third quarter and a decrease of approximately 15% was expected. The slightly weaker result in Russia should be positively compensated by slightly better results in Western Europe (excluding Germany) and Asia. Adjusted for negative currency effects of €17 million, METRO’s EBITDA excluding earnings contributions from real estate transactions was €−52 million or −4.2% below the previous year’s figures. With this decrease METRO is in the expected range of the outlook of 2% to 6%. This also applies to the outlook at segment level except for the EBITDA development of the Eastern Europe segment (excluding Russia), which remained slightly below expectations. The Russia segment developed in line with the adjusted expectations. METRO has thus achieved its sales and earnings targets outlook in the previous year for financial year 2018/19. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 96 Sales trend (like-for-like) METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Sales trend in local currency METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia EBITDA excluding earnings contributions from real estate transactions in € million1 METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others 2017/18 1.3% 0.9% −0.4% −7.0% 6.1% 4.0% 1.5% 0.3% 1.7% −8.0% 5.6% 4.4% 1,242 91 491 266 363 162 −129 Outlook 2018/191 2018/19 1%−3% growth Noticeable trend improvement Special article Special article 1%−3% growth Noticeable trend improvement Special article Special article 2%−6% decline Previous year’s level Previous year’s level Decline in mid to high single-digit percentage range2 Previous year’s level Previous year’s level Decline in double-digit percentage range 2.4% 0.3% 1.3% −4.3% 6.3% 5.1% 2.5% −0.6% 1.3% −3.3% 6.4% 6.3% −4.2% 4.1% 1.6% −15.5% −3.0% 8.8% −22.6% 1 At constant exchange rates, without further portfolio adjustments and excluding transformation costs. 2 The outlook for the METRO Russia segment was adjusted in the 3rd quarter and a decline of approximately 15 % was expected. The slightly weaker result in Russia should be positively compensated by slightly better results in Western Europe (excl. Germany) and Asia. Sales and earnings development of the segments Like-for-like sales of METRO increased by 2.1% in financial year 2018/19. The growth was particularly pronounced in Eastern Europe (excluding Russia), Western Europe (excluding Germany) and Asia. Sales in local currency grew by 2.2%. Due to adverse exchange rate developments in Eastern Europe (excluding Russia), Russia and Asia, reported sales increased by only 1.1% to €27.1 billion. In Germany, like-for-like sales in financial year 2018/19 rose by 0.3%, while reported declined sales by −0.5%, significantly impacted by the first-time application of IFRS 15. Like-for-like sales in Western Europe (excluding Germany) rose by 1.3% in financial year 2018/19 after a negative development in the previous year. Reported sales increased by 1.3% to €10.8 billion. France, delivery company Pro à Pro, Spain and Portugal particularly contributed to this. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 97 In Russia, the trend improved compared to the previous year, but the market environment remains challenging. Like-for-like sales in financial year 2018/19 declined by −4.3%. In local currency, revenues decreased by −3.3%. As a result of negative currency effects, the reported sales decreased by −5.4%. In Eastern Europe (excluding Russia), like-for-like sales in financial year 2018/19 were clearly positive with an increase of 6.3%. This is predominantly attributable to the performance in Turkey, Romania and Ukraine. In local currency, sales grew by 6.4%. Due to negative currency effects, especially in Turkey, reported sales increased by 3.4% only. Like-for-like sales in Asia increased by 5.3% in financial year 2018/19. All countries in this segment (India, Japan, Pakistan) and Classic Fine Foods contributed to this result. Sales in local currency grew by 7.3%. Due to negative currency effects, reported sales increased by only 5.2%. METRO’s delivery sales developed very dynamically. In financial year 2018/19, sales rose by 9.2% to €4.6 billion (2017/18: €4.2 billion). As a result, delivery business now accounts for 17% (2017/18: 16%) ofsales. As of 30 September 2019, the store network spans 678 individual stores (30/9/2018: 675 stores). In financial year 2018/19, 3 stores were opened (1 store each in Croatia, Russia and Turkey). In addition, METRO strengthened its reach by further expanding the supply infrastructure. METRO KEY SALES FIGURES 2018/19 In year-on-year comparison Change in % compared with the previous year’s period Sales (€ million) 2017/18 2018/19 in group currency (€) Currency effects in percentage points in local currency Like-for-like (local currency) 26,792 27,082 1.1% 4,761 4,735 −0.5% 10,609 10,752 1.3% 2,815 2,662 −5.4% 6,952 1,612 43 7,191 1,696 46 3.4% 5.2% 7.4% −1.1% 0.0% 0.0% −2.1% −3.0% −2.1% 0.0% 2.2% −0.6% 1.3% −3.3% 6.4% 7.3% 7.4% 2.1% 0.3% 1.3% −4.3% 6.3% 5.3% – METRO Germany Western Europe (excl. Germany) Russia Eastern Europe (excl. Russia) Asia Others The EBITDA excluding earnings contributions from real estate transactions reached a total of €1,021 million in financial year 2018/19 (2017/18: €1,088 million). The exchange rate developments of primarily the Turkish and Russian currencies had a negative impact on earnings. Adjusted for currency effects, the decrease was €−49 million less than in the previous year. As expected, the ongoing repositioning of the Russian business and increased costs for digitalisation/IT had a negative impact on earnings. The positive earnings development in Germany, Western Europe (excluding Germany), and Asia, had a compensating effect. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 98 Earnings contributions from real estate transactions totalled €338 million (2017/18: €128 million). The increase of €210 million is essentially attributable to the postponement of a transaction in India from financial year 2017/18 to financial year 2018/19 as well as the earlier-than-expected conclusion of a transaction in China. The property in China is not part of the disposal group, so the income remains in continuing operations. Overall, EBITDA rose to €1,359 million (2017/18: €1,216 million). In Germany, EBITDA excluding earnings contributions from real estate transactions reached €95 million in financial year 2018/19 (2017/18: €91 million). In Western Europe (excluding Germany) EBITDA excluding earnings contributions from real estate transactions reached a total of €499 million in financial year 2018/19 (2017/18: €491 million). Earnings contributions from real estate transactions totalled €29 million (2017/18: €39 million), resulting especially from a real estate transaction in Spain. The EBITDA excluding earnings contributions from real estate transactions in Russia amounted to €220 million in financial year 2018/19 (2017/18: €266 million). Adjusted for currency effects, the decline amounts to €−40 million and is mainly sales and margin related. In Eastern Europe (excluding Russia) EBITDA excluding earnings contributions from real estate transactions reached a total of €344 million in financial year 2018/19 (2017/18: €363 million). Among other things, this decline is due, to the negative currency development in Turkey. Adjusted for currency effects, EBITDA excluding earnings contributions from real estate transactions in Eastern Europe (excluding Russia) fell by €−11 million. The decline in earnings in the Czech Republic was partially offset by the good development in Turkey, Poland and Ukraine. Earnings contributions from real estate transactions in Poland, the Czech Republic and Hungary amounted to €181 million (2017/18: €12 million). EBITDA excluding earnings contributions from real estate transactions in Asia reached a total of €11 million in financial year 2018/19 (2017/18: €9 million). Earnings contributions from real estate transactions in China and India amounted to €107 million (2017/18: €8 million). EBITDA excluding earnings contributions from real estate transactions in the Others segment (including consolidation) amounted to €−148 million in financial year 2018/19 (2017/18: €−132 million). While the cost of digitalisation/IT rose as expected, this profit or loss also includes revenues from damages in the low double-digit millions, which were focused in the Others segment. This was offset by consulting costs of around €20 million in connection with the voluntary takeover bid by EPGC. Earnings contributions from real estate transactions amounted to €21 million (2017/18: €69 million) essentially from the sale of a speciality centre in Germany. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 99 METRO KEY PERFORMANCE INDICATORS FOR 2018/19 EBITDA excluding earnings contributions from real estate transactions Earnings contributions from real estate transactions EBITDA EBIT Investments € million METRO 2017/ 18 2018/ 19 Change (€) 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 1,088 1,021 −67 128 338 1,216 1,359 713 828 565 499 Germany 91 95 Western Europe (excl. Germany) Russia Eastern Europe (excl. Russia) Asia 491 266 499 220 363 344 9 11 Others/consolidation −132 −148 4 8 −46 −19 3 −16 0 39 0 12 8 69 0 91 95 15 14 65 69 29 0 181 107 530 266 529 220 388 390 214 164 375 524 278 426 17 119 −5 94 127 83 69 28 128 35 63 26 21 −63 −127 −177 −260 193 178 Discontinued operations Like-for-like sales of discontinued operations increased by 1.0% in financial year 2018/19. Like-for-like sales in China rose by 5.0%, while the hypermarket business developed negatively (−0.6%). In local currency, total sales of the discontinued operations rose by 0.4%. Reported sales grew by 0.5% to €9.8 billion. The online business through Real.de continued to develop dynamically. GMV (gross merchandise value) grew by 51% to €579 million in financial year 2018/19 compared to financial year 2017/18. The EBITDA excluding earnings contributions from real estate transactions of discontinued operations reached a total of €−2 million in financial year 2018/19 (2017/18: €308 million). While METRO China recorded earnings at the previous year’s level, Real developed negatively. The decrease is mainly attributable to the negative effect on earnings resulting from the termination of the future collective agreement, expenses for future store closures as well as store-related risks and the sales and margin development. Earnings contributions from real estate transactions amounted to €50 million (2017/18: €1 million) from a real estate transaction in China. As a result of disclosure as discontinued operations and according to IFRS 5, depreciation for the hypermarket business and amortisation on fixed assets of €180 million have been suspended in financial year 2018/19. In financial year 2018/19, an impairment of the hypermarket business in the amount of €401 million was recognised through profit or loss. As of 30 September 2019, the store network comprised 97 locations in China (2017/18: 94 locations) and 276 locations for Real (2017/18: 279 locations). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 100 METRO KEY SALES FIGURES – DISCONTINUED OPERATIONS 2018/19 In year-on-year comparison Change in % compared with the previous year’s period Sales (€ million) 2017/18 2018/19 in group currency (€) 9,742 2,684 7,058 9,788 2,846 6,942 0.5% 6.0% −1.6% Currency effects in percentage points 0.1% 0.3% 0.0% in local currency Like-for-like (local currency) 0.4% 5.7% −1.6% 1.0% 5.0% −0.6% METRO thereof METRO China thereof hypermarkets METRO KEY PERFORMANCE INDICATORS – DISCONTINUED OPERATIONS 2018/19 EBITDA excluding earnings contributions from real estate transactions Earnings contributions from real estate transactions EBITDA EBIT Investitionen 2017/ 18 2018/ 19 Change (€) 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 1 0 1 50 50 0 309 49 27 −398 246 154 155 202 110 157 −154 −83 −555 35 210 215 26 189 € million METRO 308 −2 −310 thereof METRO China thereof hypermarkets 154 154 152 −2 −154 −308 Net financial result and taxes € million Earnings before interest and taxes EBIT Earnings share of non-operating companies recognised at equity Other investment result Interest income/expenses (interest result) Other financial result Net financial result Earnings before taxes EBT Income taxes Profit or loss for the period from continuing operations Profit or loss for the period from discontinued operations after taxes Profit or loss for the period 1 Adjustment of previous year according to explanation in notes. 2017/181 2018/19 713 0 0 −136 −2 −137 576 −216 359 −22 337 828 0 −1 −119 1 −119 709 −298 411 −526 −115 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 101 Net financial result The net financial result from continuing operations primarily comprises the interest result of €−119 million (2017/18: €−136 million) and the other financial result of €1 million (2017/18: €−2 million). Net interest result improved significantly as a result of more favourable refinancing terms. For more information about the net financial result, see the notes to the consolidated financial statements in no. 7 – earnings share of operating/non-operating companies recognised at equity investment result financial result page 203 , no. 9 – net interest income/interest expenses page 203 and no. 10 – other page 202 , no. 8 – other page 204 . Taxes At €298 million (2017/18: €216 million), recognised income tax expenses are €81 million higher than the previous year’s figures. During the reporting period, the group tax rate for the continuing segment is 42.0% (2017/18: 37.6%). The group tax rate represents the relationship between recognised income tax expenses and earnings before taxes. The increase in the ratio in the current financial year is mainly attributable to impairments on deferred taxes on loss carry-forwards in Germany. The comparatively low ratio in the previous year includes positive one-off tax effects such as tax rate changes abroad and the reduction for risk provisions. For more information about income taxes, see the notes to the consolidated financial statements in no. 12 – income taxes page 206 . € million Actual taxes thereof Germany thereof international thereof tax expenses/income for the current period thereof tax expenses/income of previous periods Deferred taxes thereof Germany thereof international 1 Adjustment of previous year according to explanation in notes. 2017/181 2018/19 173 (14) (159) (194) (−21) 43 (39) (4) 216 215 (9) (206) (221) (−6) 83 (104) (−21) 298 Profit or loss for the period and earnings per share The profit or loss for the period from continuing operations in financial year 2018/19 was € 411 million, €52 million higher than the profit or loss for the period of the previous year (2017/18: €359 million). The profit or loss for the period from continuing and discontinued METRO operations was €−115 million in financial year 2018/19, and was thus €−453million below the net result for the period for the previous year’s period (2017/18: €337 million). This decrease was mainly due to an impairment of €401 million in the hypermarket business. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 3 E C O N O M I C R E P O R T 102 Net of earning shares of non-controlling interests, profit for the period attributable to the shareholders of METRO AG from continuing and discontinued operations amounts to €−126 million (2017/18: €333 million). This represents a decrease of €459 million. An improvement of €49 million resulted from continuing operations. On this basis, METRO achieved a result of €−0.35 per share from its continuing and discontinued operations in financial year 2018/19 (2017/18: €0.92), of which €1.12 came from continuing operations (2017/18: €0.98). The calculation for the reporting period was based on a weighted number of 363,097,253 shares. Profit or loss for the period attributable to shareholders of METRO AG was distributed according to this number of shares. There was no dilution from so-called potential shares in financial year 2018/19 or in the previous year. The profit or loss for the period from an outlook perspective (continuing operations including METRO China) reached €523 million in financial year 2018/19 and was thus €80 million above the net income for the period of the previous year (2017/18: €443 million). For a tax expense of €341 million, this corresponds to a tax rate of 39.0%. In financial year 2018/19, METRO recorded earnings per share from continuing operations including METRO China of €1.44 (2017/18: €1.22). This result forms the basis for the dividend recommendation. 2017/18 2018/19 absolute % Change 411 52 14.4 359 −22 (0) 337 4 (3) (1) 333 (357) (−23) 0.92 (0.98) −526 −504 (−401) (−401) −115 −453 11 (6) (5) −126 (405) 7 (3) (4) −459 (49) (−532) (−508) −0.35 (1.12) −1.27 (0.13) (−0.06) (−1.46) (−1.40) – – – – 94.4 – – 13.7 – – 13.7 – Profit or loss for the period from continuing operations Profit or loss for the period from discontinued operations after taxes € million € million thereof impairment of the hypermarket business € million Profit or loss for the period Profit or loss for the period attributable to non- controlling interests thereof from continuing operations thereof from discontinued operations Profit or loss for the period attributable to the shareholders of METRO AG thereof from continuing operations thereof from discontinued operations Earnings per share (basic = diluted) thereof from continuing operations thereof from discontinued operations € million € million € million € million € million € million € million € € € M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 4 R E P O R T O N E V E N T S A F T E R T H E C L O S I N G D A T E A N D O U T L O O K 103 4 REPORT ON EVENTS AFTER THE CLOSING DATE AND OUTLOOK REPORT ON EVENTS AFTER THE CLOSING DATE Events after the closing date METRO AG sells majority share in METRO China to Wumei Technology Group On 11 October 2019, METRO AG (‘METRO’) entered into an agreement with Wumei Technology Group, Inc. (‘Wumei’), a leading Chinese retailer, to form a strategic partnership for the Chinese operations of METRO (‘METRO China’). This partnership includes the sale of METRO’s entire indirect investment in METRO China (excluding a real estate company sold separately in September 2019) to a subsidiary of Wumei (the buyer) for a company value (enterprise value, 100%) of approximately €1.9 billion. The consideration includes an estimated net cash inflow of more than €1.0 billion as well as a 20% investment of METRO in METRO China. The closing of this transaction is subject to the approval of the regulatory authorities. EP Global Commerce GmbH increases its share of voting rights in METRO AG EP Global Commerce GmbH increased its voting rights in METRO AG from 17.52% to 29.99% as of 6 November 2019 based on the notifications of voting rights submitted to the company. They and possibly other affiliated companies and related parties will thus become related companies and parties of METRO AG as of this date. Franz Haniel & Cie. GmbH and its subsidiaries are no longer related parties due to the reduction of their voting rights. OUTLOOK The outlook prepared by METRO considers relevant facts and events that were known at the time of preparing the consolidated financial statements and that may impact the future development of our business. The outlook on economic parameters is based on an analysis of primary data used to derive outlook. Oxford Economics is the main source of the data used to forecast anticipated business conditions. The following conclusions reflect a mid- range scenario of expectations. Macroeconomic parameters Global economy For financial year 2019/20, we expect global economic growth to develop at a similar level as in reporting year 2018/19. Consumption remains a positive growth driver, while industrial production in Europe remains at a similar level as in financial year 2018/19. The development of trade conflicts will potentially have a major impact on the global economy. The US trade dispute with China and the EU, as well as Brexit, must be mentioned explicitly in this context. Overall, we expect inflation-adjusted global economic growth of approximately 3.1% for 2020. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T R E P O R T O N E V E N T S A F T E R T H E C L O S I N G D A T E 104 Germany With real economic growth of +0.7%, the outlook for the development of the German economy in financial year 2019/20 is similar to that of the reporting year. Only slight growth is expected for exports and industrial production. According to the outlook, private consumption will grow just above the continued low inflation rate and thus acts as a growth driver. The situation in the labour market is expected to remain positive despite possible short-time work measures in some industrial companies. However, the development will depend on the outcome of the negotiations regarding Britain’s withdrawal from the EU, which is currently expected to take place at the beginning of 2020. Western Europe For financial year 2019/20, growth is expected to be similar (1.2%) to that of the past financial year. Overall, a virtually unchanged low development is forecast. In Italy, the economy is stagnating and the fiscal deficit is also expected to expand under the new government. In France and Spain, economic development remains relatively stable at a low level. The monetary policy of the European Central Bank (ECB) is expected to be similar to that of the previous year, that is, interest rates are expected to rise only very slightly or even be negative in the short term. The effects of Brexit on individual countries and an escalating trade conflict with the USA remain unclear. Both developments pose great risks for exports, which are a growth driver for Europe. Russia For Russia, economic growth is expected to improve slightly compared to financial year 2018/19, but still to be low overall, at approximately 1.49%. This is accompanied by a slight decline in private consumption, which will also be affected by a VAT increase and pension reforms. By contrast, inflation is expected to be below the previous year’s rate at a total of 3.3%. A stabilised level for the currency is forecast. Nevertheless, sanctions continue to contribute to the drain on the economy. Eastern Europe For the economy in Eastern Europe, we again expect growth to be slightly lower than in the previous year, but still clearly positive. This trend can be seen in almost all countries in this region. The economic situation in Turkey is slowly recovering and growth is therefore expected to be stronger than in the previous year. Private consumption in many countries is growing less strongly than in the previous year, but remains at a positive level overall and continues to drive economic growth. The outlook for inflation vary from country to country. In Poland, the rate is rising more strongly than in the previous year; in Turkey and the Ukraine the rates are falling, but remain at a high level overall. In the Eastern European countries, the labour market situation remains very good or is developing positively, for example in Serbia and Turkey. The currencies remain relatively stable against the euro. Asia The Asian economy continues to grow steadily at a similar level as in financial year 2018/19. The labour market and private consumption continue to develop very positively, even as the inflation rate continues to rise slightly. For China, economic growth is forecast to turn out below the level of the previous year, carrying the risk that the trade conflict with the USA will intensify again. The Indian economy continues to grow strongly according to forcasts, driven by private consumption, rising exports and low unemployment. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T R E P O R T O N E V E N T S A F T E R T H E C L O S I N G D A T E 105 METRO Wholesale: development in the self-service wholesale trade sector The global development of the self-service wholesale trade sector in financial year 2019/20 will remain positive, contrary to the general economic trend. Again, the contribution of the individual regions will vary. This also applies to the regions in which METRO operates. Growth will be stronger in Europe than in Asia. In comparison to the reporting period, we expect financial year 2019/20 to exhibit stronger growth in sales for cash and carry companies operating in Germany. Further sales growth is forecast for the hospitality industry sector, which represents an important customer group for METRO. The self-service wholesale trade sector in Western Europe will increase in nominal terms in the forecast year after only slight growth in financial year 2018/19, especially in the METRO countries France, Austria and Portugal. The hospitality industry sector is also likely to develop positively, especially in Portugal and Spain. In Russia, we expect strong decline in the self-service wholesale trade sector. However, we expect sales growth for our core customer groups HoReCa and Traders. In Central and Eastern European countries, the self-service wholesale trade sector will likely grow again in financial year 2019/20, especially in countries such as Turkey and Hungary. Despite the difficult economic environment, we believe that the HoReCa industry sector will grow in Turkey, supported by the fact that tourism is picking up again. We expect the HoReCa and Traders sectors to continue their strong growth momentum, particularly in Romania and Poland. The cash & carry markets in Asia, particularly in Japan and India, are forecast to deliver stable economic growth in financial year 2019/20. Earnings position outlook: outlook for METRO METRO continues its long-term strategy of focusing on wholesale and, in particular, on HoReCa and Traders customers. Against this background, we will continue to put emphasis on simplifying and streamlining our portfolio in the coming year. This includes in particular the closing of the sale of a majority stake in METRO China and the sale of our Real hypermarket business. METRO expects to generate a net cash inflow of more than €1 billion upon completion of the sale of METRO China (expected in the first half of 2020, subject to regulatory approvals). The remaining minority stake in METRO China will be reported as at- equity investment in the Asia segment. For the hypermarket business, METRO expects a successful closing of the transaction shortly. Neither METRO China nor the hypermarket business is included in the outlook either before or after completion of the transactions. As announced in November 2019, we are also planning to implement a number of efficiency measures in the coming financial year 2019/20. These measures concern in particular the simplification of administrative structures, processes and business activities. The measures will be associated with estimated one-time costs of €60 million to €80 million in 2019/20 and estimated sustainable savings in the mid-double-digit million euro range through an increase in operating performance. The associated costs from efficiency measures will be reported separately as transformation costs. The outlook is made before such transformation costs. Expected pro rata savings in 2019/20 in the low- double-digit million euro range are reflected in the outlook. METRO’s strategy further includes strengthening and expanding its core business, wholesale, in become a ‘360-degree supplier’ – the Wholesale 360 approach. This includes further localisation of the business, expansion of our delivery business, development of new channels and customers (for example via the online marketplace METRO MARKETS) as well as an increase in customer loyalty and an associated enhanced exploitation of customer M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T R E P O R T O N E V E N T S A F T E R T H E C L O S I N G D A T E 106 potential, for example through digital solutions. In addition, we plan to selectively expand our business activities through acquisitions. The mergers and acquisitions activities should thereby focus on companies that increase our presence in a market (densification) and thus contribute to market consolidation. The outlook does not include such potential mergers and acquisitions transactions. We also continue to implement our sustainability goals defined on the basis of the UN Sustainable Development Goals. The focus is on reducing food waste, making our range of products and services more sustainable and promoting more conscious consumption. The outlook is based on the current segment structure. Unlike in the previous year, METRO China has been reported as a discontinued operation since 30 September 2019, so that the composition of the Asia segment has changed in this respect. In addition, changes in key figures resulting from the first-time application of IFRS 16 (see also the respective specifications in the notes to the group accounting principles and methods page 170 ) are initially not taken into account in the outlook. METRO will finalise the retrospective adjustments as planned in the first quarter of 2019/20. Based on that, METRO will publish a reconciliation of the relevant key figures, which shows both the old and the new standard, prior to our next quarterly statement and update the outlook accordingly. Outlook of METRO The outlook is based on the assumption of stable exchange rates and no further adjustments to the portfolio and only covers METRO's continuing operations. The main opportunities and risks that could influence our outlook are explained in the opportunity and risk report. The achievement of our sales and earnings outlook is further based on our assumptions for 2019/20 regarding macroeconomic developments. Sales Due to the advancing and successful focus on the HoReCa and Traders customer groups, the Management Board expects total sales and like-for-like sales to grow by 1.5% to 3% in financial year 2019/20 (2018/19: 2.2% growth of total sales and 2.1% growth of like-for-like sales). As a consequence of this focus, a further trend improvement is expected in Russia. Germany is expected to show a flat sales development, while the Western Europe (excluding Germany), Eastern Europe (excluding Russia) and Asia segments are expected to grow at the previous year's level. Across all segments, the Management Board sees the delivery business in particular and the synergetic interaction of the various channels as well as the focus on HoReCa and Traders customers as growth drivers. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T R E P O R T O N E V E N T S A F T E R T H E C L O S I N G D A T E 107 Earnings An important focus of METRO is on increasing operating performance and portfolio simplification. Against this background, the Management Board announced to adopt various measures on 19 November 2019. In financial year 2019/20, the Management Board expects this to result in one-time transformation costs of €60 million to €80 million. Before transformation costs for these efficiency measures, the Management Board expects EBITDA excluding earnings contributions from real estate transactions to be roughly at the level of the past financial year (2018/19: €1.021 million). Earnings in Russia are expected to decline by between €20 million and €30 million as a result of the ongoing repositioning. Earnings growth in Germany and Western Europe (excluding Germany) is expected to compensate for this. For the remaining segments, EBITDA is expected to remain roughly at the previous year's level. Sales trend (like-for-like) METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Sales trend in local currency METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia EBITDA excluding earnings contributions from real estate transactions in € million METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others 1 At constant exchange rates, excluding further portfolio adjustments and transformation costs. 2018/19 2.1% 0.3% 1.3% −4.3% 6.3% 5.3% 2.2% −0.6% 1.3% −3.3% 6.4% 7.3% 1,021 95 499 220 344 11 −148 Outlook 2019/201 1.5%−3% growth Stable sales development Previous year’s level Trend improvement Previous year’s level Previous year’s level 1.5%−3% growth Stable sales development Previous year’s level Trend improvement Previous year’s level Previous year’s level Previous year’s level Earnings growth Earnings growth Decline between €20 million and €30 million Previous year’s level Previous year’s level Previous year’s level M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 108 5 OPPORTUNITIES AND RISK REPORT Opportunity and risk management system In a dynamic market environment, the early identification and systematic exploitation of opportunities is our entrepreneurial task. This is an essential prerequisite for our company’s long-term success. We define opportunities as possible achievements that extend beyond the defined objectives and can thus facilitate and drive our business development. However, our company is also exposed to risks that can impede the realisation of our short- term and medium-term objectives as well as the implementation of long-term strategies. We define risks as any potential future negative deviations from corporate objectives that may result from internal or external events. We consider opportunities and risks as inextricably linked. Risks can arise from missed or underutilised opportunities. In some cases, we must also consciously take manageable risks to be able to exploit opportunities in a targeted manner. Conversely, exploiting opportunities in dynamic growth markets or in new business areas always entails risks. In this sense, we see our opportunity and risk management as an instrument for achieving our corporate goals. A systematic process that encompasses the entire group helps the company’s management to identify, classify and control opportunities and risks early on. Opportunity and risk management thus form a single unit. Our risk management identifies developments and events that could potentially prevent us from reaching our business targets at an early stage and makes it possible to analyse their implications. This allows us to put the necessary countermeasures into place in a timely manner. At the same time, this forecasting process enables us to assess and seize opportunities. Centralised management and efficient organisation Group-wide opportunity and risk management tasks and responsibilities are clearly defined and reflect our corporate structure. We combine centralised business management by the management holding company METRO AG with the decentralised responsibility of the sales companies for the operating business and the service companies that support the operating business. It is the responsibility and a legal obligation of the Management Board of METRO AG to organise a governance management system for METRO. We regard the risk management system, the internal control system, the compliance management system as well as internal auditing to be components of the governance, risk and compliance system (GRC system). This organisational structure is based on the governance elements identified in § 107 Section 3 of the German Stock Corporation Act (AktG) as well as the German Corporate Governance Code. The fundamental principles of the GRC system are defined and documented in our governance, risk and compliance guideline. Structures and processes are made transparent and the subsystems are harmonised in terms of their organisational processes. On this basis, we work on increasing the efficiency and effectiveness of the GRC system. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 109 The group’s Governance, Risk and Compliance Committee (GRCC) is chaired by the Chief Financial Officer of METRO AG and regularly discusses methods and new developments of the GRC subsystems. The committee also conducts regular reviews of the current opportunity and risk situation. Permanent members include representatives of Corporate Accounting (including Risk Management, Internal Control Finance and Internal Control Operations), Corporate Controlling & Finance, Corporate Treasury, Corporate Legal Affairs & Compliance, Corporate Public Policy, Group Strategy, METRO Insurance Broker and Group Internal Audit. In addition, representatives of the Investor Relations and Corporate Communications divisions participate in selected meetings. Experts are included as needed. Opportunity management Systematically identifying and communicating opportunities is an integral part of METRO’s corporate management. We conduct macroeconomic analyses, study relevant trends and evaluate market, competition and locality analyses. We also analyse the critical success factors of our business models and the relevant cost drivers of our company. The Management Board of METRO AG specifies the derived market and business opportunities as well as efficiency enhancement potential in the context of strategic as well as short-term and medium-term planning. It does so by engaging in a regular dialogue with the management of the group companies and units at the central holding company. As a company, we pursue market- and customer-driven business approaches in this process and continually review our strategy to ensure long-term sustainable growth. Risk management The Management Board of METRO AG assumes overall responsibility for the effectiveness of the risk management system as part of the GRC system. The group companies are responsible for identifying, assessing and managing risks. Our Corporate Risk Management unit is responsible for managing and developing our risk management system. This unit is part of the Group Governance department of METRO AG. It determines the company’s risk management approaches, methods and standards in consultation with the GRCC. The Corporate Risk Management unit coordinates the underlying process, ensures information is shared within the company and supports the further development of risk management across all group companies and central business units. In this context, the GRCC keeps the Management Board of METRO AG continuously updated on the essential developments concerning risk management. The risk management system is organised as a closed-loop system to ensure the design’s effectiveness with respect to the defined risk management rules. This also allows us to guarantee effective implementation and continuous improvement of the system based on results and experiences. The internal control system supports the group companies in fulfilling their responsibility to manage process risks. For more information, see chapter 2 principles of the group − 2.6 characteristics of the accounting-related internal control and risk management system and explanatory report of the Management Board page 80 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 110 Key elements of internal monitoring include effectiveness checks in the form of internal audits as well as self-assessments by the management teams. The Supervisory Board of METRO AG also oversees the effectiveness of the group’s risk management. In compliance with the provisions of the German Corporate Sector Supervision and Transparency Act (KonTraG), the external auditor subjects the company’s early warning system as part of the risk management system to a periodic audit. The results of this audit are presented to the Management Board and Supervisory Board. Reporting The objective of opportunity and risk communication is to deal with opportunities and risks in a structured and continuous manner in accordance with legal and regulatory requirements. Once a year we perform an IT-supported risk inventory, by systematically mapping, describing and assessing all significant group-wide risks based on quantitative and qualitative indicators and uniform criteria relating to the loss potential and the probability of occurrence. The results of the risk inventory and the risk portfolio derived from it are updated on a regular basis. In financial year 2018/19, the risk inventory was carried out by means of a uniform risk catalogue. It significantly improved the comparability and thus the validation of risks. The risk coordinators functionally responsible for particular operational areas, for example Procurement, Supply Chain Management, Quality Assurance (QA) or administrative functions, validate the results reported by the group companies and central business units at group level and summarise them in a functional risk profile. The bottom- up view of the companies is supplemented by the top-down view of the departments. Information such as medium-term planning by the Corporate Controlling department or analyses of the strengths, weaknesses, opportunities and threats (SWOT analysis) of the Global Strategy department are included. Key issues are subsequently validated by the GRC Committee to derive specific action measures. We also consider the results of the internal control system, the compliance management system, the Internal Audit unit as well as the issues management system. The Corporate Public Policy department’s Issues Management system continuously monitors and identifies topics of special interest and media issues of relevance to the group. This enables us to address the public debate with swift, clear and uniform statements. The group’s issues management and risk management systems are closely interconnected. The opportunity and risk portfolio for METRO, which is ultimately derived from all findings, enables us to take an overall look at the opportunity and risk situation of our Company. The GRC report includes: the assessment of the management of METRO AG regarding the effectiveness of the governance management subsystems, the opportunity and risk profile of METRO, and Recommendations on risk management measures and the optimisation of the governance approach. The Management Board regularly informs the Supervisory Board and the Audit Committee about issues relating to the management of opportunities and risks. Twice a year, the Supervisory Board is provided with a written report on the organisation and direction of our opportunity and risk management as well as the current opportunity and risk situation. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 111 RISK MANAGEMENT AS A CLOSED-LOOP SYSTEM METRO 1 4 Adequacy + implementation of the design Effectiveness of the design 2 3 Segments 1 Defining rules — Definition of principles and strategic approach — Derivation of risk areas from target and control system 2 Introduction and implementation Introduction of a risk — management system 3 Monitoring/audit (decentralised) — Self-assessment of risk management effectiveness 4 Monitoring/audit (centralised) — Validation of the risk inventory — Implementation of processes — Internal risk management controls — Effectiveness assessment by the Internal Audit unit — Confirmation by management — Internal risk management system controls — Definition of processes and — Preparation of risk reports organisation — Provision of training materials — Group reporting by the units and functions — Organisation of training measures and knowledge transfer We use an emergency notification system in the case of unexpected serious risks arising for our asset, financial and earnings position. The Management Board of METRO AG will in this case be provided with the necessary information directly and without delay. Strict principles for dealing with risks METRO will only assume commercial risks if they are considered to be manageable and if the associated opportunities promise a reasonable increase in our value. We bear the risks incurred in conjunction with the core wholesaling and retailing processes ourselves. These core processes include the development and implementation of business models, decisions about store locations and the procurement and sale of merchandise and services. Risks from support processes are mitigated within the group or, to the extent expedient, transferred to third parties. We generally do not assume risks that are not related to core processes or support processes. Risks that are likely to materialise are included in our business plans. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 112 Risk management details clearly defined The coordinated use of measures within risk management is ensured by the fact that all relevant specifications for the structural and procedural organisation are compiled in sets of rules. These include the Articles of Association and Code of Procedure of group companies, internal group guidelines and our group-wide risk management guideline, which defines the risk management framework (terms, basic structure, strategy, principles), the risk management organisation (roles and responsibilities, risk units), processes (risk identification, assessment and management), risk reporting as well as monitoring and control of the effectiveness of risk management. Based on the internationally recognised COSO II standard, the risk management framework addresses the 3 levels of risk management: corporate objectives, processes and organisation. The update to the COSO II standard published in 2018 is taken into account. The first level of risk management relates to the clustering of corporate objectives. METRO has defined the following clusters: Strategic objectives related to safeguarding the company’s future economic viability (strategy cluster) Operational objectives related to the attainment of set key performance metrics (operations cluster) Corporate management objectives related to compliance with laws, regulations, internal guidelines and specified procedures (governance cluster) Objectives related to appropriate preparations to mitigate event risks such as breakdowns, business interruptions and other crisis events (events cluster) At the 2nd level of risk management, the process level, we use a catalogue of standard risks that must be assessed by the risk units in a binding manner. This ensures that all typical operational risks that apply to our business operations are validated. Additionally, companies supplement their company-specific risks. On the 3rd risk management level, clusters are delineated in terms of functional categories based on the group’s organisational structures, such as procurement, sales, human resources or real estate as well as an assignment to group companies. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 113 Risk classification All identified risks are classified based on uniform standards and quantitative and qualitative indicators with regard to loss potential (detrimental effects on our corporate objectives, the key performance indicator is EBIT) and probability of occurrence. We break risks down into the following 4 risk categories: Loss potential Material Significant Moderate Minor Probability of occurrence Likely Possible Low Unlikely > €300 million > €100−300 million > €50−100 million ≤ €50 million > 50% > 25–50% ≥ 10–25% < 10% All risks are assessed on the basis of their potential impact at the time of the risk analysis and before potential risk-minimising measures (presentation of gross risks). We generally assess risks over a prospective 1-year period; strategic risks cover at least the medium-term planning horizon of 3 years. METRO monitors and assesses longer-term opportunities and risks, for example related to climate change or political risks, using its issues management system. Risk units On the organisational level, we determine the corporate units responsible for setting objectives in a clearly defined area as well as for identifying, classifying and controlling risks. METRO’s risk management defines these areas in line with the corporate organisation using independent risk units – generally companies – as well as in terms of function using categories that are responsible for a certain operational function or administrative task. The risk units cover all essential companies of the consolidation group included in the consolidated financial statements. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 114 Description of the opportunity and risk situation METRO has numerous opportunities to ensure a sustainable positive development of its business. On the other hand, there are risks that could impact us in reaching our goals. We have allocated the METRO opportunity and risk portfolio to various subject groups. The Management Board of METRO AG identified and assessed the following risks which are considered to be particularly relevant for METRO. They are listed in the following overview: Subject group Risks related to the business environment Environmental risks Sector-specific risks Risks related to business performance Financial risks No. Particularly relevant risks 2018/19 Loss potential Probability of occurrence #1 Macroeconomic and political risks Moderate Possible #2 Interruption of business activities Significant Low Sustainability risks (new) #3 Minor Likely Risks related to the retail business #4 Challenges in the business model Material Possible Real estate risks #5 Real estate risks (renamed, previous year: inadequate construction processes) Moderate Possible Supplier and product risks #6 Quality risks Significant Low #7 Planning reliability Significant Possible Risks from completed transactions (renamed, previous year: risks in connection with company split) #8 Significant Unlikely Transaction risks #9 Risks in connection with the disposal of Real (new) #10 Trade regulations More stringent regulation pertaining to deferred remuneration #11 Other risks Legal and tax risks #12 Tax risks Material Likely Moderate Likely Moderate Possible Moderate Possible The risk ‘Employee development and attractiveness as an employer’ reported in the previous year has decreased from METRO's point of view and was no longer listed for reasons of materiality. Risk no. 3 ‘sustainability risks’ was newly included. Risk no. 9 ‘risks in connection with the disposal of Real’ was reported together with risk no. 8 in the previous year and will be listed individually this year. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 115 Opportunities and risks related to the business environment Opportunities from the development of business and political conditions An improvement in the economic and political environment worldwide or in countries where METRO is present, as well as improvements in free trade, could have a positive impact on sales, costs and earnings. METRO operates in a large number of markets where we could potentially benefit from this development. Opportunities could arise from a sustained positive geopolitical and macroeconomic development, among others in Southern Europe and Turkey – for example, in the form of a recovery of foreign exchange rates. Macroeconomic and political risks (#1) As a company with global operations, METRO depends on the political and economic situations in the countries in which it operates. The fundamental business environment can change rapidly. Changes in political leadership, civil unrest, terrorist attacks or economic imbalances can jeopardise METRO’s business. At the country level, the political and/or economic situations in Russia, Ukraine and Turkey are particularly noteworthy for the reporting period. In contrast to the previous year, the political situation in individual markets has stabilised. For this reason, the assessment of the potential extent of damage was adjusted from ‘significant’ in the previous year to ‘moderate’. The potential risks include the loss of property and real estate assets, changes in the exchange rate, product restrictions, capital controls, regulatory restrictions and unexpected weakening of demand. The global economy is increasingly marked by tense trade relations between the US, Europe and China, as can be clearly seen in the expansion of the imposed punitive tariffs, as well as the planned withdrawal of the United Kingdom from the European Union (Brexit). We see both issues as a risk. In this case, we consider the materialisation of risks in connection with tense trade relationships to be more probable than in the previous year and assess the probability of occurrence as ‘possible’ rather than ‘low’. A continuous monitoring of the economic and political developments and a review of our strategic objectives allow us nonetheless to respond to these challenges in a timely and appropriate fashion. Our international presence comes with the advantage of being able to balance the economic, legal and political risks as well as fluctuations in demand between the countries. For more information about our assessment of the development of the economic environment, see chapter 4 report on events after the closing date and outlook page 103 . Interruption of business activities (#2) Our business operations could, for example, be interrupted by a failure of IT systems, natural disasters or pandemics. Important business processes such as purchasing/product ordering, marketing and sales rely on IT systems. Systems for online retailing must be continuously available, as these systems are a prerequisite for unlimited access outside normal store opening times. As a result, the continuous availability of the infrastructure is a critical factor in the development and implementation of our IT solutions. Systems that are essential for business operations in the stores, especially checkouts, are largely self- contained and can continue to be used for some time even during events such as network failures or the failure of central systems. In case of partial network failures, they can automatically reroute data or switch to redundant routes. Modern technologies such as remote server management and cloud computing allow us to use our hardware efficiently. In addition, our centralised IT systems can be quickly M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 116 restored in the event of one or several servers failing. We operate several central IT centres, which enables us to compensate for major business interruptions or limit their duration to the absolute minimum. We also have a disaster recovery plan to restore IT centres in Germany after extended outages (for example outages caused by fire, natural disasters or criminal actions). We also prepare ourselves for the risk of an interruption of our business activities by employing a comprehensive business continuity management system. A professional crisis management allows for a rapid crisis response and thereby ensures the protection of our employees and customers. This includes evacuation plans, training measures and specific instructions. We insure ourselves against the loss of tangible assets and any impending loss of revenues or profits resultant from business interruptions wherever it is possible and reasonable. Environmental opportunities and risks Opportunities from competitive advantage Our company is more exposed than ever to economic, environmental, social and cultural challenges. Similarly, we experience that sustainability is the key to transforming these challenges into opportunities. METRO operates an active sustainability management system in order to enshrine sustainability systematically and organisationally in its core business. Our stakeholders evaluate the measures implemented by us, for example, through ratings. In financial year 2018/19, METRO dropped to second place in the Food & Staples Retailing group in the internationally important Dow Jones Sustainability Index World after 4 consecutive years as the best in the industry. In the Dow Jones Sustainability Index Europe, we were ranked best in the industry for the 5th consecutive year. Sustainability risks (#3, NEW) The consumption of energy and other natural resources affects our operating costs and may have a negative impact on the environment, for example through the emission of climate-damaging greenhouse gases. This risk was included for the first time in comparison with the previous year, as the risks from increased energy prices following a possible CO2 pricing are assessed as probable for the first time. The climate target previously defined by METRO, which was expanded by the supply chain in 2019, will help to minimise this risk. For more information about our social responsibility and environmental protection activities, see chapter 2 principles of the group − 2.4 combined non-financial statement of METRO AG page 56 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 117 Sector-specific opportunities and risks Retail business Opportunities from innovations and digitalisation METRO is focused on identifying and addressing current and future challenges of its customers at an early stage in a constantly changing environment. In this case, innovations and digitalisation are areas with excellent potentials for realising increases in value. We are convinced that the consistent implementation of innovative ideas relating to the progressing digitalisation will increasingly shape the future of the wholesale and retail industry. This may give rise to new business models, which in turn may present a variety of opportunities. In order to exploit the opportunities derived from digitalisation and to realise synergies, we are bundling our digitalisation initiatives with the business units Hospitality Digital and METRO-NOM. The focus on the core customer groups HoReCa and Traders is a key component of our digitalisation strategy, which we use to provide our customers with digital solutions such as the DISH (Digital Innovations and Solutions for Hospitality) platform. By establishing the Hospitality Digital business unit, we have prepared ourselves to take advantage of significant opportunities that may arise when the digitalisation of the HoReCa and Traders sectors and other business areas advance faster than expected. With our METRO-NOM business unit, we continue to digitalise our core business. METRO-NOM supports, develops and optimises all digital solutions used by our customers. Our METRO Accelerator powered by Techstars programme is a cooperation project with the US-based company Techstars and allows us to monitor global consumer trends and to promote digital solutions for the hospitality and retail segments offered by innovative start-up companies. Opportunities from customer focus Customer focus and customer satisfaction are central elements of our strategy. In order to continuously measure and consistently improve customer satisfaction, we have implemented the Net Promoter Score across the board in all 24 national subsidiaries in which METRO is represented with wholesale stores. Besides the purely quantitative measurement of the current satisfaction values, suggestions from customers can be systematically recorded and evaluated. This will allow further potential for improving the shopping experience and supply as well as general consumer trends to be identified. In line with our omnichannel strategy, we are expanding our delivery sales and fortifying our online activities. With Wholesale 360, our goal is to become the partner of choice for our customers by offering METRO solutions that cover all aspects of their business. We are also intensifying our competitive analyses. Our various strategic projects aim at further improving our purchasing and sales processes and at creating additional value for our customers. The goal is to ensure the impairment of assets and thereby mastering the challenges faced by our business model. As a wholesale specialist, we want to further increase our customer focus, accelerate our growth, simplify our structures and increase the implementation speed. We are thus striving to increase our overall operating performance. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 118 Challenges in the business model (#4) Particularly, the retail and wholesale trade in the markets in which we operate is characterised by rapid changes and fierce competition. A fundamental risk is consumers’ fluctuating propensity to consume. Changes in consumer behaviour and customer expectations pose additional risks, among others, in the face of demographic change, rising competition and increasing digitalisation. If we fail to adequately address our customers’ needs and price developments or if we miss trends with regard to our assortments or appropriate sales formats and new sales channels, this could potentially impede the development of our sales and income and also jeopardise our objectives in terms of growth and profitability. We address these risks by developing country-specific customer-focused value creation plans. The operating partners and international working groups (federations) monitor and support the implementation and achievement of objectives. Real estate Opportunities from increase in value We see potential for value increases in possible development projects for our existing real estate assets and other properties as well as in improved facility management. Real estate risks (#5) Loss of rental income caused by insolvencies of third-party tenants and the risk of vacant and unused selling space entail the risk of a deficient rental cover or an impairment of the underlying asset. We counter these risks with our strategic and operational real estate management and anticipatory investment planning. Delayed repair and maintenance work could lead to infringements and quality losses as well as reputational damage. The safety and health of customers, suppliers and employees could be endangered by deficiencies in the properties. We take decisive actions to prevent potential accidents and damage to health, thus ensuring a safe and healthy environment. Accordingly, we establish clear rules and procedures to identify, minimise and ultimately prevent risks. We support implementation through frequent training sessions and internal inspections. Opportunities and risks relating to business performance Suppliers and products Opportunities from responsible trading Not only for us, but also for more and more customers the environmental and social sustainability of the products we offer and their production process play an increasingly important role, in addition to quality and safety. We aim to ensure socially acceptable working conditions within our sourcing channels. For this purpose, METRO adopted a group-wide purchasing policy for a sustainable supply chain and procurement management that applies to all products. For more information about our social responsibility and environmental protection activities, see chapter 2 principles of the group − 2.4 combined non-financial statement of METRO AG page 56 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 119 Quality risks (#6) As a retail company, METRO depends on external producers and service providers. Defective or unsafe products, exploitation of the natural environment, inhumane working conditions or infringements against our compliance standards could potentially cause major damage to the reputation of METRO and pose a lasting threat to the company’s success. We therefore continuously audit our own-brand suppliers to assess their adherence to METRO’s stringent procurement and compliance standards. These include the food safety and quality standards recognised by the Global Food Safety Initiative (GFSI), such as the International Food Safety Standard and the GLOBALG.A.P. certification for agricultural products. They contribute to the safety of foods on all cultivation, production and sales levels. Own-brand suppliers without a recognised and valid audit certificate may qualify for preliminary inclusion in METRO’s supplier base by undergoing and passing a special assessment (METRO Assessment Solution) conducted by an accredited certification body. Violations of conditions can lead to exclusion from our supplier network or, in the case of unacceptable production methods, to a product being blacklisted. If suppliers do not provide a corresponding certificate, it jeopardises the due diligence of METRO towards the customer. Potentially of placing non-safe products on the market which are unsuitable for human consumption or use or even health-hazardous represents a very high reputation risk and comprises the threat of lasting damage to customer relationships. Should a quality incident occur despite these measures, the process steps for resolving interruptions and incidents described in our manual will set out the procedure to react to the incident in the interest of our customers. We also continuously evaluate potential improvements to our quality assurance systems. Financial opportunities and risks Planning reliability (#7) Unexpected deviations from the budget or the outlook could potentially result in METRO missing its budget targets and making wrong business decisions. This could lead to unexpected negative financial consequences. We therefore place high priority on measures designed to mitigate these risks. In order to minimise risks, we are consistently implementing strategic measures that are directed at improving our income position. We support the operational units in their pro-active implementation of the strategy by providing them with value creation plans. We also mitigate risks by conducting effective internal controls, a closer interlocking of strategic planning and the budgeting process as well as greater involvement of the supervisory bodies. The fact that our financial year differs from the calendar year allows us a high degree of planning certainty at an early stage, with the profitable Christmas quarter being the first quarter of our financial year. The outlook report offers insights into our expectations for the development of our business in the coming financial year. For more information about financial risks and their management, please see the notes to the consolidated financial statements in no. 44 – management of financial risks page 274 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 120 Other opportunities and risks Opportunities from portfolio simplification and efficiency improvements The focus on the wholesale business made further progress in financial year 2018/19 with the decision to sell the hypermarket business and to sell 80% of the majority interest in METRO China. In doing so, METRO is focusing its attention on investments aimed at strengthening its wholesale businesses in order to secure increased market shares in the rapidly growing HoReCa environment. The focus on wholesale could be translated faster than expected into improved workflows along the value chain and could have a positive effect on our business development through an increase in operating efficiency. In addition to focusing on the wholesale business, joint ventures such as the one between METRO and Wumei in China as well as expansion of additional cooperations can lead to further innovations or operational cost savings. Opportunities from company acquisitions Great potential for increases in value may arise from the acquisition of selected companies, particularly in business segments of strategic importance. We see opportunities in the further development of our delivery business and in reinforcing our B2B e-commerce activities. The existing minority interests held by METRO offer the opportunity for additional increases in value if, for example, start-up companies were to develop faster and better than expected. We also want to solidify and expand the leading position our company has already attained in numerous markets. Weaker market players in countries where the macroeconomic situation has deteriorated are retreating from the market. Our goal there is to gain market share and, where appropriate, to take over individual locations and thus further advance market consolidation. Risks from completed transactions (#8) The demerger of the former METRO GROUP was concluded on 13 July 2017 with the initial listing of METRO AG shares on the stock exchange. The former METRO GROUP has split into a wholesale specialist (the new METRO AG) and a company focused on consumer electronics and services (CECONOMY AG, formerly METRO AG). The demerger may be subject to additional legal risks, adding to the tax risks inherent in the implementation; in detail, these risks are: Prospectus liability, for example claims by shareholders from share trading due to inadequate information Continuing liability for all liabilities of CECONOMY AG existing as of the effective date of the demerger/spin-off for a period of 5 years Liability risks stemming from legal claims by shareholders of the former METRO AG in relation to the demerger, for which METRO AG has agreed to absorb the costs under the demerger agreement. We are preparing for any potential complaints by way of legal defence strategies. Potential claims resulting from prospectus liability are covered by a prospectus insurance policy. We are continuously monitoring the financial position of CECONOMY AG. In order to increase transparency, we now present this risk and risk no. 9 ‘risks in connection with the disposal of Real’ separately. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 121 Risks associated with the disposal of Real (#9, NEW) In connection with the sale of the hypermarket business, the risks mainly relate to remnant costs which will continue to be incurred after the sale of Real but which will not be fully reflected in the operating performance of the continuing operations. An example of residual costs is the temporary underutilisation of METRO LOGISTICS. Furthermore, there is the risk of potentially lower-than-expected sales proceeds, which would necessitate further write-downs on the hypermarket business. In the consolidated financial statements as of 30 September 2019, impairment losses of €401 million on the hypermarket business disposal group were already recognised; this was taken into account accordingly in the risk assessment. To limit risks, METRO uses professional support from investment banks and external consultants in the marketing process. Information technology Opportunities from master data A reliable basis with regard to data quality leads to an improved understanding of customer needs and thus offers great potential for opportunities. Among other things, digital solutions from Hospitality Digital (online reservation tool, internet presence) generate master data that contribute to the data basis. To seize these opportunities, METRO is developing an end-to-end master data management system to ensure data reliability. This system is supposed to be established in the sales channels in the future. Legal and tax risks Trade regulations (#10) The European Union and national governments are increasingly adopting or amending regulations that regulate trade and unfair trading practices that could affect our business. The EU directive on unfair trading practices went into force in April 2019 and must be adopted into national law by April 2021. Further restrictions of local law are expected in EU countries in this context. Compared to the previous year, the risks from this are assessed as ‘probable’ instead of ‘possible’. Among other things, the European Parliament is discussing the proposal to ban procurement partnerships. In the Corporate Public Policy department, we collect, discuss and analyse important social, regulatory and political issues in order to represent our interests at the political level through responsible lobbying. More stringent regulation pertaining to deferred compensation (#11) In addition to purchase price agreements, we enter into agreements on so-called subsequent compensation with the suppliers. These agreements are concerned with purchasing terms and conditions, such as product-specific deferred rebates, reimbursement of expenses or remuneration for services, such as advertising or other marketing-related services. For the last few years, we have observed that agreements on subsequent compensation between buyers and suppliers have been subjected to increased regulatory restrictions. This is mainly the case in the Eastern European countries, but has also been observed in other METRO countries, for example in the European Union. Russia, in particular, is affected by a decline in subsequent compensation. Some restrictions sometimes prohibit individual conditions. At the same time, antitrust law is used to regulate conditions to the detriment of retailers, as it is presumed that they have market power. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 122 We continuously and systematically monitor the risks arising from increasing regulation regarding subsequent compensation. We address these regulation trends in a preventative approach by permanently adjusting our contractual relationships with suppliers in the concerned jurisdictions and/or in relation to certain product categories. This allows us to ensure that any subsequent benefit arrangement complies with the applicable laws at all times. We also take care to appropriately provide for the respective limitation periods under civil law. We analyse the historical structures of supplier terms and conditions in the context of a transformation programme spanning over a number of years and modernise the terms as required. Without active management, there would be a risk that added value in the form of subsequent compensation in selected product groups and/or countries could no longer or only partially be collected as a result of changes to the regulatory framework. This would have a corresponding impact on the total comprehensive income of our company. For more information about legal issues, see the notes to the consolidated financial statements in no. 47 – remaining legal issues page 281 . Tax risks (#12) Tax risks can primarily arise in relation to the assessment of financial matters by the tax authorities (including transfer price issues). Additional risks may result from differing interpretations of sales tax (VAT) regulations. In addition, possible impairments on deferred tax assets in METRO AG may have a negative impact on the group tax rate. In order to identify and minimise tax risks at an early stage, METRO AG has issued a group tax guideline, which is continuously monitored by the Corporate Group Tax department to ensure that it is up to date and properly implemented. These risks are regularly and systematically examined. The resultant risk mitigation measures are then coordinated between all persons involved. Moreover, an internal control system for the sales tax process was established and already implemented for German companies, which is supposed to be expanded to other national companies. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 5 O P P O R T U N I T I E S A N D R I S K R E P O R T 123 Management’s overall assessment of the opportunity and risk situation The Management Board and the Supervisory Board of METRO AG are regularly informed about the company’s situation in terms of opportunities and risks. To evaluate the present risk situation, we did not examine opportunities and risks in isolation. Instead we analysed and rated the interdependencies between risks according to probability and impact. Our assessment indicates that the overall risks can be borne or are at least manageable. The identified individual and cumulative risks do not present risks that could possibly compromise the continuity of the company due to illiquidity or excessive indebtedness within a period of at least one year. We are confident that METRO’s earnings performance offers a solid foundation for the sustainable positive development of our business and the utilisation of numerous opportunities. The Management Board of METRO AG currently does not expect any fundamental change in the opportunities and risk situation. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 124 6 REMUNERATION REPORT The remuneration report describes the remuneration system for the Management Board and the Supervisory Board in accordance with the statutory provisions of the German Commercial Code and the recommendations of the German Corporate Governance Code and depicts the remuneration amount of the members of the Management Board and the Supervisory Board in individualised form and according to remuneration components. The report also complies with the applicable accounting standards according to GAS and IFRS as applied to capital market-oriented companies. The Supervisory Board of METRO AG decides on the remuneration system for the Management Board and reviews it on a regular basis. The Presidential Committee, chaired by the Chairman of the Supervisory Board, prepares the proposed resolutions for the full Supervisory Board. The remuneration system based on financial year 2018/19 was approved by the Supervisory Board on 2 March 2017, confirmed on 31 August 2017 and adjusted on 14 November 2017 with regard to the financial performance targets for the short-term incentive from financial year 2017/18. The Annual General Meeting on 16 February 2018 approved the existing remuneration system with 83.18% of the cast votes. The remuneration system for members of the Management Board The agreed remuneration of the members of the Management Board is made up of a fixed salary, a short-term performance-based compensation, a performance-based remuneration with long-term incentive effect, a post-employment benefits plan as well as other non-monetary and supplemental benefits. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 125 THE REMUNERATION SYSTEM FOR MEMBERS OF THE MANAGEMENT BOARD Total remuneration Variable remuneration Fixed salary ~ 30% Short-term performance-based remuneration ~ 28% Performance-based remuneration with long-term incentive effect ~ 42% Non-monetary and supplemental benefits Annual fixed salary Based on like-for-like sales growth (40%), EBITDA (40%) and RoCE (20%) Performance share plan with TSR and EPS components For example, pensions, company cars Schematic diagram – percentage of the target values of fixed and variable remuneration. The percentage distribution may occasionally be subject to slight differences. Total remuneration and the individual remuneration components are geared appropriately to the responsibilities of each individual member of the Management Board, his or her personal performance and the company’s economic situation and fulfil legal stipulations regarding customary remuneration. The performance-based variable remuneration serves as an incentive for the Management Board to increase the company’s value and is designed to generate sustainable, long-term corporate development. According to the recommendation of the German Corporate Governance Code, the remuneration for each member of the Management Board is limited in individual amounts; in each case with regard to the individual remuneration components and also in the aggregate (total disbursement cap). The upper threshold of remuneration for the financial year amounts to €8,034,800 for Mr Koch, €4,048,600 for Mr Baier, €6,043,600 for Mr Hutmacher and €4,228,600 for Mr Palazzi. Insofar as a member of the Management Board negligently or intentionally violates his duties and the company incurs damage as a result of it, the Supervisory Board has the right to withhold payment of the remuneration of this member of the Management Board in full or in part. A so-called clawback clause (repayment agreement), which in the event of a negative development provides for the recovery of payments made in the past from variable remuneration components, was not agreed with the members of the Management Board, since payments from the short-term performance-based remuneration and the M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 126 performance-based remuneration with a long-term incentive effect only take place after fulfilment of the performance targets and termination of the performance period. Without prejudice to this, a reduction of future payments to be paid in the event of a deterioration of the company’s position according to § 87 Section 2 of the German Stock Corporation Act (AktG) remains. Fixed salary The fixed salary is contractually set and is paid in monthly instalments. Short-term performance-based remuneration (short-term incentive, STI) The short-term incentive remunerates the company’s operating performance on the basis of financial performance targets pertaining to that specific financial year. A target value in euros is set for each member of the Management Board. The payout amount is calculated by multiplying the target value by the factor of overall target achievement. This, in turn, is calculated by determining the target achievement factors for each of the financial performance targets. The weighted arithmetic mean of the individual factors results in the overall target achievement factor. The overall target achievement is limited to a factor of 2.0. SHORT-TERM INCENTIVE Target amount Schematic diagram. Performance targets Financial company performance 0−200% Individual performance 0.7−1.3 Payment (payout cap: 200% of the target amount) The short-term incentive for financial year 2018/19 is based on the following parameters of the group: like-for-like sales development (sales growth in local currency related to a comparable area or a comparable portfolio of stores or distribution concepts such as delivery and online business) at 40%, exchange rate-adjusted earnings before deduction of interest expenses, taxes, depreciation/amortisation (EBITDA) at 40%, exchange rate-adjusted Return on Capital Employed (RoCE) at 20%, in each case based on the target amount. Further information on the key performance indicators can be found in chapter 2 group basics − 2.2 management system page 51 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 127 In general, performance targets are set by the Supervisory Board for each of the 3 parameters before the beginning of the financial year. The basis for determining the targets is the budget plan, which requires the approval of the Supervisory Board. To determine whether a target has been achieved, the Supervisory Board defines a lower threshold/entry hurdle for each performance target and a target value for 100% target achievement. A factor is allocated to the specific degree of target achievement for each performance target: If the degree of target achievement is 100%, the factor is 1.0. If the degree of target achievement is lower or equal to the entry hurdle, then the factor is 0.0. In the case of intermediate values and values over 100%, the factor for target achievement is calculated using linear interpolation and/or extrapolation. To determine whether the EBITDA target has been achieved, the Supervisory Board is authorised to adjust the EBITDA for any possible impairment losses on company value. To ensure the individual performance orientation of Management Board remuneration, the Supervisory Board reserves the general right to reduce or increase the weight of the individual short-term incentive by up to 30%. The basis for this are targets that were agreed individually with the respective members of the Management Board as well as overlapping strategic targets for all members of the Management Board, such as customer satisfaction, employee satisfaction and sustainability in the context of the group’s overall strategy. The payout amount of the short-term incentive is limited to a maximum of 200% of the individually determined target value (payout cap). In addition, the Supervisory Board may grant special bonuses to members of the Management Board for exceptional performance. In the reporting year, no special bonuses were granted to the members of the Management Board. The short-term incentive of the members of the Management Board is generally payable 4 months after the end of the financial year, but not before approval of the annual and consolidated financial statements by the Supervisory Board for the incentivised financial year. SHORT-TERM INCENTIVE – DISBURSEMENT CALCULATION 200% 150% 100% 50% 0% The payout corresponds to the target amount of the short-term incentive 0 0.50 1.00 1.50 2.00 2.50 Overall target achievement, including performance factor Performance-based remuneration with long-term incentive effect (long-term incentive, LTI) The performance-based remuneration with long-term incentive effect incentivises the company’s long-term and sustainable corporate development, taking into account the internal and external value development as well as the concerns of the shareholders and the other stakeholders associated with the company. Performance share plan (since financial year 2016/17) The annual tranches of the so-called performance share plan and their associated performance targets are generally based on a multi-year assessment. The performance M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 128 period is usually 3 years. The payout amount is limited to a maximum of 250% of the individually determined target value (payout cap). In case of employment termination of a member of the Management Board before the end of a performance period, separate rules for the payout of the tranches have been agreed upon. Each member of the Management Board is initially allocated conditional performance shares, the amount of which corresponds to the quotient of the individual target amount and the arithmetic mean of the share price of the company’s ordinary share upon allocation. The decisive factor here are the average Xetra closing prices of the company’s ordinary share over a period of 40 consecutive stock exchange trading days immediately after the Annual General Meeting of the company in the year of the allocation. An exception to this is the granted 2016/17 tranche of the performance share plan, which is based on the average closing prices of 40 consecutive stock exchange trading days beginning on 13 July 2017, the initial listing date of the share. The performance period ends after the 40th stock exchange trading day following the ordinary Annual General Meeting in the 3rd financial year following the issuance of the tranche. After the performance period of a tranche, the final number of performance shares is determined, which depends on the achievement of 2 performance targets, which are weighted equally in the target amount of the performance share plan: reported earnings per share (EPS), total shareholder return (TSR). LONG-TERM INCENTIVE Target amount ø share price Performance period (3 years) Final number of performance shares based on target achievement 50% EPS 50% TSR (compared to the MDAX and defined direct competitors) Final number of performance shares ø share price plus dividends Payment in cash (payout cap: 250% of the target amount) FY n FY n + 1 FY n + 2 FY n + 3 Number of vested performance shares Schematic diagram. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 129 For the EPS component, the Supervisory Board generally decides at the beginning of the financial year in which the tranche of the performance share plan is allocated on a lower threshold/entry hurdle for target achievement and an EPS target value for 100% target performance for the 3rd financial year of the performance period. A factor is allocated to the specific degree of target achievement: If the degree of target achievement at the end of the performance period is 100%, the factor is 1.0. If the degree of target achievement is lower or equal to the entry hurdle, then the factor is 0.0. In the case of intermediate values and values over 100% up to a maximum of 300%, the factor for target achievement is calculated using linear interpolation and/or extrapolation. The target achievement factor of the TSR component is measured by the development of the total shareholder return of the company’s ordinary share in the performance period relative to a defined benchmark index and to a defined comparison group at half the rate compared to the development of the MDAX TSR and the development of the average TSR of a defined comparison group of direct competitors over the same period as the TSR of the company. The TSR value of the comparison group of the direct competitors is determined individually for the members of the comparison group and then the arithmetic mean is established. The peer group of direct competitors, which is in line DETERMINING THE TARGET ACHIEVEMENT OF THE EPS COMPONENT 300% 250% 200% 150% 100% 50% 0% 0 1.00 2.00 3.00 4.00 EPS performance with the Wholesale 360 approach, is composed of the following companies: Bidcorp, Bizim Toptan, Marr, Eurocash Group, Performance Food Group, US Foods, Sysco and Sligro. Only companies that are listed for the entire performance period are included in this group. If TSR values are available for fewer than 6 companies in this comparison group, then the METRO TSR will be exclusively compared with the MDAX TSR – and the comparison with the group of direct competitors will not apply. For the TSR component, the Supervisory Board also usually establishes a lower threshold/ entry hurdle and a TSR target value for the 100% target achievement at the beginning of the financial year in which the tranche of the performance share plan is granted. To determine the target achievement, the Xetra closing prices of the company’s ordinary share are determined over a period of 40 consecutive stock exchange trading days immediately after the Annual General Meeting of the company in the year of the allocation of the tranche. This is used to establish the arithmetic mean, which is known as the starting share price. The performance period for the respective tranche will begin on the 41st trading day following the Annual General Meeting, or for the tranche granted in financial year 2016/17 on the 41st stock exchange trading day following the initial listing of the ordinary share of the company. 3 years after the starting share price has been determined M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 130 and the tranche has been issued, the Xetra closing prices of the ordinary share of the company will be determined over a period of 40 consecutive stock exchange trading days immediately following the Annual General Meeting. This is used again to establish the arithmetic mean, which is known as the ending share price. The TSR is determined as a percentage on the basis of the change in the company’s ordinary share price and the total amount of hypothetically reinvested dividends throughout the performance period in relation to the starting share price. The resulting TSR of the company is compared to the equally determined TSR of the 2 comparison groups in the performance period. A factor is allocated to the specific degree of target achievement: If the degree of target achievement at the end of the performance period is 100%, the factor is 1.0. This requires an outperformance of 5 percentage points versus the comparison group. If the degree of target achievement is lower or equal to the entry hurdle, then the factor is 0.0. In the case of intermediate values and values over 100% up to a maximum of 300%, the factor for target achievement is calculated using linear interpolation and/or extrapolation. The target achievement factors of the EPS and TSR components are used to form the DETERMINING THE TARGET ACHIEVEMENT OF THE TSR COMPONENT arithmetic mean that establishes the overall target achievement factor. This is used to 300% determine the target number of performance 250% shares, which results in a cash payment in euros at the end of the performance period of the tranche: If the total target achievement factor for both components is 1.0, then the target number of performance shares equals the number of conditionally allocated performance shares. If the total target achievement factor is 0.0, then the number of performance shares decreases to 0. For all other target achievements, the target number of performance shares is 200% 150% 100% 50% 0% -45 percent- age points -20 percent- age points 5 percent- age points 30 percent- age points 55 percent- age points 80 percent- age points TSR performance determined by means of linear interpolation or extrapolation. The target number of performance shares is limited to a maximum of 300% of the conditionally allocated number of performance shares. The payout amount is calculated per performance share as follows: 3 years after the starting share price has been determined and the tranche has been issued, the Xetra closing prices of the ordinary share of the company will be determined over a period of 40 consecutive stock exchange trading days immediately following the Annual General Meeting. This is used to form the arithmetic mean and all the dividends paid during the performance period for the ordinary share of the company are added to it. This so-called M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 131 share factor is multiplied by the number of calculated performance shares and establishes the gross payment amount. The payout amount is limited to a maximum of 250% of the individually determined target amount (payout cap). The tranches of the performance share plan will be paid no later than 4 months after the Annual General Meeting that decides on the appropriation of the balance sheet profit of the last financial year of the performance period, but not before the approval of all annual and consolidated financial statements for the financial years of the performance period by the Supervisory Board. Share ownership guidelines Along with the performance share plan, share ownership guidelines were introduced. As a prerequisite for the cash payment of performance shares, the members of the Management Board are obligated for each tranche to build up a self-financed investment in ordinary shares of the company by the end of February in the 3rd year of the performance period. The amount to be invested per tranche for the Chairman of the Management Board is two thirds of his gross annual fixed salary and for an ordinary member of the Management Board 50% of his or her gross annual fixed salary. The plan aims to ensure that, after no more than 5 years of service, the Chairman of the Management Board has invested 200% and an ordinary member of the Management Board 150% of his or her gross fixed salary in ordinary shares of the company, based on the calculated purchase price for the respective shares. The key factor for calculating the purchase price and thus the number of ordinary shares to be acquired is the average price of the Xetra closing prices of the company’s ordinary share over the 40 consecutive stock exchange trading days immediately after the annual press conference, which takes place before February in the 3rd year of the performance period. The acquisition price corresponds to the quotient of the amount to be invested, which results from the gross annual fixed salary and the determined average price. If the personal investment to be made in ordinary shares of the company is not, or not fully, met on the relevant closing date, the payout amount will initially be paid out in cash, but with the obligation to invest it in ordinary shares of the company until the share ownership guidelines are met. Long-term incentive with performance target EPS In financial year 2016/17, a one-time additional long-term incentive was granted in connection with the spin-off of METRO AG from CECONOMY AG. This performance period ended with the end of the 40th trading day after the company’s Annual General Meeting in 2019. Achieving this long-term incentive target was linked to the earnings per share (EPS) parameter for financial year 2017/18. No payout resulted from this long-term incentive. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 132 Post-employment benefits plans As members of the Management Board, Mr Koch, Mr Baier and Mr Hutmacher receive post- employment benefits plans in the form of direct commitments. The financing is provided jointly by the Management Board and the company. This is based on an apportionment of ‘7 +14’. When a member of the Management Board makes a contribution of 7% of his or her defined basis for assessment, the company will contribute twice the amount. The assessment is based on the amount of the fixed salary and the target amount of the short- term incentive. When a member of the Management Board leaves the company before retirement age, the contributions retain the level they have reached. This component of post-employment benefits plans is congruently reinsured by Hamburger Pensionsrückdeckungskasse VVaG (HPR). The interest rate for the contributions is paid in accordance with the Articles of Association of the HPR with regard to profit participation, with a guarantee applying to the paid-in contribution. Entitlement to pension plans exists if the employment ends with or after reaching the statutory retirement age in the German statutory pension insurance, as premature post-employment benefit if the employment ends after the age of 60 or after the age of 62 for pension commitments granted after 31 December 2011 and before reaching the regular retirement age, in the event of disability or death, provided that the relevant conditions of eligibility are met. Payment can be made in the form of a one-time capital payment, instalments or a life-long pension. A minimum benefit is granted in the case of invalidity or death. In such instances, the total amount of contributions that would have been credited to the member of the Management Board for every calendar year up to a credit period of 10 years, but limited to the point when the individual turns 60, will be added to the benefits balance. This component of post-employment benefits plans is not reinsured and will be provided directly by the company when the benefit case occurs. Mr Palazzi receives the corporate contribution in the form of an earmarked one-off payment at the end of a financial year for setting up a pension plan at his discretion, without the need for a personal contribution. Furthermore, members of the Management Board have been offered the option of converting future compensation components in the fixed salary as well as in the variable remuneration into post-employment benefits plans with Hamburger Pensionsrückdeckungskasse VVaG as part of a tax-privileged compensation conversion scheme. The members of the Management Board have no further pension commitments beyond the described retirement benefits. In particular, no retirement payments will be granted. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 133 Further benefits in case of an end to employment Severance payments in cases of premature terminations of management roles without good cause are limited to 2 annual remunerations (severance cap) and must not exceed the remuneration that would be paid for the remaining term of the employment contract. The recommendation by the German Corporate Governance Code is observed. In the event of a change of control, the members of the Management Board may exercise their right to resign from their office, within 6 months after the change of control, for good cause at the end of each month by giving 3 months’ prior notice and to terminate their employment contract with effect to this date (extraordinary termination right). The contractual provisions assume a change of control if either a single shareholder or a number of jointly acting shareholders have acquired a controlling interest in the meaning of § 29 of the German Securities Acquisition and Takeover Act (WpÜG) by way of holding at least 30% of the voting rights and the change of control significantly interferes with the responsibilities of a member of the Management Board. If the extraordinary termination right is exercised, or if the employment contract is terminated on the basis of an amicable agreement within 6 months from the change of control, the respective member of the Management Board shall be entitled to a lump sum compensation for his or her contractual entitlements during the remaining term of the member’s employment contract. The recommendation by the German Corporate Governance Code is observed with the amount of the severance payment being limited to 150% of the severance payment cap. The entitlement to a severance payment lapses if the employment was terminated by the company for good cause pursuant to §626 of the German Civil Code (BGB). In addition, the employment contracts of the members of the Management Board generally provide for a post-contractual restraint on competition. They are prohibited from providing services to or for a competitor for a period of 12 months after termination of the employment contract. For this purpose, compensation for non-competition has been agreed which corresponds to the target remuneration consisting of the fixed salary, short- term incentive and long-term incentive for the duration of the post-contractual restraint on competitionand is paid in monthly instalments. These payments will be credited with remuneration earned by the other use of the employment. The company has the option of waiving the post-restraint on competition prior to or upon termination of the employment contract, while observing notice periods. In the event of the death of a member of the Management Board during active service, his or her surviving dependants will be paid the fixed salary for the month in which the death occurred as well as for an additional 6 months. Other non-monetary and supplemental benefits The supplemental benefits granted to members of the Management Board include non- cash benefits and expense allowances, such as company cars. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 134 Remuneration of the Management Board in financial year 2018/19 The remuneration of the members of the Management Board in financial year 2018/19 according to the German Commercial Code as well as the tables provided by the German Corporate Governance Code is as follows: REMUNERATION OF THE MANAGEMENT BOARD IN FINANCIAL YEAR 2018/191 Performance-based remuneration with long- term incentive effect Supple- mental benefits Short-term performance- based remuneration Value of the granted tranches4 (Payout from tranches granted in the past) Total5 (Effective salary6) 20 16 18 13 17 17 126 270 181 316 177 757 88 372 134 546 34 372 433 2,047 1,214 1,453 585 701 910 1,090 – 701 2,709 3,945 (884) 2,611 (2,281) (0) (91) (0) 3,426 (1,973) 1,391 (897) 1,786 (1,085) (663) 1,961 (1,714) (0) – (0) 2,553 (1,463) 440 (440) 2,043 (1,342) (1,638) 6,403 (5,332) (0) 9,808 (5,863) €1,000 Olaf Koch Christian Baier Heiko Hutmacher Philippe Palazzi2 Gesamt3 Financial year 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 Fixed salary 1,200 1,200 700 700 900 900 280 700 3,080 3,500 1 Disclosures pursuant to § 285 Sentence 1 No. 9a and § 314 Section 1 No. 6a of the German Commercial Code (HGB) (excluding provisions for post-employment benefits plans). 2 Service contract with the company since 7 May 2018. The annual earmarked one-off payment for setting up a pension plan does not constitute a pension expenditure as per IAS 19 and is therefore recognised as a supplemental benefit. 3 Reported figures for financial year 2017/18 relate to active members of the Management Board in financial year 2018/19. 4 Shown here is the fair value at the time of granting the tranche of the performance share plan. 5 Total of the columns fixed salary, supplemental benefits, short-term performance-based remuneration and value of the granted tranche of the long-term incentive. 6 Total of the columns fixed salary, supplemental benefits, short-term performance-based remuneration and payout from tranches granted in the past of the long- term incentive. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 135 BENEFITS GRANTED €1,000 Fixed salary Multi-year variable remuneration Performance share plan tranche 2017/182 Performance share plan tranche 2018/193 Total Pension expenditure Total remuneration Olaf Koch Christian Baier Chairman of the Management Board Member of the Management Board since 2/3/2017 Chief Financial Officer Member of the Management Board since 11/11/2016 2017/18 2018/19 2018/19 2018/19 2017/18 2018/19 2018/19 2018/19 Minimum value Maximum value Minimum value Maximum value 1,200 1,200 1,200 1,200 700 700 700 700 70 770 1,080 – 2,025 3,875 174 13 713 0 – 0 713 174 Supplemental benefits 20 16 16 70 18 Total 1,220 1,216 1,216 1,270 718 1-year variable remuneration 1,120 1,120 0 2,240 540 13 713 540 1,214 – – 1,453 – 0 – 585 – 4,200 – 701 3,554 3,789 1,216 7,710 1,843 1,954 325 325 325 325 174 174 3,879 4,114 1,541 8,035 2,017 2,128 887 4,049 1 Service contract with the company since 7 May 2018. The annual earmarked one-off payment for setting up a pension plan does not constitute a pension expenditure as per IAS 19 and is therefore recognised as a supplemental benefit and included in the maximum value. 2 Shown here is the fair value at the time of granting the tranche. (Allocation 18/4/2018, end of performance period after the fortieth trading day following the Annual General Meeting 3 years after the issuance of the tranche) 3 Shown here is the fair value at the time of granting the tranche. (Allocation 15/4/2019, end of performance period after the fortieth trading day following the Annual General Meeting 3 years after the issuance of the tranche) Heiko Hutmacher Philippe Palazzi1 Chief Human Resources Officer/ Labour Director Member of the Management Board since 2/3/2017 Chief Operating Officer Member of the Management Board since 7/5/2018 2017/18 2018/19 2018/19 2018/19 2017/18 2018/19 2018/19 2018/19 Minimum value Maximum value Minimum value Maximum value 900 900 900 900 280 17 917 840 17 917 840 910 – – 1,090 2,667 2,847 244 244 17 917 0 – 0 917 244 70 126 970 406 1,680 216 – 3,150 – – 700 270 970 540 – 701 700 270 970 700 424 1,124 0 1,080 – 0 – 2,025 5,800 622 2,211 970 4,229 244 – – – – 2,911 3,091 1,161 6,044 622 2,211 970 4,229 €1,000 Fixed salary Supplemental benefits Total 1-year variable remuneration Multi-year variable remuneration Performance share plan tranche 2017/182 Performance share plan tranche 2018/193 Total Pension expenditure Total remuneration 1 Service contract with the company since 7 May 2018. The annual earmarked one-off payment for setting up a pension plan does not constitute a pension expenditure as per IAS 19 and is therefore recognised as a supplemental benefit and included in the maximum value. 2 Shown here is the fair value at the time of granting the tranche. (Allocation 18/4/2018, end of performance period after the fortieth trading day following the Annual General Meeting 3 years after the issuance of the tranche) 3 Shown here is the fair value at the time of granting the tranche. (Allocation 15/4/2019, end of performance period after the fortieth trading day following the Annual General Meeting 3 years after the issuance of the tranche) M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 136 ACCRUALS Olaf Koch Christian Baier Heiko Hutmacher Philippe Palazzi1 Chairman of the Management Board Member of the Management Board since 2/3/2017 Chief Financial Officer Member of the Management Board since 11/11/2016 Chief Human Resources Officer/ Labour Director Member of the Management Board since 2/3/2017 Chief Operating Officer Member of the Management Board since 7/5/2018 €1,000 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 Fixed salary 1,200 1,200 Supplemental benefits 16 20 Total 1-year variable remuneration Multi-year variable remuneration Other Total Pension expenditure 700 13 713 1,216 1,220 757 177 372 0 0 1,973 325 884 0 0 0 2,281 1,085 325 174 700 18 718 88 91 0 897 174 900 17 917 900 17 917 700 270 970 546 134 372 0 0 1,463 244 663 0 1,714 244 0 0 1,342 – Total remuneration 2,298 2,606 1,259 1,071 1,707 1,958 1,342 1 Service contract with the company since 7 May 2018. The annual earmarked one-off payment for setting up a pension plan does not constitute a pension expenditure as per IAS 19 and is therefore recognised as a supplemental benefit. 280 126 406 34 0 0 440 – 440 Long-term incentive (performance share plan) in financial year 2018/19 For the tranche of the performance share plan granted in financial year 2018/19, the target amount for Mr Koch is €1.68 million, for Mr Baier and Mr Palazzi each €0.81 million and for Mr Hutmacher €1.26 million. The number of at first contingently allocated performance shares amounts to 114,755 for Mr Koch, 55,328 for Mr Baier and Mr Palazzi each and 86,066 for Mr Hutmacher. The value of the tranche distributed in financial year 2018/19 as part of the performance share plan was calculated at the time of granting by external experts using recognised financial-mathematical methods. PERFORMANCE SHARE PLAN Tranche End of the performance period after the 40th trading day following the Annual General Meeting 3 years after the issuance of the tranche after the 40th trading day following the Annual General Meeting 3 years after the issuance of the tranche after the 40th trading day following the Annual General Meeting 3 years after the issuance of the tranche 2016/17 2017/18 2018/19 Starting price for the TSR component Target amount Management Board as of 30/9/2019 €17.14 €3,610,000 €15.10 €3,750,000 €14.64 €4,560,000 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 137 In addition to the tranche of the performance share plan issued in the reporting period, Mr Koch, Mr Baier and Mr Hutmacher also received payout from tranches of the performance share plan granted in the past, namely tranches 2016/17 and 2017/18. In financial year 2018/19, value adjustments resulted from the current tranches of performance-based payment programmes with a long-term incentive effect. The company’s expenses amounted to €0.781 million for Mr Koch, €0.502 million for Mr Baier, €1.226 million for Mr Hutmacher and €0.087 million for Mr Palazzi. As of 30 September 2019, the provisions for the members of the Management Board totalled €3.464 million. Services after the end of employment in financial year 2018/19 (including provisions for post-employment benefits plans) In financial year 2018/19, a total of €0.74 million was used in accordance with the International Financial Reporting Standards (IFRS) and the German Commercial Code (HGB) for the remuneration of the active members of the Management Board of METRO AG for benefits to be provided after the end of their employment (2017/18: €0.91 million determined according to IFRS and €0.80 million determined according to the German Commercial Code (HGB)). Of this total, according to IFRS and the German Commercial Code (HGB), approximately €0.33 million accounted for pension plans for Mr Koch, approximately €0.17 million for Mr Baier and approximately €0.24 million for Mr Hutmacher. Provisions according to IFRS and the German Commercial Code (HGB) amount to approximately €0.001 million for Mr Baier. There is no need to establish provisions for Mr Koch and Mr Hutmacher. The cash value of the commitment volume according to IFRS and the German Commercial Code (HGB) amount to approximately €3.9 million for Mr Koch, approximately €1.1 million for Mr Baier and approximately €3.0 million for Mr Hutmacher. With the exception of the provision listed in the last paragraph, the cash value of the commitment volume is offset by assets. There is no commitment volume for Mr Palazzi. Termination benefits in financial year 2018/19 An agreement was reached with Mr Hutmacher in the reporting year for the premature termination of his employment contract with effect from the end of 31 December 2019. A severance payment of €2,957,700 was agreed to settle the remaining term of his employment contract (1 January 2020 to 30 September 2020) and the short-term incentive for the period from 1 October 2019 to 31 December 2019. This settlement covers Mr Hutmacher’s claims, taking into account the contractually agreed severance payment cap in accordance with the German Corporate Governance Code. The severance payment, which is due in financial year 2019/20, was fully accrued in financial year 2018/19. The tranches of the long-term incentive already granted to Mr Hutmacher will be settled in accordance with the terms of the plan. Outlook In financial year 2019/20, Ms Andrea Euenheim is joining the Management Board of METRO AG as Chief Human Resources Officer and Labour Director. She started on 1 November 2019 and replaced Mr Hutmacher. Furthermore, in financial year 2019/20, the Supervisory Board of METRO AG will continue to revise the existing remuneration system for the members of the Management Board of METRO AG in order to adapt it to new legal and regulatory requirements. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 138 Remuneration of members of the Supervisory Board The members of the Supervisory Board receive a fixed yearly remuneration amount in accordance with § 13 of METRO AG’s Articles of Association. In financial year 2018/19, this amounted to €80,000 per ordinary member. The value added tax payable to the respective remuneration is reimbursed to the members of the Supervisory Board in accordance with § 13 Section 5 of METRO AG’s Articles of Association. The individual amount of Supervisory Board remuneration takes into account the duties and responsibilities of the individual members of the Supervisory Board by considering special assignments. The remuneration of the Chairman of the Supervisory Board is 3 times higher than that of an ordinary member of the Supervisory Board; that of the Vice Chairman and the chairpersons of the committees is twice as high; and that of the other members of the committees is 1.5 times higher. The remuneration for membership or chairmanship of a committee will be paid only if at least 2 meetings or other resolutions took place during the respective financial year. A member of the Supervisory Board who holds several offices at once receives remuneration for only one office; in the case of different levels of remuneration, the member receives remuneration for the most highly paid office. Remuneration factors Chairman of the Supervisory Board Vice Chairman Committee chairpersons1 Committee members1 Members of the Supervisory Board 1 With a minimum of 2 meetings/resolutions. The relevant individual amounts for financial year 2018/19 are as follows: M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 139 REMUNERATION OF MEMBERS OF THE SUPERVISORY BOARD FOR FINANCIAL YEAR 2018/19 PURSUANT TO §13 OF THE ARTICLES OF ASSOCIATION1 € Jürgen Steinemann, Chairman Werner Klockhaus, Vice Chairman Stefanie Blaser Herbert Bolliger Gwyn Burr Thomas Dommel Prof. Dr Edgar Ernst Dr Florian Funck Michael Heider Peter Küpfer Susanne Meister Dr Angela Pilkmann Dr Fredy Raas Xaver Schiller Eva-Lotta Sjöstedt Dr Liliana Solomon Alexandra Soto Angelika Will Manfred Wirsch Silke Zimmer Total2 Financial year Multiplier Fixed remuneration 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 240,000 240,000 160,000 160,000 53,333 80,000 53,333 80,000 120,000 120,000 106,666 120,000 160,000 160,000 120,000 120,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 120,000 120,000 120,000 120,000 80,000 80,000 120,000 120,000 80,000 120,000 80,000 80,000 80,000 80,000 80,000 80,000 2,093,332 2,200,000 / / 1 Plus applicable value added tax in accordance with § 13 Section 5 of the Articles of Association. 2 Reported figures for financial year 2017/18 relate to active members of the Supervisory Board in financial year 2018/19. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 6 R E M U N E R A T I O N R E P O R T 140 In financial year 2018/19, individual members of the Supervisory Board of METRO AG also received remuneration from the group companies for Supervisory Board mandates at group companies. OTHER INTRA-GROUP COMPENSATION OF MEMBERS OF THE SUPERVISORY BOARD FOR FINANCIAL YEAR 2018/191 € Werner Klockhaus Thomas Dommel Michael Heider Xavier Schiller Manfred Wirsch Total 1 Plus potentially applicable value added tax. Financial year 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 6,200 10,075 5,250 4,500 6,000 6,000 9,000 9,000 6,000 6,000 32,450 35,575 Beyond this, the members of the Supervisory Board were not granted any remuneration or benefits for work performed, in particular not for consulting and brokerage services, on behalf of companies of METRO in the sense of Subsection 5.4.6 of the German Corporate Governance Code. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 141 7 TAKEOVER-RELATED DISCLOSURES The takeover-related disclosures as of 30 September 2019 required under §§ 289a Section 1 and 315a Section 1 of the German Commercial Code (HGB) are shown below: Composition of the subscribed capital As of 30 September 2019, the share capital of METRO AG amounted to €363,097,253. It is divided into a total of 360,121,736 ordinary no-par-value bearer shares (pro rata value of the share capital: €360,121,736, approximately 99.18%), as well as 2,975,517 preference no- par-value bearer shares (pro rata value of the share capital: €2,975,517, approximately 0.82%). Each share in the company has a notional interest of €1.00 in the share capital. Each ordinary share grants a single vote in the company’s Annual General Meeting. The ordinary shares carry full dividend rights. In contrast to ordinary shares, preference shares do not carry voting rights but confer a preferential entitlement to profits as prescribed in § 21 of the Articles of Association of METRO AG, which state: ‘(1) Holders of non-voting preference shares will receive a preliminary dividend from the annual balance sheet profit in the amount of €0.17 for each preference share. (2) Should the balance sheet profit available for distribution not suffice in any one financial year to pay the preliminary dividend, the arrears (excluding any interest) shall be paid from the balance sheet profit of subsequent financial years in an order based on age, meaning in such manner that any older arrears are paid off prior to any more recent ones and that the preference dividends payable from the profit of a financial year are not distributed until all accrued arrears have been paid. (3) Following distribution of the preliminary dividends, the holders of ordinary shares will be paid a dividend of €0.17 for each ordinary share. Subsequently, a non-cumulative extra dividend per share will be paid to the holders of non-voting preference shares. The extra dividend shall amount to 10% of the dividend paid to the holders of ordinary shares under observation of Section 4, provided such dividend equals or exceeds €1.02 per ordinary share. (4) The holders of non-voting preference shares and of ordinary shares will equally share in any additional profit distribution in the proportion of their shares in the share capital.” Other rights associated with ordinary and preference shares include in particular the right to attend the Annual General Meeting (§ 118 Section 1 of the German Stock Corporation Act (AktG)), the right to information (§ 131 of the German Stock Corporation Act) and the right to file a legal challenge or a complaint for nullity (§§ 245 Nos. 1–3, 246, 249 of the German Stock Corporation Act). In addition to the previously mentioned right to receive dividends, shareholders principally have a subscription right when the share capital is increased (§ 186 Section 1 of the German Stock Corporation Act), claims to liquidation proceeds after the closure of the company (§ 271 of the German Stock Corporation Act) and to severance payment and settlements as a result of certain structural measures, particularly pursuant to §§ 304 et seqq., 320b and 327b of the German Stock Corporation Act. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 142 Voting rights and transfer-related restrictions To the best knowledge of the Management Board, the following agreements exist or existed during financial year 2018/19, which may be construed as restrictions in the sense of § 315a Section 1 No. 2 and § 289a Section 1 No. 2 of the German Commercial Code. Beisheim Capital GmbH, Düsseldorf (Germany), Beisheim Holding GmbH, Baar (Switzerland), and Palatin Verwaltungsgesellschaft mbH, Essen (Germany), a subsidiary of Meridian Stiftung, Essen, have been part of a pool of voting rights since 29 July 2019. Jointly they hold approximately 20.63% of ordinary shares in accordance with the voting rights notification dated 31 July 2019. The declared objective of Meridian Stiftung and the Beisheim Group is to exercise the voting rights from the METRO shares held by them jointly. In the future they plan to act uniformly vis-à-vis METRO and its shareholders in all material matters. The existing pooling agreement between Beisheim Capital GmbH, Düsseldorf (Germany), and Beisheim Holding GmbH, Baar (Switzerland), is suspended for the duration of the new voting rights pool with Meridian Stiftung, Essen. In connection with the demerger of the former METRO AG, CECONOMY AG (formerly operating as METRO AG) has assumed a lock-up agreement with respect to the shares held by it in accordance with the Group Separation Agreement dated 13 December 2016. According to this agreement, CECONOMY AG is obligated not to sell its approximately 1% of the shares in METRO AG, which were granted as part of the demerger within the spin-off from the group, until 1 October 2023. In addition, legal restrictions on voting rights may apply, for example pursuant to § 136 of the German Stock Corporation Act or, if the company holds own shares, pursuant to § 71b of the German Stock Corporation Act. Shares held in capital As of 30 September 2019, the following direct and indirect capital interests existed and entitled their respective holders to more than 10% of the voting rights: Name/company Haniel Finance Deutschland GmbH, Duisburg, Germany Franz Haniel & Cie. GmbH, Duisburg, Germany Palatin Verwaltungsgesellschaft mbH, Essen, Germany BVG Beteiligungs- und Vermögensverwaltungs-GmbH, Essen, Germany Gebr. Schmidt GmbH & Co. KG, Essen, Germany Gebr. Schmidt Verwaltungsgesellschaft mbH, Essen, Germany Meridian Stiftung, Essen, Germany EP Global Commerce GmbH, Grünwald, Germany EP Global Commerce a.s., Prague, Czech Republic Daniel Křetínský Patrik Tkáč1 1 Attribution of voting rights due to concerted behaviour within the meaning of § 34 (2) WpHG. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Direct/indirect capital interest entitling to more than 10% of voting rights Direct Indirect Direct Indirect Indirect Indirect Indirect Direct Indirect Indirect Indirect C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 143 On 24 August 2018, EP Global Commerce GmbH, based in Grünwald, acquired a call option on 15.2% of the voting rights from Haniel Finance Deutschland GmbH, a 100% subsidiary of Franz Haniel & Cie. GmbH, and extended and adjusted this from time to time. On 31 October 2019, EP Global Commerce GmbH announced that it had partially exercised the call option. On 6 November 2019, approximately 12.49% of the voting rights were transferred from Haniel Finance Deutschland GmbH to EP Global Commerce GmbH on this basis. Therefore, Daniel Křetínský and Patrik Tkáč indirectly hold 29.99% of the voting rights in METRO AG via the acquisition company EP Global Commerce GmbH at the time these consolidated financial statements were prepared and also hold financial instruments for the transfer of a further 2.71% of the voting rights. The information above is in particular based on notifications issued under § 33 er seqq. of the German Securities Trading Act that were received and published by METRO AG. Voting rights notifications published by METRO AG can be found on the website www.metroag.de/en in the section Media – Legal Announcements. Holders of shares with special rights as well as type of voting right control of employee shares The company has not issued any shares with special rights pursuant to § 315a Section 1 No. 4 and § 289a Section 1 No. 4 of the German Commercial Code. No capital interests are held by employees pursuant to § 315a Section 1 No. 5 and § 289a Section 1 No. 5 of the German Commercial Code. Provisions governing the appointment and dismissal of members of the Management Board and changes to the Articles of Association The appointment and dismissal of members of the Management Board of METRO AG are governed in §§ 84, 85 of the German Stock Corporation Act and §§ 30, 31, 33 of the German Co-determination Act. § 5 of the Articles of Association of METRO AG stipulates that the Management Board shall comprise at least 2 members and that the actual number of members of the Management Board is determined by the Supervisory Board. Changes to the Articles of Association of METRO AG are determined principally in accordance with §§ 179, 181, 133, 119 Section 1 No. 5 of the German Stock Corporation Act. There are numerous other sections of the German Stock Corporation Act that could possibly govern a change to the Articles of Association and that may amend or supersede the previously mentioned regulations, for example §§ 182 et seqq. of the German Stock Corporation Act in the case of capital increases, §§ 222 et seqq. of the German Stock Corporation Act in the case of capital reductions or § 262 of the German Stock Corporation Act in the case of the public limited company (‘AG’) being dissolved. Pursuant to § 14 Section 1 of the Articles of Association of METRO AG, the Supervisory Board may resolve to change the wording of the Articles of Association without a resolution passed by the Annual General Meeting. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 144 Authorities of the Management Board to issue or buy back shares Authorities to issue new shares With resolution passed by the Annual General Meeting on 16 February 2018, the Management Board was authorised to increase the share capital, subject to the consent of the Supervisory Board, by issuing new ordinary bearer shares against cash or non-cash contributions in one or several tranches for a total maximum of €181,000,000 by 28 February 2022 (authorised capital). Existing shareholders may exercise their subscription rights. The newly issued shares may also be acquired by banks or similarly situated companies selected by the Management Board pursuant to § 186 Section 5 Sentence 1 of the German Stock Corporation Act, given these institutions agree to tender such shares to the shareholders. However, subject to the consent of the Supervisory Board, the Management Board is authorised to exclude shareholder subscription rights in the following cases: to balance fractional amounts; if shares are issued in exchange for non-cash contributions for the purpose of business combinations, for the acquisition of companies, for the purchase of parts of companies, operations, parts of operations or shares in companies; to grant a so-called scrip dividend, in which the shareholders are offered the right to use their dividend entitlement (in whole or in part) as a contribution in kind in exchange for new shares from the authorised capital; in the event of a capital increase in exchange for cash capital contributions to the extent necessary to grant subscription rights to new ordinary shares to the holders of warrant or convertible bearer bonds issued by METRO AG and affiliates thereof in which METRO AG holds at least 90% of shares, directly or indirectly, in the extent to which they would be entitled upon exercise of the warrant or conversion rights or performance of the warrant or conversion obligations or upon exercise of METRO AG’s right to substitute as shareholder; in the event of capital increases in exchange for cash capital contributions if the aggregate par value of such capital increases does not exceed 10% of the company’s share capital and the issue price of the new ordinary shares is not substantially lower than the listed stock exchange price of existing ordinary shares of the same class. The limit of 10% of the company’s share capital is diminished by the proportion of the share capital represented by the company’s own shares which are (i) used as own shares or sold during the term of authorised capital while excluding subscription rights of the shareholders in corresponding application of § 186 Section 3 Sentence 4 of the German Stock Corporation Act or (ii) issued from contingent capital to service warrant or convertible bearer bonds which, in turn, have been or are issued while excluding subscription rights in corresponding application of § 186 Section 3 Sentence 4 of the German Stock Corporation Act. The proportional share capital attributable to shares issued under this authority and under exclusion of the shareholders’ subscription rights in exchange for cash or non-cash capital contributions must not exceed 20% of the company’s share capital. The Management Board is authorised to define further details of the capital increases, subject to the consent of the Supervisory Board. To date, the authorised capital has not been fully utilised. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 145 Authorities to issue warrant bonds and/or convertible bearer bonds With resolution passed by the Annual General Meeting on 16 February 2018, the Management Board was authorised to issue, in each case with the consent of the Supervisory Board, warrant or convertible bearer bonds (in aggregate, ‘bonds’) with an aggregate par value of €1,500,000,000 prior to 15 February 2023, on one or several occasions, and to grant the holders of warrant or convertible bearer bonds warrant or conversion rights or impose warrant or conversion obligations upon them for ordinary bearer shares in METRO AG representing up to €50,000,000 of the share capital in accordance with the terms of the warrant or convertible bearer bonds. This authority results in contingent capital of up to €50,000,000 pursuant to § 4 Section 8 of the METRO AG Articles of Association. The bonds may also be issued by a METRO AG subsidiary in the meaning of § 18 of the German Stock Corporation Act in which METRO AG holds a direct or indirect interest of at least 90%. In that case, the Management Board is authorised to assume, in each case with the consent of the Supervisory Board, a guarantee for those bonds on behalf of METRO AG and grant their holders warrant or conversion rights to ordinary bearer shares in METRO AG or impose warrant or conversion obligations upon them. Shareholders will be granted their statutory subscription rights by way of the bonds being acquired by a bank or syndicate of banks with an undertaking to offer such bonds to the shareholders. If bonds are issued by a METRO AG subsidiary in accordance with § 18 of the German Stock Corporation Act in which METRO AG holds a direct or indirect interest of at least 90%, METRO AG must ensure that statutory subscription rights are granted to the shareholders of METRO AG in accordance with the preceding sentence. Subject to the consent of the Supervisory Board, the Management Board is however authorised to exclude shareholder subscription rights for fractional amounts arising from proportional subscriptions to the extent necessary to grant or impose warrant or conversion rights or obligations with respect to the holders of existing warrant or conversion rights or obligations in the amount to which they would be entitled to as shareholders after exercising the warrant or conversion right or performance of the warrant or conversion obligation. Subject to the consent of the Supervisory Board, the Management Board is also authorised to entirely exclude shareholder subscription rights to bonds issued in exchange for cash payment carrying warrant or conversion rights or warrant or conversion obligations, insofar as the Management Board concludes, after careful review, that the issue price of the bonds is not substantially lower than the hypothetical market value ascertained using recognised financial mathematical methods. This authorisation to exclude subscription rights applies to bonds issued with warrant or conversion rights or warrant or conversion obligations to pro rata ordinary shares comprising no more than 10% of the share capital at the time the authority takes effect or, if this figure is lower, at the time the authorisation is exercised. The limit of 10% of the share capital is reduced by the pro rata amount of share capital represented by any shares issued (i) during the effective period of this authority under exclusion of subscription rights according to § 186 Section 3 Sentence 4 of the German Stock Corporation Act, or (ii) to service warrant or convertible bearer bonds providing for warrant or conversion rights or obligations, insofar as such bonds were issued during the effective period of this authorisation under exclusion of subscription rights by application of § 186 Section 3 Sentence 4 of the German Stock Corporation Act mutatis mutandis. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 146 If bonds carrying warrant or conversion rights or warrant or conversion obligations are issued, the warrant or conversion price is determined pursuant to the rules in § 4 Section 8 of the Articles of Association of METRO AG. In the case of bonds carrying warrant or conversion rights or warrant or conversion obligations, the warrant or conversion price may be adjusted after closer determination in order to preserve the value of such warrant or conversion rights or warrant or conversion obligations in the event their economic value is diluted, to the extent that such an adjustment is not already provided for by law. The bonds’ terms may also provide for an adjustment of warrant or conversion rights or warrant or conversion obligations in case of a capital reduction or other extraordinary measures or events (for example unusually high dividends, third parties gaining a controlling interest). In the case of a third party gaining a controlling interest, the bonds’ terms may provide for adjustment of the warrant or conversion price to reflect market conditions. Furthermore, the terms of the bonds may provide for a variable conversion ratio and/or variable warrant and conversion price, where the warrant or conversion price is determined within a range to be determined on the basis of the share price development during the term. The minimum issue price based on the stipulations of § 4 Section 8 of METRO AG’s Articles of Association may not be undercut. The bonds’ terms may grant METRO AG the right, in lieu of providing ordinary shares upon the exercise of warrant or conversion rights, to make a cash payment corresponding to the volume-weighted average price of METRO AG ordinary shares on the Xetra trading system (or a functionally comparable successor system replacing the Xetra system) of the Frankfurt Stock Exchange during a period of several days before or after the exercise of warrant or conversion rights is announced for the number of ordinary shares that would otherwise be delivered. This period is to be determined by the Management Board. The bonds’ terms may, at METRO AG’s discretion, also provide for the warrant or convertible bearer bonds to be converted into existing ordinary shares in METRO AG or shares in another listed company in lieu of converting them into new ordinary shares from contingent capital and that warrant rights or obligations can be performed by the delivery of such shares. The bonds’ terms may also provide for a warrant or conversion obligation at the end of the term (or at any other time), or authorise METRO AG to grant bondholders ordinary shares in METRO AG or shares in another listed company upon maturity of bonds carrying warrant or conversion rights (including bonds which mature due to termination), in whole or in part, in lieu of a maturity payment in cash. The percentage of share capital represented by the ordinary shares in METRO AG issued upon the exercise of warrant or conversion rights must not exceed the par value of the bonds. §§ 9 Section 1, 199 Section 2 of the German Stock Corporation Act apply. The Management Board is authorised to determine, in each case with the consent of the Supervisory Board, the further details pertaining to the issuance and terms of the bonds, particularly the coupon, issue price, term, division into shares, rules for the protection against dilution and the warrant or conversion period, or to define such details in consultation with the corporate bodies of the affiliate of METRO AG which issues the warrant or convertible bonds in accordance with § 18 of the German Stock Corporation Act. To date, the authority to issue warrant and/or convertible bearer bonds has not been exercised. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 147 Authorities to repurchase own shares The company is authorised to buy back its own shares in accordance with § 71 of the German Stock Corporation Act. Pursuant to § 71 Section 1 No. 8 of the German Stock Corporation Act, the Annual General Meeting authorised the company by resolution on 11 April 2017 to acquire its own shares of any class until 28 February 2022. The authority is limited to the repurchase of shares collectively representing a maximum of 10% of the share capital issued as of the date the Annual General Meeting resolution is passed or – if this figure is lower – at the time the authority is exercised. The shares transferred under this authority, together with any own shares acquired for other reasons and held by the company or attributable to it pursuant to §§ 71a et seqq. of the German Stock Corporation Act, shall collectively not exceed a pro rata proportion of 10% in the share capital at any time. Shares may be acquired on the stock exchange or by way of a tender offer aimed at all shareholders. In the process, the authorisation includes specifications regarding the purchase price and procedures to be followed in case a public offering is oversubscribed. The Management Board is authorised to use the shares in the company acquired based on the above authorisation for the following purposes in particular: disposal of shares in the company on the stock exchange or by means of a purchase offer expressed to all shareholders; listing of shares in the company on foreign stock exchanges where they were not hitherto admitted for trading, where the authorisation includes stipulations regarding the initial listing price; transfer of shares in the company to third parties for non-cash consideration in connection with business combinations or the acquisition of other companies, divisions of other companies, businesses or interests in other companies or other assets; disposal of shares in the company outside of the stock exchange or via a purchase offer expressed to all shareholders, provided that the disposal is for cash payment and at a price not substantially lower than the stock exchange price in effect for listed shares of the company with the same terms on the date of the disposal. This authority is limited to the disposal of shares collectively representing a maximum of 10% of the share capital at the time the authority takes effect or – if this figure is lower – at the time the authority is exercised. The maximum limit of 10% of the share capital is reduced by the pro rata amount of share capital represented by any shares issued (i) during the effective period of this authority under exclusion of subscription rights according to § 186 Section 3 Sentence 4 of the German Stock Corporation Act, or (ii) to service warrant or convertible bearer bonds providing for warrant or conversion rights or obligations, insofar as such bonds were issued during the effective period of this authority under exclusion of subscription rights by application of § 186 Section 3 Sentence 4 of the German Stock Corporation Act mutatis mutandis; M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 148 delivery of shares to holders of warrant or convertible bearer bonds of the company or its affiliates, in accordance with § 18 of the German Stock Corporation Act under the terms and conditions applicable to such warrant or convertible bonds; this also applies to the delivery of shares based upon the exercise of subscription rights, which in the event of a disposal of company shares through an offer to all shareholders or in the event of a capital increase with subscription rights may be granted to holders of warrant or convertible bonds of the company or any of its affiliates in accordance with § 18 of the German Stock Corporation Act to the same extent that holders of such warrant or convertible bonds would have subscription rights for shares of the company after exercising the warrant or conversion rights or performing the warrant or conversion obligations. The shares transferred under this authority shall collectively not exceed a pro rata proportion of 10% of the share capital at the time the authority takes effect or – if this figure is lower – at the time the authorisation is exercised, insofar as such shares were issued to service warrant or conversion rights or warrant or conversion obligations granted or imposed in application of § 186 Section 3 Sentence 4 of the German Stock Corporation Act mutatis mutandis. The maximum limit of 10% of the share capital is reduced by the pro rata amount of share capital represented by any shares issued or sold during the effective period of this authority by application of § 186 Section 3 Sentence 4 of the German Stock Corporation Act mutatis mutandis; distribution of a stock dividend (scrip dividend), where company shares are used (also partially and selectively) to service dividend rights of shareholders; redemption of shares in the company, without the need for any further resolution by the Annual General Meeting. Such redemption may also be accomplished without a capital reduction by increasing the proportional value of the remaining no-par-value shares in the share capital of the company. In this case, the Management Board is authorised to adjust the number of no-par-value shares stipulated in the Articles of Association. The above authorisations to acquire and use the company’s own shares based on the above or previous authorisations may be exercised in whole or in part, on one or several occasions, individually or collectively by the company or its group companies in accordance with § 18 of the German Stock Corporation Act or by third parties acting for their account or for the account of the company. The above authorities may be exercised for the acquisition and use of ordinary shares as well as preference shares or only for the acquisition and use of ordinary shares or for preference shares only. Using own shares in accordance with the above authorisations other than selling acquired company shares on the stock exchange or by offer to all shareholders requires consent of the Supervisory Board. The subscription rights of shareholders are excluded if own shares are used for any of the purposes authorised above, with the exception of the authority to sell the company’s shares by making a purchase offer to all shareholders, the authority to distribute dividends in the form of a scrip dividend and the authority to redeem shares without the need for any further resolution by the Annual General Meeting. The Management Board is authorised to exclude shareholder subscription rights for residual amounts if own shares are used in accordance with the authority to sell the company’s shares by making a purchase offer to all shareholders in compliance with the principle of equal treatment stipulated in § 53a of the German Stock Corporation Act. The Management Board is further authorised to exclude shareholder subscription rights if own shares are used to distribute dividends in the form of a scrip dividend. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 7 T A K E O V E R - R E L A T E D D I S C L O S U R E S 149 To date, the authorisation to repurchase the company’s own shares has not been exercised. Fundamental agreements related to the conditions of a change of control METRO AG is currently a borrower under 2 syndicated loan agreements, which the lender may cancel in the case of a change of control, provided that, additionally and as a result of the change of control, the credit rating of METRO AG deteriorates to a certain degree as defined in respective agreements. By the definition included in the syndicated loan agreements, ‘change of control’ refers to the loss and acquisition of control as per § 29 of the German Securities Acquisition and Takeover Act (WpÜG). The first requirements of such a change of control are, first, that the shareholders who controlled METRO AG at the time at which each contract was signed lose control over METRO AG. The second condition is the assumption of control over METRO AG by one or a number of parties. The lending banks may only cancel the contract and demand the return of the loans if the change of control and a resulting drop in the credit rating occur cumulatively. The arrangements described are common market practice and serve the purpose of protecting creditors. None of these loans was drawn in financial year 2018/19. Compensation agreements in the event of a takeover bid The company has entered into compensation agreements with the members of the Management Board to provide for the case of a takeover bid. In the event of a change of control, the members of the Management Board may exercise their right to resign from their office, within 6 months after the change of control, for good cause at the end of each month by giving 3 months’ prior notice. They may also terminate their management contract with effect on the same date (extraordinary termination right). Based on the contractual provisions a change of control can be assumed if either a single shareholder or a number of jointly acting shareholders have acquired a controlling interest in the meaning of § 29 of the German Securities Acquisition and Takeover Act (WpÜG) by way of holding at least 30% of the voting rights and the change of control significantly interferes with the responsibilities of a member of the Management Board. If the extraordinary termination right is exercised, or if the service contract is terminated on the basis of an amicable agreement within 6 months from the change of control, the respective member of the Management Board shall be entitled to a lump sum compensation for his or her contractual entitlements during the remaining term of the member’s management contract. The recommendation by the German Corporate Governance Code is observed with the amount of the severance payment being limited to 150% of the severance payment cap. The entitlement to a severance payment lapses if the employment was terminated by the company for good cause pursuant to § 626 of the German Civil Code (BGB). However, no compensation agreements with employees have been concluded in the event of a takeover bid. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 8 S U P P L E M E N T A R Y N O T E S F O R M E T R O A G ( P U R S U A N T T O T H E G E R M A N C O M M E R C I A L C O D E ) 150 8 SUPPLEMENTARY NOTES FOR METRO AG (PURSUANT TO THE GERMAN COMMERCIAL CODE) Overview of financial year 2018/19 and outlook of METRO AG As the management holding company of the METRO group, METRO AG is highly dependent on the development of METRO in terms of its own business development, position and potential development with its key opportunities and risks. In light of the holding structure, the most important key performance indicator for METRO AG in terms of GAS 20 is commercial net profit or loss – contrary to the case for the group as a whole. Business development of METRO AG The business development of METRO AG is primarily characterised by the development and dividend distributions of its investments. The METRO AG Annual Financial Statements prepared under German commercial law serve as the basis for dividend distribution. The income statement and balance sheet of METRO AG prepared in accordance with the regulations stipulated by the German Commercial Code (HGB) are outlined below. Earnings position of METRO AG and profit appropriation INCOME STATEMENT FOR THE FINANCIAL YEAR FROM 1 OCTOBER 2018 TO 30 SEPTEMBER 2019 IN ACCORDANCE WITH THE GERMAN COMMERCIAL CODE € million Sales revenues Other operating income Cost of services purchased Personnel expenses Depreciation/amortisation/impairment losses on intangible and tangible assets Other operating expenses Investment result Net financial result Income taxes Earnings after taxes Other taxes Net profit or loss Retained earnings from the previous year Income from capital reduction Balance sheet profit M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 2017/18 2018/19 434 315 −53 −126 −55 −427 202 −51 −6 233 3 236 47 0 283 393 387 −51 −139 −66 −571 293 −5 −2 239 −2 237 29 0 266 C O M B I N E D M A N A G E M E N T R E P O R T 8 S U P P L E M E N T A R Y N O T E S F O R M E T R O A G ( P U R S U A N T T O T H E G E R M A N C O M M E R C I A L C O D E ) 151 Under the transfer pricing system, METRO AG essentially serves as a licensor and service provider for the operational METRO wholesale national subsidiaries. The key services provided in this context include various operational services (consulting services), holding company services as well as services related to the development and operation of various in-house IT solutions. In order to be able to render these services, the company purchases IT services from subcontractors within the group as well as from third-party providers, in particular, which leads to higher costs for services purchased, other operating expenses and depreciation/amortisation. METRO AG acts as a centralised licensor for its subsidiaries with respect to its METRO and MAKRO brands as well as its own-brand products. Services are billed at arm’s-length prices. Under the transfer pricing model, the national and international companies of METRO Wholesale were billed approximately €550 million in licensing and service fees in financial year 2018/19. €393 million in settlement amounts received by METRO AG were recognised as sales in the reporting period. They are broken down into €299 million concerning settlement amounts received in the form of licensing fees for the METRO and MAKRO brands as well as €94 million relating to IT and business services rendered to the wholesale subsidiaries. The reason for the decline in sales revenues of approx. €40 million is the earnings development in Russia as well as Eastern Europe, since the licensing fees for the use of the METRO and MAKRO brands are based on earnings. These effects could not be fully offset by the positive earnings development in Western Europe. The item other operating income consists mainly of settlement amounts from subsidiaries that are not classified as sales revenues. This item also includes exchange rate gains of €60 million. The offsetting expenses resulting from exchange rate losses incurred as part of natural hedging at group level were incurred by one subsidiary and are thus included in the profit transfers at METRO AG. To perform its function as a central management holding company, METRO AG has subcontracted service performances which predominantly relate to costs of marketing and IT services, to subsidiaries as well as third-party companies. To the extent such expenses are related to settlement payments recognised in the item sales revenues, the corresponding amounts have been recognised in the item cost of services purchased. On average during the 4 quarters of financial year 2018/19, METRO AG employed 855 people. Part-time employees and temporary workers were converted into full-time equivalents. Despite a lower number of employees, personnel expenses were higher than in the previous year due to higher performance-based remuneration components. Depreciation expenses in the amount of €40 million resulted predominantly from scheduled depreciation on the usufructuary rights to the METRO and MAKRO brands. Other operating expenses consist of expenses incurred by METRO AG in exercising its function as a management holding and concern costs for services subcontracted to companies both within and outside of the group. For financial year 2018/19, METRO AG posted an investment income of €293 million. Profit and loss transfer agreements with other group companies accounted for revenues in the amount of €1,160 million. It includes the release of reserves received from an indirectly held subsidiary. Losses were absorbed in the amount of €472 million. These losses predominantly result from the segment Real. The income from investments without profit and loss transfer agreements amounted to €89 million in financial year 2018/19 and was predominantly attributable to the group’s real estate companies and the foreign wholesale subsidiaries. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 8 S U P P L E M E N T A R Y N O T E S F O R M E T R O A G ( P U R S U A N T T O T H E G E R M A N C O M M E R C I A L C O D E ) 152 In the reporting period impairment losses of €484 million were made on investments in affiliated companies. The net financial result amounted to €−5 million. The net profit or loss for the year comes in at €237 million. Including retained earnings from the previous year in the amount of €29 million, the company’s balance sheet profit amounted to €266 million. Regarding the appropriation of the balance sheet profit for 2018/19, the Management Board of METRO AG will propose to the Annual General Meeting to distribute from the reported balance sheet profit of €266 million a dividend in the amount of €0.70 per ordinary share and €0.70 per preference share – that is, a total of €254 million – and to carry forward the remaining amount to the new account. Financial position of METRO AG Cash flows As of the closing date, cash on hand amounted to €44 million. This item essentially includes bank deposits through cash pool income from the sales lines towards the end of the reporting period. Capital structure EQUITY AND LIABILITIES € million Equity Share capital Capital reserve Balance sheet profit Provisions Liabilities Bonds Liabilities to banks Liabilities to affiliated companies Miscellaneous liabilities Deferred income M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 30/9/2018 30/9/2019 363 6,118 283 6,764 371 2,898 259 7,007 71 10,235 19 17,389 363 6,118 266 6,747 451 2,288 262 8,380 81 11,011 12 18,221 C O M B I N E D M A N A G E M E N T R E P O R T 8 S U P P L E M E N T A R Y N O T E S F O R M E T R O A G ( P U R S U A N T T O T H E G E R M A N C O M M E R C I A L C O D E ) 153 Liabilities consist of equity in the amount of €6,747 million and provisions, liabilities and deferred income in the amount of €11,474 million. The equity ratio as of the closing date was 37.0%. Provisions as of the closing date totalled €451 million. Liabilities consist of €2,288 million in bonds and €262 million in liabilities to banks. The balance sheet also reports liabilities to affiliated companies in the amount of €8,380 million. In addition to short-term financial investments made by METRO companies, they predominantly concerned liabilities from structuring measures under corporate law. Asset position of METRO AG ASSETS € million Non-current assets Intangible assets Tangible assets Financial assets Current assets Receivables and other assets Cash on hand, bank deposits and cheques Deferred income 30/9/2018 30/9/2019 1,001 2 9.157 10.160 6,882 335 7,217 12 17,389 939 3 9,005 9,947 8,218 44 8,262 12 18,221 As of the closing date, METRO had total assets of €18,221 million, which are predominantly comprised of financial assets in the amount of €9,005 million, receivables from affiliated companies at €8,214 million and the usufructuary rights to the METRO and MAKRO brands which were recognised as an intangible asset (€883 million). Cash on hand, bank deposits and cheques amounted to €44 million. The financial assets predominantly consist of shares held in affiliated companies in the amount of €8,964 million which are essentially comprised of shares in the holding for wholesale companies (€6,693 million), in real estate companies (€1,278 million), in service providers (€470 million) and in other companies (€523 million). The financial assets account for 49.4% of the total assets. Receivables from affiliated companies amount to €8,214 million. This corresponds to 45.1% of the total assets. This position contains €6,117 million in receivables from a group-internal transfer of shares in affiliated companies at their carrying values and predominantly reflects the short-term financing requirements of the group companies as of the closing date. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O M B I N E D M A N A G E M E N T R E P O R T 8 S U P P L E M E N T A R Y N O T E S F O R M E T R O A G ( P U R S U A N T T O T H E G E R M A N C O M M E R C I A L C O D E ) 154 Risk situation of METRO AG As METRO AG is closely engaged with the companies of the METRO group through financing and guarantee commitments as well as direct and indirect investments, among other things, the risk situation of METRO AG is highly dependent on the risk situation of the METRO group. This is why the summary of the risk situation of METRO AG issued by the company’s management also reflects the risk situation of the METRO group. Outlook of METRO AG The business development of METRO AG as the management holding company essentially depends on the development and dividend distributions of its investments. We assume that possible one-off charges from the announced efficiency program can be offset by ongoing cost savings as well as changes in investment results. Accordingly, we expect that net profit or loss for the coming financial year 2019/20 will return to a level comparable to that of 2018/19 (€237 million). Planned investments of METRO AG In the context of METRO’s investment activities, METRO AG will support group companies with increases in shareholdings or loans, where necessary. In addition, investments in shareholdings in affiliated companies may result from intra-group share transfers. Declaration on corporate management The declaration on corporate management, summarised in the corporate governance report, pursuant to § 289f of the German Commercial Code (HGB) and § 315d of the German Commercial Code (HGB) is permanently and publicly available on the company’s website (www.metroag.de/en) in the section Company – Corporate Governance. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 158 INCOME STATEMENT 159 RECONCILIATION FROM PROFIT OR LOSS FOR THE PERIOD TO TOTAL COMPREHENSIVE INCOME 160 BALANCE SHEET 162 STATEMENT OF CHANGES IN EQUITY 164 CASH FLOW STATEMENT 167 NOTES 168 170 Segment reporting Notes to the group accounting principles and methods 199 Capital management 200 Notes to the income statement 212 263 314 Notes to the balance sheet Other notes RESPONSIBILITY STATEMENT OF THE LEGAL REPRESENTATIVES 315 INDEPENDENT AUDITOR’S REPORT BACKSIDE CHAPTERCONSOLIDATED FINANCIALSTATEMENTS AND NOTESC O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 157 CONSOLIDATED FINANCIAL STATEMENTS M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S I N C O M E S T A T E M E N T 158 INCOME STATEMENT for the financial year from 1 October 2018 to 30 September 2019 € million Sales revenues Cost of sales Gross profit on sales Other operating income Selling expenses General administrative expenses Other operating expenses Earnings from impairment of financial assets Earnings share of operating companies recognised at equity Earnings before interest and taxes EBIT Earnings share of non-operating companies recognised at equity Other investment result Interest income Interest expenses Other financial result Net financial result Earnings before taxes EBT Income taxes Profit or loss for the period from continuing operations Profit or loss for the period from discontinued operations after taxes Profit or loss for the period Profit or loss for the period attributable to non-controlling interests from continuing operations from discontinued operations Profit or loss for the period attributable to the shareholders of METRO AG from continuing operations from discontinued operations Earnings per share in € (basic = diluted) from continuing operations from discontinued operations 1 Adjustment of previous year due to discontinued operations 2 Adjustment of previous year according to explanation in notes. Note no. 2017/181, 2 1 2 3 4 5 6 7 7 8 9 9 10 12 43 13 14 26,792 −22,278 4,514 1,271 −4,021 −773 −293 0 14 713 0 0 27 −163 −2 −137 576 −216 359 −22 337 4 (3) (1) 333 (357) (−23) 0.92 (0.98) (−0.06) 2018/19 27,082 −22,476 4,606 1,405 −4,092 −822 −279 −14 24 828 0 −1 29 −148 1 −119 709 −298 411 −526 −115 11 (6) (5) −126 (405) (−532) −0.35 (1.12) (−1.46) M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S R E C O N C I L I A T I O N F R O M P R O F I T O R L O S S F O R T H E P E R I O D T O T O T A L C O M P R E H E N S I V E I N C O M E 159 RECONCILIATION FROM PROFIT OR LOSS FOR THE PERIOD TO TOTAL COMPREHENSIVE INCOME for the financial year from 1 October 2018 to 30 September 2019 € million Profit or loss for the period Other comprehensive income Items of other comprehensive income that will not be reclassified subsequently to profit or loss Remeasurement of defined benefit pension plans Effects from the fair value measurements of equity instruments Income tax attributable to items of other comprehensive income that will not be reclassified subsequently to profit or loss Items of other comprehensive income that may be reclassified subsequently to profit or loss Currency translation differences from translating the financial statements of foreign operations Effective portion of gains/losses from cash flow hedges Gains/losses on remeasuring financial instruments in the category ‘available for sale’ Effects from the fair value measurements of debt instruments Income tax attributable to items of other comprehensive income that may be reclassified subsequently to profit or loss Other comprehensive income Total comprehensive income Total comprehensive income attributable to non-controlling interests Total comprehensive income attributable to the shareholders of METRO AG 1 Adjustment of previous year according to explanation in notes. Note no. 2017/181 337 2018/19 −115 31 31 31 31 31 31 11 17 0 −6 −175 −190 2 9 0 4 −164 174 4 170 −75 −94 −3 22 135 138 2 0 0 −5 59 −56 12 −68 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B A L A N C E S H E E T 160 BALANCE SHEET as of 30 September 2019 ASSETS € million Non-current assets Goodwill Other intangible assets Property, plant and equipment Investment properties Financial assets Investments accounted for using the equity method Other financial assets Other non-financial assets Deferred tax assets Current assets Inventories Trade receivables Financial assets Other financial assets Other non-financial assets Entitlements to income tax refunds Cash and cash equivalents Assets held for sale 1 Adjustment of previous year according to explanation in notes. Note no. 30/9/20181 30/9/2019 19 20 21 22 23 23 24 24 25 26 27 24 24 29 30, 43 7,503 797 499 5,314 97 88 178 39 163 329 7,703 2,108 571 1 561 353 206 1,298 2,605 15,206 6,736 785 562 4,760 82 97 179 37 43 191 7,761 1,946 482 4 603 279 190 500 3,758 14,497 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S B A L A N C E S H E E T 161 EQUITY AND LIABILITIES € million Equity Share capital Capital reserve Reserves retained from earnings Non-controlling interests Non-current liabilities Provisions for post-employment benefits plans and similar obligations Other provisions Financial liabilities Other financial liabilities Other non-financial liabilities Deferred tax liabilities Current liabilities Trade liabilities Provisions Financial liabilities Other financial liabilities Other non-financial liabilities Income tax liabilities Liabilities related to assets held for sale 1 Adjustment of previous year according to explanation in notes. Note no. 30/9/20181 30/9/2019 31 32 33 34, 36 34, 37 34, 37 25 34, 35 33 34, 36 34, 37 34, 37 34 30, 43 3,074 363 6,118 −3,449 41 3,427 468 126 2,590 56 67 120 8,705 3,993 274 1,420 744 392 191 1,691 15,206 2,735 363 6,118 −3,778 32 3,419 543 132 2,498 56 71 119 8,343 3,572 168 871 728 233 169 2,601 14,497 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S S T A T E M E N T O F C H A N G E S I N E Q U I T Y 162 STATEMENT OF CHANGES IN EQUITY for the financial year from 1 October 2018 to 30 September 2019 Share capital Capital reserve Effective portion of gains/losses from cash flow hedges Equity and debt instruments1 Currency trans- lation differences from translating the financial statements of foreign operations 363 6,118 −2 Note no. 31 € million 1/10/2017 Earnings after taxes Other comprehensive income Total comprehensive income Capital increases Dividends Capital transactions with a change in the participation rate Other changes 30/9/2018 31 1/10/2018 Balance sheet changes due to IFRS 9 and IFRS 15 1/10/2018 adjusted Earnings after taxes Other comprehensive income Total comprehensive income Capital increases Dividends Capital transactions with a change in the participation rate Other changes 0 0 0 0 0 0 0 363 363 0 363 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,118 6,118 0 6,118 0 0 0 0 0 0 0 30/9/2019 31 363 6,118 1 Previous year: Gains/losses on remeasuring financial instruments in the category ‘available for sale’. 2 Adjustment of previous year according to explanation in notes. 0 0 9 9 0 0 0 0 9 9 −9 0 0 −3 −3 0 0 0 0 −3 −549 0 −189 −189 0 0 0 0 −738 −738 0 −738 0 136 136 0 0 0 0 −602 0 2 2 0 0 0 0 0 0 0 0 0 2 2 0 0 0 0 2 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S S T A T E M E N T O F C H A N G E S I N E Q U I T Y 163 Remeasurement of defined benefit pension plans Income tax on components of other comprehen- sive income Other reserves retained from earnings2 Total reserves retained from earnings2 Total equity before non-controlling interests2 Non-controlling interests Total equity2 −427 0 17 17 0 0 0 0 −410 −410 0 −410 0 −94 −94 0 0 0 3 −500 92 0 −2 −2 0 0 0 0 91 91 0 91 0 17 17 0 0 0 −1 106 −2,481 −3,366 333 333 3,115 333 0 −163 −163 333 170 0 −254 0 −254 1 0 1 0 −2,401 −3,449 −2,401 −3,449 170 0 −254 1 0 3,032 3,032 2 −7 −7 −2,399 −3,456 3,025 −126 −126 −126 0 58 58 −126 −68 0 −254 0 −254 −1 −2 −1 0 −68 0 −254 −1 0 −2,782 −3,778 2,703 46 3,161 4 −1 4 1 −9 −1 1 41 41 0 41 11 1 12 0 −21 0 −1 32 337 −164 174 1 −263 0 1 3,074 3,074 −7 3,066 −115 59 −56 0 −275 −1 −1 2,735 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C A S H F L O W S T A T E M E N T 164 CASH FLOW STATEMENT1 for the financial year from 1 October 2018 to 30 September 2019 € million EBIT Depreciation/amortisation/impairment losses/reversal of impairment losses of fixed assets excl. financial investments Change in provisions for pensions and other provisions Change in net working capital Income taxes paid Reclassification of gains (−) / losses (+) from the disposal of fixed assets Other Cash flow from operating activities of continuing operations Cash flow from operating activities of discontinued operations Cash flow from operating activities Acquisition of subsidiaries Investments in property, plant and equipment and in investment property (excl. finance leases) Other investments Investments in monetary assets Disposals of subsidiaries Divestments Disposal of financial investments Cash flow from investing activities of continuing operations Cash flow from investing activities of discontinued operations Cash flow from investing activities Dividends paid to METRO AG shareholders to other shareholders Redemption of liabilities from put options of non- controlling shareholders Proceeds from long-term borrowings Redemption of borrowings Interest paid Interest received Other financing activities Cash flow from financing activities of continuing operations Cash flow from financing activities of discontinued operations Cash flow from financing activities Total cash flows Currency effects on cash and cash equivalents M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Note no.2 2017/183 2018/19 15 32, 33 26, 27, 35 12 43 21, 22 20, 21, 22, 23 43 31 36 36 43 713 503 −202 141 −193 −137 −59 766 139 905 0 −408 −165 −1 −3 285 0 −292 −89 −381 828 532 −47 27 −215 −356 28 796 157 953 −1 −258 −198 −9 0 505 7 46 −136 −90 −254 −254 −9 0 2,772 −2,983 −141 20 8 −587 −74 −661 −137 −30 −7 −2 6,122 −6,844 −161 28 −4 −1,122 −109 −1,231 −368 17 C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C A S H F L O W S T A T E M E N T 165 Total change in cash and cash equivalents Cash and cash equivalents as of 1 October Less cash and cash equivalents reported in assets in accordance with IFRS 5 Cash and cash equivalents as of 1 October Cash and cash equivalents as of 30 September Less cash and cash equivalents reported in assets in accordance with IFRS 5 Cash and cash equivalents as of 30 September −167 1,562 3 1,559 1,395 97 1,298 −351 1,395 97 1,298 1,044 544 500 31 30 1 The cash flow statement is explained in the notes to the consolidated financial statements in no. 41 – notes to the cash flow statement. 2 Deviations from the balance sheet values result from adjusted translation effects and changes in the consolidation group. 3 Adjustment of previous year due to discontinued operations M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S NOTES 167 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S S E G M E N T R E P O R T I N G 168 SEGMENT REPORTING1, 2 METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) € million 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 External sales (net) Internal sales (net) 4,761 4,735 10,609 10,752 2,815 2,662 6,952 7,191 11 16 2 2 36 38 0 Sales (net) 4,773 4,751 10,611 10,753 2,850 2,700 6,952 EBITDAR 119 121 648 653 276 233 391 0 7,191 549 EBITDA excluding earnings contributions from real estate transactions Earnings contributions from real estate transactions EBITDA Depreciation/ amortisation/ impairment losses Reversals of impairment losses EBIT Investments Non-current segment assets Selling space (1,000 m²) Locations (number) 91 95 491 499 266 220 363 344 0 91 76 0 15 65 0 95 39 530 29 529 0 266 0 220 12 375 181 524 81 143 143 52 56 97 99 0 14 69 1 388 127 4 390 128 0 214 83 0 164 35 0 278 69 0 426 63 875 859 1,892 1,820 958 1,006 1,424 1,354 915 103 915 103 1,525 1,531 636 688 1,384 1,391 240 240 93 94 193 195 1 Segment reporting is explained in the notes to the consolidated financial statements in no. 42 segment reporting. 2 Adjustment of previous year due to discontinued operations M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S S E G M E N T R E P O R T I N G 169 METRO Asia Others Consolidation METRO Continuing operations Discontinued operations incl. IFRS 5 assessment 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 2017/18 2018/19 1,612 1,696 43 46 0 0 26,792 27,082 9,742 9,788 0 1,612 42 0 1,696 145 520 563 −80 667 713 −135 −570 −570 −3 −723 −723 0 0 0 0 26,792 27,082 9,742 9,788 1 1,394 1,566 478 218 9 11 −129 −148 −3 0 1,088 1,021 308 −2 8 17 22 0 −5 28 107 119 25 0 94 26 69 −60 21 −126 117 133 3 −174 195 0 −259 180 0 −3 0 0 −3 −2 411 441 808 779 −20 204 202 46 46 0 0 0 0 0 0 0 0 1 0 −1 −2 9 0 0 128 1,216 338 1,359 1 309 50 49 507 536 283 446 4 713 565 5 828 499 2 27 0 −398 246 215 6,348 6,268 1,848 1,613 4,665 4,728 2,488 2,476 675 678 373 373 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 170 NOTES TO THE GROUP ACCOUNTING PRINCIPLES AND METHODS Accounting principles METRO AG, the parent company of the METRO group (hereinafter referred to as METRO), is a German corporation with registered office at METRO-Straße 1 in 40235 Düsseldorf, Germany. The company is registered in the commercial register at the District Court in Düsseldorf under HRB 79055. These consolidated financial statements of METRO AG as of 30 September 2019 were prepared in accordance with the International Financial Reporting Standards (IFRS). The consolidated financial statements in their present form comply with the stipulations of § 315 e of the German Commercial Code (HGB). Together with Regulation (EU) No. 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards, they form the legal basis for group accounting according to international standards in Germany. The date at which the Management Board of METRO AG signed the consolidated financial statements (3 December 2019) also represents the date at which the Management Board released the consolidated financial statements for publication and submitted them to the Supervisory Board. The income statement has been prepared using the cost of sales method. Certain items in the income statement and the balance sheet have been combined to increase transparency and informative value. These items are explained separately in the notes. The consolidated financial statements have been prepared in euros. All amounts are stated in million euros (€ million) unless otherwise indicated. Amounts below €0.5 million are rounded and reported as €0 million. Individual figures may not add up to the stated sum precisely due to rounding. The following accounting and measurement methods were used in the preparation of the consolidated financial statements. Application of new accounting methods Accounting standards applied for the first time in financial year 2018/19 The following IFRS, issued or revised by the International Accounting Standards Board (IASB), that were binding for METRO AG in financial year 2018/19 were applied for the first time in these consolidated financial statements: IFRS 9 (Financial Instruments) As of financial year 2018/19, the new IFRS 9 (Financial Instruments) will replace IAS 39 (Financial Instruments: Recognition and Measurement) covering the classification and measurement of financial instruments. In particular, IFRS 9 introduces new regulations as follows: The classification and measurement of financial assets The determination and reporting of impairments of specific financial assets, The balance sheet reporting of hedging relationships. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 171 Changeover effects METRO has made use of the option pertaining to a modified retrospective application and recognised the effect of the first-time application of IFRS 9 as an adjustment to the opening balance of the reserves retained from earnings with effect on 1 October 2018. The first-time application of the new subsequent measurement regulations and the amended impairment rules for financial assets leads to an equity-reducing adjustment, which was reported to the sum of €4 million. The 2 adjustments were made taking into account offsetting deferred income tax effects in the amount of €1 million, resulting in an overall reduction of reserves retained from earnings in the amount of €3 million. As METRO exercises the option to continue the hedge accounting in accordance with IAS 39, the first- time application of IFRS 9 does not require any adjustments in this respect. METRO has implemented the consequential amendment applied to IAS 1 (Presentation of Financial Statements) due to the passing of IFRS 9, which stipulates that impairments of financial assets must be reported as a separate item in the income statement. For reporting periods after the start of financial year 2018/19, the separate item earnings from impairment of financial assets will be included in the EBIT (Earnings Before Interest and Taxes). € million Loans Loans Receivables due from suppliers Trade receivables Miscellaneous financial assets Categories as per IAS 39 Categories as per IFRS 9 Loans and receivables Loans and receivables Loans and receivables Loans and receivables Loans and receivables Amortised cost At fair value through profit or loss Amortised cost Amortised cost Amortised cost Derivative financial instruments not in a hedging relationship Held for trading At fair value through profit or loss Investments Available for sale At fair value through profit or loss Securities Securities Available for sale At fair value through other comprehensive income Available for sale At fair value through profit or loss Derivative financial instruments in a hedging relationship No category Not classified Carrying amount as per IAS 39 Carrying amount as per IFRS 9 30/9/2018 1/10/2018 Change Reason for change 29 4 328 571 238 7 48 1 0 4 29 4 329 568 238 7 471 0 2 4 0 0 1 – – Measurement attribute Measurement attribute −3 0 0 – – −21 Reclassification −1 Reclassification 2 Reclassification 0 0 – – Cash and cash equivalents No category Amortised cost 1,298 1,298 1 Contains investments to the sum of €1 million (rounded) which are recognised at fair value through other comprehensive income. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 172 Classification and measurement of financial assets Under IFRS 9, the classification and (subsequent) measurement of financial assets depends on the business model within which a financial asset is held and the characteristic of the individual cash flows of a financial asset. On this basis, the individual financial asset is assigned to one of the following classes at initial recognition: Measured at amortised cost (AC), Measured at fair value through other comprehensive income (FVOCI) Measured at fair value through profit or loss (FVPL) As these classifications differ from the previously applicable rules of IAS 39, there are corresponding differences in the classification and measurement of financial assets. The majority of debt instruments, loans, trade receivables and other financial assets (with the exception of equity instruments) held by METRO meet the criteria for reporting at amortised cost (AC) as per IFRS 9. Under the new standard, selected financial assets must be measured at fair value through profit or loss (FVPL). This applies in particular to certain loans as well as derivative financial instruments that are not designated as part of a hedging transaction. METRO has classified its financial assets as laid out in the preceding table, based on the underlying business models and the contractually determined cash flow characteristics. In total, this has not resulted in any changes to carrying amounts due to reclassification. The implementation of IFRS 9 does not cause any major changes to the classification and subsequent measurement regulations for financial liabilities. According to the new accounting and measurement methods pursuant to IFRS 9, METRO classifies the majority of equity instruments held by it as measured at fair value through profit or loss since 1 October 2018. Since 1 October 2018, METRO has been deciding for each new equity instrument whether the instrument is measured at fair value through profit or loss (FVPL) or at fair value through other comprehensive income without subsequent reclassification to profit or loss (FVOCInR). Impairments of financial assets In accordance with the new accounting and measurement methods, METRO will apply the general impairment requirements stipulated in IFRS 9 to financial assets in the AC (with the exception of trade receivables) and FVOIC categories. The credit risk is in these cases evaluated on the basis of the counterparty’s credit quality – which METRO assesses using external ratings, previous experience with the respective customer and credit risk rating grades. METRO minimises credit risk by predominantly investing in first-class debt capital instruments from issuers with a good to very good rating (investment grade). For these kinds of assets, the credit worthiness of the issuers is also monitored continuously. This enables METRO to identify any probable significant increase in the credit risk early on, allowing it to swiftly respond to any potential changes. METRO uses borrower-specific information to monitor loans and other financial assets. The introduction of the impairment models could in subsequent years lead to a higher fluctuation in the consolidated result, since the level of risk provisions also depends on economic conditions. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 173 As of the start of financial year 2018/19, METRO recognises expected credit losses for trade receivables over the entire term of these financial instruments. METRO elected to apply the simplified procedure available under IFRS 9 and ascertain the expected losses on the basis of provision matrices. The outstanding receivables are continuously monitored by the individual METRO companies. IFRS 15 (Revenue from Contracts with Customers) The new IFRS 15 has replaced IAS 18 (Revenue) and IAS 11 (Construction Contracts) and related interpretations. It stipulates a uniform and comprehensive model for recognising revenue from customers. The new standard uses a 5-step model to determine the amount of revenue and the date of recognition. Revenues are recognised when a performance obligation is satisfied. The performance obligation is satisfied when customer obtains the control of the good or the service. The performance obligation can be satisfied at a point in time or over a period of time. If the performance obligation is satisfied over a period of time, the net sales are recognised over the period in such a way that, on the basis of the selected method, the performance obligation is satisfied in a manner that best reflects the continuous transfer of control over time. As of 1 October 2018 (beginning of financial year 2018/19), METRO applied IFRS 15 by employing the modified retrospective transition method, under which no adjustments were made to previous year’s figures. With respect to the transition, METRO elected to make use of the practical expedient according to which IFRS 15 is only applied retrospectively to contracts that have not been fully performed at the date of the first-time application. As per the modified retrospective transition method, the effects of the first-time application were cumulatively reported in equity outside of profit or loss as at the day of the first-time application on 1 October 2018. The first-time application of IFRS 15 has led to changes in the following significant topics in the METRO group, which have recorded an increase of contract assets (€1 million) and contract liabilities (€6 million) in the opening statement dated 1 October 2018. This caused a reduction of reserves retained from earnings to the sum of €5 million before deferred taxes (€4 million after deferred taxes). Essential rights from customer loyalty programmes As part of discount campaigns or customer loyalty programmes, the customer is regularly granted the option of acquiring additional goods or services at a discounted price in the future. The part of the transaction price corresponding to the relative stand-alone selling price of the right must be allocated to the resulting essential right. Revenue recognition for the essential right occurs at the time the right is redeemed or expired, leading to a later recognition of revenue. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 174 Multi-component contracts in relation to franchise agreements Some of METRO’s franchise models make use of multi-component contracts that provide customers purchasing a package of franchise products and services from METRO at the time of entering into the contract, with selected contractual components being subsidised by METRO. In such cases, the total consideration of the contract must be divided into the identifiable performance obligations in accordance with the relative individual selling prices. Thus in comparison to the previous accounting under IAS 18, a potentially larger part of the total compensation is attributable to the previously subsidised component, so that in the future net sales for those products will be reported earlier. Compared to the previous regulation, net sales from these topics have not changed significantly in financial year 2018/19. The following transitional topics led to a revised disclosure in the reporting period: Constellation as principal or agent The acknowledgement of whether METRO acts as principal or agent had to be reassessed based on the indicator changes in IFRS 15. With regard to certain transactions, METRO acts as an agent (net sales and cost of sales) instead of a principal (gross sales and additional cost of sales), taking into account the changed indicators. In financial year 2018/19, this led to a reduction in sales of €33 million and cost of sales of €33 million. Contract liabilities Contract liabilities relate to deferred revenue from sales to customers; they mainly comprise advance payments on orders and deferred revenue from the company’s own customer loyalty programmes. Instead of primarily being reported under deferred income, the above items are now reported as contract liabilities of €35 million as of 30 September 2019 (1/10/2018: €31 million). Right of return Sales in some METRO Wholesale business models regularly result in redemption or conversion rights. These may be legally binding or arise from active business practice. Refunds represent a form of variable consideration in the determination of the transaction price. Instead of being presented as a provision, the return or exchange rights granted to customers are recognised as a refund liability under other non-financial liabilities as of 30 September 2019 in the amount of €1 million. For the right to recover products from a customer on settling reimbursement refund-liability, assets in the amount of €1 million are reported in other non-financial assets as of 30 September 2019. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 175 Additional IFRS amendments Other accounting rules to be applied for the first time in financial year 2018/19 without material effects on METRO are: IAS 40 – Investment Property (clarification: transfers of Investment Property.) IFRS 2 – Share-based Payment (Classification and Measurement of Share-based Payment Transactions) IFRIC 22 – Foreign Currency Transactions and Advance Consideration Amendments to IFRS 1 (First-time Adoption of International Financial Reporting Standards) and IAS 28 (Investments in Associates and Joint Ventures) in accordance with the Annual Improvements to IFRS Standards −2014-2016 Cycle Accounting standards that were published but not yet applied in financial year 2018/19 A number of other standards and interpretations revised or newly adopted by the IASB were not yet applied by METRO in financial year 2018/19 because they were either not yet mandatory or have not yet been endorsed by the European Commission. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 176 Standard/ Interpretation Title Effective date according to IFRS1 Application at METRO AG from2 Endorsed by EU3 Amendments to IFRS 3 Business combinations (definition of a business)4 1/1/2020 1/10/2020 No Amendments to IFRS 3/ IFRS 11 Changes resulting from the annual improvements cycle 2015–2017 (Additional guidance for applying the acquisition method to particular types of business combinations) 1/1/2019 1/10/2019 Yes Amendments to IFRS 9 Financial Instruments (Prepayment Features with Negative Compensation) 1/1/2019 1/10/2019 Yes Amendments to IFRS 9/ IFRS 7/IAS 39 Financial instruments (adjustments due to the reform of Interest Rate Renchmark Reform)4 1/1/2020 1/10/2020 No Amendments to IFRS 10/ IAS 28 Consolidated Financial Statements/Investments in Associates and Joint Ventures (Sale or Contribution of Assets between an Investor and its Associate or Joint Venture)4 IFRS 16 IFRS 17 Leases Insurance Contracts4 Unknown5 Unknown5 1/1/2019 1/1/2021 1/10/2019 1/10/2021 No Yes No Amendments to IAS 1/ IAS 8 Changes to the definition of ‘Material’4 1/1/2020 1/10/2020 No Amendments to IAS 12 Changes resulting from the annual improvements cycle 2015–2017 (Income Tax Consequences of Payments on Instruments Classified as Equity) 1/1/2019 1/10/2019 Yes Amendments to IAS 19 Employee Benefits (Plan Amendment Curtailment or Settlement)4 1/1/2019 1/10/2019 Yes Amendments to IAS 23 Changes due to the annual improvements cycle 2015–2017 (– determination of the borrowing cost rate for funds not specifically borrowed for a qualified asset) Amendments to IAS 28 Investments in Associates and Joint Ventures (Long-term Interests in Associates and Joint Ventures) IFRIC 23 Uncertainty over Income Tax Treatments Changes to the Conceptual Framework Conceptual Framework for Financial Reporting (Amendments to References to the Conceptual Framework in IFRS Standards)4 1/1/2019 1/10/2019 Yes 1/1/2019 1/1/2019 1/10/2019 1/10/2019 Yes Yes 1/1/2020 1/10/2020 No 1 Without earlier application. 2 Application as of 1 October due to deviation of financial year from calendar year, if the approval for use (endorsement) has been granted by the EU. 3 As of: End of November 2019. 4 Indefinite deferral of effective date by IASB. 5 Start of application postponed indefinitely by the IASB. IFRS 16 (Leases) The new leasing standard IFRS 16 will replace the currently applicable standard IAS 17 (Leases) and IFRIC 4 (Determining Whether an Arrangement Contains a Lease). IFRS 16 generally applies to contracts that convey the right to use an asset, rental contracts and leases, subleases and sale-and-leaseback transactions. With respect to the lease of certain intangible assets, a lessee can elect to apply IFRS 16 to leases of certain intangible assets, whereas agreements on service concessions or leasing of natural resources are outside the scope of IFRS 16. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 177 The key change of IFRS 16 compared to IAS 17 concerns the lessee accounting model. IFRS 16 introduces a uniform accounting model for lessees after the recognition of a right- of-use asset for each asset transferred for use. It also references a corresponding liability in the amount of the present value of the future lease payments. The lease payments include all fixed payments less any lease incentives for the conclusion of the contract. This includes all index-based variable lease payments. In addition, the lease payments must include any variable lease payments that classify as in-substance fixed payments as well as amounts expected to be payable by the lessee under residual value guarantees. The exercise price of a purchase option and additional liabilities stemming from lease extension options must be included in the lease liability if the lessee is reasonably certain to exercise such options. In addition, the lease liability must include any penalties to be paid for terminating the lease if the lease term reflects the lessee exercising an option to terminate the lease. Over the term of the lease, the lease liability is accounted for under the effective interest method in consideration of lease payments made. The simultaneously recognised right-of-use asset is capitalised at the amount of the liability. Lease payments already made and directly attributable costs must also be included. Any payments received from the lessor that are related to the lease are deducted. Measurement of the right-of-use asset also considers any reinstatement obligations from leases. The right-of-use asset is subject to scheduled amortisation. Exercising of options Lessees can elect to make use of several policy options. For accounting and measurement, they have the option to build a portfolio of leases with similar characteristics of which METRO is not availing itself. METRO will exercise the option of not applying the right-of- use approach to low-value assets (mainly business and office equipment) and short-term leases (maximum terms of 12 months). Rental expenses for these assets must therefore be recognised directly in the income statement. The option to separate lease and non-lease components (service) is not exercised and the non-lease components are included in the right-of-use assets to be recognised. In the future, comprehensive qualitative and quantitative information must be provided in the notes to the consolidated financial statements. The revised definition of leases also applies to the lessor and can lead to assessments deviating from IAS 17. However, the lessor continues to classify a lease as either an operating lease or a finance lease. IFRS 16 is applicable for reporting periods beginning on or after 1 January 2019. METRO will apply these regulations for the first time on 1 October 2019. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 178 Transitional arrangements METRO will apply IFRS 16 for the first time with full retrospective effect. The figures from the previous year will be adapted in consideration of the applicable transitional rules. The implementation project of the new standard for leases is in the final phase and the initial effects on the consolidated financial result and the financial position of the company are being examined internally. The process for data collection of the lease agreements by the group companies has been completed. A leasing accounting tool was implemented to determine the carrying amounts to be recognised at the beginning of financial year 2019/20 as of 1 October 2018 and 1 October 2019 respectively as well as the expenses and income to be recognised for financial year 2018/19. The tool is also used for ongoing accounting and reporting of leases. For continuing operations, the estimated effects of IFRS 16 on the opening balance sheet as of 1 October 2018 (beginning of financial year 2018/19) will lead to an increase in non-current assets of approximately €2.3 billion and an increase in total liabilities of approximately €2.6 billion. At the end of financial year 2018/19, total liabilities remain the same at approximately €2.6 billion due to offsetting effects resulting from additions of usage rights and redemption payments. Additional impairment losses in the amount of approximately €0.3 billion and interest expenses (2018/19 as well as 2019/20) will be recognised in the income statement in the future instead of leasing expenses. This leads to an improvement in EBITDA of approximately €0.4 billion and an improvement in EBIT at the expense of the financial result amounting to approximately €0.1 billion. METRO plans to publish an IFRS 16 Transition Booklet in January 2020, which will contain the effects of the changeover per quarter and per segment for financial year 2018/ 19. Additional IFRS amendments At this point, the first-time application of the other standards and interpretations listed in the above table as well as amendments to IFRS are not expected to have a material impact on the group’s net assets, financial position and results of operations. Segment reporting The segment reporting of METRO was adjusted due to the activities not continued. The 5 Wholesale regions continue to be reportable segments as defined by IFRS 8 (Operating Segments). All other units are combined in the Others segment. In the combined management report, the separate disclosure of individual companies under ‘METRO Wholesale Others’ and total for ‘METRO Wholesale segments’ will no longer be provided. Adjustment of the previous year’s financial statements The Turkish government issued a decree in September 2018 under which business contracts may only be concluded in Turkish lira and no longer in other currencies such as euros or US dollars. At METRO, it is real estate lease contracts that will be affected predominantly. The lease contracts of METRO Properties Gayrimenkul Yatirim A.Ş that were previously based on euros have been converted accordingly to Turkish lira. As a result, as of 1 October 2018, the functional currency of the company will also change from euro to Turkish lira. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 179 Deferred tax differences arising from the translation of tax carrying amounts at current rates compared with their translation at historical rates were adjusted retrospectively. As of 1 October 2017, deferred tax assets were reduced by €30 million, deferred tax liabilities had been increased by €16 million and the net effect on equity amounted to €−46 million. The effect on income taxes in financial year 2017/18 amounted to €11 million expenses from deferred taxes. For financial year 2018/19 and onwards, no further currency- related effects on income taxes are expected, as the functional currency of METRO Properties Gayrimenkul Yatirim A.Ş. will not differ from the local currency anymore. € million Deferred tax assets Deferred tax liabilities Reserves retained from earnings Income taxes Profit or loss for the period1 Earnings1 per share in € (basic = diluted) Earnings1 per share in € from continuing operations 30/9/2018 as reported in the previous year Adjustment 30/9/2018 adjusted 365 100 −3,392 −235 348 0.95 1.25 −37 20 −57 −11 −11 −0.03 −0.03 329 120 −3,449 −246 337 0.92 1.22 1 The income statement effects are all attributable to continuing operations and the shareholders of METRO AG. The above presentation does not include the further changes of the previous year’s amounts from the presentation of METRO China as an activity not continued. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 180 Consolidation group Besides METRO AG, all companies indirectly or directly controlled by METRO AG are included in the consolidated financial statements if these companies individually or as a group are not immaterial to the consolidated financial statements. Control exists if there is a possibility to control a company’s financial and business policy through a majority of voting rights or according to the Articles of Association, company contract or contractual agreement in order to benefit from this company’s business activities. Including METRO AG, 200 German (30/9/2018: 201) and 223 international (30/9/2018: 200) companies are included in the consolidated financial statements. The group of consolidated companies changed as follows in financial year 2018/19: As of 1/10/2018 Changes in financial year 2018/19 Companies merged with other consolidated subsidiaries Disposal of shares Other disposals Newly founded companies Acquisitions As of 30/9/2019 401 8 2 7 4 35 423 Deconsolidated companies are treated as group companies up to the date of their disposal. Acquisitions in 2018/19 mainly include the acquisition of shelf companies for the spin-off of real estate. The other disposal relate to the disposal of 2 real estate companies in China and the Czech Republic. The remaining disposals relate exclusively to liquidations. Effects from changes in the consolidation group that are of special significance are explained separately in the notes relating to the respective items. For materiality reasons, 3 affiliated subsidiaries are not fully consolidated. Structured entities Structured entities within the group concern leasing companies. The key purpose of the leasing companies is to acquire, lease out and manage assets. As of the closing date, 2 (30/ 9/2018: 3) structured entities were fully consolidated. As was already the case in the previous year, there were no obligations to grant financial assistance to structured entities in the meaning of IFRS 12.14. There are also no relationships with unconsolidated structured entities. Investments accounted for using the equity method 24 associated companies (30/9/2018: 24) and 8 joint ventures (30/9/2018: 8) are accounted in the consolidated financial statements using the equity method. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 181 Another 2 companies (30/9/2018: 2) in which METRO AG indirectly or directly holds between 20% and 50% of the voting rights were measured at cost because they did not qualify as associates or because materiality considerations made the use of the equity method unnecessary. OVERVIEW OF SUBSIDIARIES WITH SIGNIFICANT NON-CONTROLLING INTERESTS € million 30/9/2018 Name Non- controlling interests Registered office in % as of 30/9/ 2018 Dividends paid1 Non- current assets Current assets Non- current liabilities Current liabilities Sales revenues Profit- shares1 METRO Jinjiang Cash & Carry Co., Ltd. Shanghai, China 10.00 23 0 291 797 3 860 2,652 1 € million 30/9/2019 Non-controlling interests Name Registered office as of 30/9/2019 Dividends paid1 in % Non- current assets Current assets Non- current liabilities Current liabilities Sales revenues Profit- shares1 METRO Jinjiang Cash & Carry Co., Ltd. Shanghai, China 1 Attributable to non-controlling interests. 10.00 14 13 298 897 3 1,045 2,812 5 A complete list of group companies and associates is shown in no. 55 – overview of the major fully consolidated group companies associates is shown in no. 57 – affiliated companies of the METRO AG as of 30 September 2019 pursuant to § 313 of the German Commercial Code page 296 . In addition, a complete list of all group companies and page 302 . Consolidation principles The financial statements of German and foreign subsidiaries included in the consolidated accounts are prepared using uniform accounting and measurement methods as required by IFRS 10 (Consolidated Financial Statements). Subsidiaries that, unlike METRO AG, do not close their financial year on 30 September prepared interim financial statements for consolidation purposes. In principle, subsidiaries are fully consolidated insofar as their consolidation is of material importance to the presentation of a true and fair view of the net assets, financial position and results of operations. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 182 In accordance with IFRS 3 (Business Combinations), capital consolidation is effected using the purchase method. In the case of business combinations, the carrying amounts of the investments are offset against the revalued pro rata equity of the subsidiaries as of their acquisition dates. Any positive differences remaining after the allocation of hidden reserves and burdens are capitalised as goodwill. Goodwill is tested for impairment regularly once a year. In addition, in the case of company acquisitions, hidden reserves and burdens attributable to non-controlling interests must be disclosed and recognised in equity as non- controlling interests. In accordance with IFRS 3, any negative differences remaining after the allocation of hidden reserves and burdens as well as after an reassessment during the period in which the business combination took place are recognised through profit or loss. Acquisitions of additional shareholdings in companies where a controlling interest has already been acquired are recognised as equity transactions. Investments in associates and joint ventures are accounted for using the equity method and treated in accordance with the principles applying to full consolidation, with existing goodwill being included in the amount capitalised for such investments. The disclosure of income from investments in associates, joint ventures and joint operations in the income statement depends on whether the investee carries out operating or non-operating activities. Operating activities include the retail and wholesale businesses as well as related support activities (for example rent/lease of real estate, procurement, logistics). Income from operating associates, joint ventures and joint operations is recognised in earnings before interest and taxes (EBIT); income from non-operating entities is however recognised in the net financial result. Any deviating accounting and measurement methods used in the financial statements of entities valued at equity are retained as long as they do not substantially contradict METRO’s uniform accounting and valuation methods. According to IFRS 11 (Joint Arrangements), the individual venturers in joint operations recognise their portion of jointly held assets and jointly incurred liabilities in their own balance sheets. Intra-group sales, expenses and income or profits and losses as well as receivables and liabilities and/or provisions are eliminated. Interim results in fixed assets or inventories resulting from intra-group transactions are eliminated unless they are of minor significance. In accordance with IAS 12 (Income Taxes), deferred taxes are recognised for consolidation procedures. Unrealised gains from transactions with companies accounted for using the equity method are recognised as a reduction of the carrying amount of the investment in the amount of the group’s share of the profit. In joint arrangements, all venturers recognise the respective portion of sales attributable to them as well as their own income and expenses resulting from the joint arrangement in their income statement. If a reduction in the shareholding quota in a subsidiary or the complete disposal of the shares entails a loss of control, full consolidation of the subsidiary is terminated when the control opportunity no longer exists. All assets and liabilities that were previously fully consolidated will then be derecognised at amortised group carrying amounts (deconsolidation). Any investments held after the loss of control opportunity are recognised at fair value as a financial instrument according to IFRS 9 or as an investment pursuant to IAS 28 using the equity method. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 183 Currency translation Foreign currency transactions In the separate financial statements of the subsidiaries and the parent company, transactions in foreign currency are recognised at the rate prevailing on the transaction date. Monetary assets and liabilities in foreign currency are valued at the closing date exchange rate. Non-monetary assets and liabilities that are measured at fair value in foreign currency are translated at the rate prevailing at the time the fair value was determined. Non-monetary items measured at historical acquisition or production costs in foreign currency are translated at the rate of the transaction date. In principle, gains and losses from exchange rate fluctuations incurred until the closing date are recognised in profit or loss. However, the currency translation differences resulting from the subsequent measurement of the following assets and liabilities are reported under reserves retained from earnings outside of profit or loss: Receivables and liabilities in foreign currency, which must be regarded as (part of) a net investment in a foreign operation Equity instruments at fair value through other comprehensive income Hedging instruments qualifying for cash flow hedges Foreign operations The annual financial statements of foreign subsidiaries are prepared according to the functional currency concept of IAS 21 (The Effects of Changes in Foreign Exchange Rates) and translated into euro for consolidation purposes in case their functional currency is a currency other than the euro. The functional currency is defined as the currency of the primary economic environment of the subsidiary. Since all companies included in the consolidated financial statements operate as financially, economically and organisationally autonomous entities, their respective local currency is the functional currency. Necessary translations of assets and liabilities are made at the exchange rate on the closing date. As a rule, income statement items are translated at the average exchange rate during the financial year. Exchange rate differences arising from the translation of the financial statements of foreign subsidiaries are recognised directly in equity and are reported separately under reserves retained from earnings in other comprehensive income. To the extent that foreign subsidiaries are not under the full control of the parent company, the relevant share of currency differences is allocated to the non-controlling interests. Currency differences are recognised through profit or loss in the net financial result in the year in which the operations of a foreign subsidiary whose functional currency is not the euro are deconsolidated or terminated. In a partial disposal in which a controlling interest in such a foreign subsidiary is retained, the relevant share of cumulated currency differences is allocated to the non-controlling interests. Should associates or jointly controlled entities, whose functional currency is not the euro, be partially sold without the loss of significant influence or joint control, the relevant share of the cumulated currency differences is recognised in profit or loss. In financial year 2018/19, no functional currency of a consolidated company was classified as hyperinflationary as defined by IAS 29 (Financial Reporting in Hyperinflationary Economies). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 184 The following exchange rates being of major significance for METRO were applied in the translation of key currencies outside the European Monetary Union: Average exchange rate per € Exchange rate at closing date per € 2017/18 1.95583 7.78072 7.44639 25.59342 7.44841 21.14591 9.32227 2018/19 30/9/2018 30/9/2019 1.95583 7.75616 7.41336 25.74114 7.46385 1.95583 7.96620 7.43460 1.95583 7.77840 7.41100 25.73100 25.81600 7.45640 7.46620 17.75290 8.53680 19.48706 20.96995 8.83913 9.05790 315.96660 323.02241 324.37000 334.83000 79.17455 79.65100 83.91600 77.16150 16,563.99000 16,160.21000 17,249.98000 15,456.94000 131.44140 124.14090 131.23000 117.59000 399.50173 427.11378 420.91000 423.49000 4.79783 20.07596 4.67447 19.72835 4.78900 19.76180 4.55920 19.39590 1,643.89863 1,728.93370 1,816.30000 1,675.90000 9.59644 9.73765 9.46650 9.89530 136.55544 163.05191 144.19130 170.90740 62.00207 59.03683 62.64800 56.55300 4.24399 0.88479 4.64422 4.30027 0.88412 4.71851 4.27740 0.88730 4.66380 4.37820 0.88573 4.74960 72.23349 73.82877 76.14220 70.75570 118.46441 118.06690 118.41790 117.52830 1.59897 1.16162 5.24182 4.37170 32.08969 1.19026 1.54212 1.12274 6.32660 4.14292 30.17616 1.12799 1.58390 1.13160 6.96500 4.26510 1.50600 1.08470 6.14910 4.00630 32.72527 26.34863 1.15760 1.08890 26,816.38000 25,903.60000 26,722.01000 25,457.19000 Bulgarian lev Chinese renminbi Croatian kuna Czech koruna Danish krone Egyptian pound Hong Kong dollar Hungarian forint Indian rupee Indonesian rupiah Japanese yen Kazakhstani tenge Malaysian ringgit Moldovan leu Myanmar kyat Norwegian krone Pakistani rupee Philippine peso Polish złoty Pound sterling Romanian leu Russian rouble Serbian dinar Singapore dollar Swiss franc Turkish lira UAE dirham Ukrainian hryvnia US dollar Vietnamese dong BGN CNY HRK CZK DKK EGP HKD HUF INR IDR JPY KZT MYR MDL MMK NOK PKR PHP PLN GBP RON RUB RSD SGD CHF TRY AED UAH USD VND M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 185 Income statement Recognition of income and expenses Net sales are recognised in accordance with IFRS 15 (Revenue from Contracts with Customers) when the respective service obligations have been met by transferring goods to wholesale customers or providing services. The goods are deemed to have been transferred at the time at which the customer gains control over them. This applies to stationary trade as well as to the delivery sales business (food service distribution – FSD). In these cases, cash payment or payment within a short time after delivery of the product (credit purchase) is usually agreed with the customer. Significant financing components are usually not included in the contracts with customers. For services, control over the services is transferred over time, thus fulfilling the performance obligation. Revenue is recognised in the amount of the consideration received or expected to be received in exchange for the goods or services. Under certain wholesale business models, METRO customers are granted the right to exchange or return goods under certain conditions or in accordance with contractual agreements or on a legal basis. Refund liabilities that are based on empirical values regarding return quotas and periods are recorded for expected returns in this context. Assets for the right to revocer products from a customer on settling these refund liabilities are measured at the former carrying amount of the respective inventories (less settlement costs and any indicated impairment). METRO grants various types of standardised, performance-based rebates if certain predefined conditions are met. Examples include rebates for achieving certain sales volumes with a customer and for customer loyalty. As soon as it can be assumed that a customer fulfils the conditions for granting the rebate, a portion of the revenue is deferred and recognised as a contract liability. Such contract liabilities are derecognised when the rebate is redeemed by the customer or when the probability that the customer will enforce its rights is remote. The rebates are routinely redeemed by customers within one year of the respective recognition of a contract liability. Some of the franchise models offered by METRO include multi-component contracts with customers being offered a bundle of different franchise products and services. Individual contractual components are made available to customers in subsidised form, so that the entire agreed consideration is allocated to the individual components in accordance with the relative stand-alone selling prices. In some cases, METRO acts as an agent for the delivery of goods or the provision of services. In these cases, METRO recognises the expected fee or commission as revenue. Performance-based government grants attributable to future periods have been recognised on an accrual basis according to the corresponding expenses. Performance- based grants for subsequent periods which have already been received are shown as deferred income and the corresponding income is time-proportionally recognised in subsequent periods. Operating expenses are recognised as expenses upon utilisation of the service or on the date of their causation. METRO’s financial result consists primarily of interest income and expenses. Interest is recognised as income or expenses and, where applicable, on an accrual basis using the effective interest method. Debt capital interests that are directly attributable to the acquisition or production of a so-called qualified asset represent an exception as they must be included in the acquisition or production costs of the asset capitalised pursuant to IAS 23 (Borrowing Costs). Dividends paid by companies in which METRO holds an interest M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 186 and which are not accounted for using the equity method are generally recognised as income when the legal claim to payment arises. Income taxes Income taxes concern direct taxes on income and deferred taxes. As a rule, they are recognised through profit or loss unless they are related to business combinations or an item that is directly recognised in equity or other comprehensive income. Balance sheet Goodwill Goodwill is regularly tested for impairment once a year – or more frequently if changes in circumstances indicate a possible impairment. If an impairment exists, an impairment loss is recognised through profit or loss. To determine a possible impairment, the recoverable amount of a cash-generating unit is compared to the corresponding carrying amount of the cash-generating unit. The recoverable amount is the higher of the value in use and the fair value less costs to sell. An impairment of the goodwill allocated to a cash-generating unit applies only if the recoverable amount is lower than the total amount of the unit relevant carrying amount. No reversal of an impairment loss is performed if the reasons for the impairment in previous years have ceased to exist. Other intangible assets Purchased other intangible assets are recognised at cost of purchase. In accordance with IAS 38 (Intangible Assets), internally generated intangible assets are capitalised at their production cost. Research costs, in contrast, are not capitalised, but recognised as expenses when they are incurred. The production costs include all expenditures directly attributable to the development process, unless they are explicitly prohibited from being a component of the cost of an inernlly generated intangible asset. Direct costs Overhead (directly attributable) Direct material costs Direct production costs Special direct production costs Material overhead Production overhead Depreciation/amortisation/impairment losses Development-related administrative costs M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 187 Borrowing costs are factored into the determination of production costs only in case the intangible asset is a so-called qualified asset pursuant to IAS 23 (Borrowing Costs). Qualified assets are defined as non-financial assets that take a substantial period of time to be prepared for their intended use or sale. All other intangible assets with a finite useful life are subject to straight-line amortisation. Capitalised internally created and purchased software as well as comparable intangible assets are amortised over a period of up to 10 years, while licences are amortised over their useful lives. Intangible assets with an infinite expected useful life are not subject to scheduled amortisation, but are subjected to an impairment test at least once a year. Impairment losses and reversed impairment losses are recognised through profit or loss in consideration of the historical cost principle. Property, plant and equipment Property, plant and equipment are recognised at acquisition or production costs pursuant to IAS 16 (Property, Plant and Equipment). The production cost of internally generated assets includes both direct costs and directly attributable overhead. Borrowing costs are only capitalised in relation to so-called qualified assets as a component of acquisition or production costs. In line with IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance), investment grants received are offset against the acquisition or production costs of the corresponding asset. Dismantling and removing obligations are included in the acquisition or production costs at the discounted settlement amount. Subsequent acquisition or production costs of property, plant and equipment are only capitalised if they result in a higher future economic benefit of the tangible asset. Property, plant and equipment are solely depreciated on a straight-line basis. Throughout the group, depreciation is based on the following expected useful lives: Buildings 10 to 33 years Leasehold improvements 8 to 15 years or shorter rental contract duration Business and office equipment Machinery 3 to 13 years 3 to 8 years Capitalised costs of dismantling and removing are depreciated over the expected useful life of the asset. Pursuant to IAS 36 (Impairment of Assets), an impairment test will be carried out if there are any indications of impairment of property, plant and equipment or of a cash- generating unit (CGU). Impairment losses are recognised if the recoverable amount is below the carrying amount. If the reasons for the impairment have ceased to exist, impairment losses are reversed up to the amount of amortised acquisition or production costs hadno impairment loss been recognised in previous periods. In accordance with IAS 17 (Leases), economic ownership of leased assets is attributable to the lessee if all the material risks and rewards incidental to ownership of the asset are transferred to the lessee (finance lease). If economic ownership is attributable to a group company acting as lessee, the leased asset is capitalised at fair value or at the lower present value of the minimum lease payments when the lease is signed. Analogous to the comparable purchased property, plant and equipment, leased assets are subject to M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 188 scheduled depreciation over their expected useful lives or the lease term if the latter is shorter. However, if it is sufficiently certain that ownership of the leased asset will be transferred to the lessee (METRO) at the end of the lease term, the asset is depreciated over its expected useful life. Payment obligations resulting from future lease payments are carried as liabilities. When economic ownership of the leased asset is not transferred to the lessee (METRO) it si accounted for as an operationg lease. METRO does not recognise assets or leasing liabilities for operating leases, but merely recognises rental expenses in its income statement over the term of the lease using the straight-line method. Investment properties In accordance with IAS 40 (Investment Property), investment properties comprise real estate assets that are held to earn rentals or for capital appreciation, or both. Analogous to property, plant and equipment, such assets are recognised at acquisition or production costs less depreciation and –if required – impairment losses (cost model). Investment properties are depreciated using the straight-line method, considering an expected useful life of 15 to 33 years. In addition, the fair value of these real estates is determined accepted valuation methods, taking into account project development opportunitie. The fair values are disclosed in the notes. Financial assets Unless associated companies or joint ventures as defined by IAS 28 (Investments in Associates and Joint Ventures) are involved, to which the equity method is applied financial assets are accounted for in accordance with the provisions of IFRS 9 (Financial Instruments) since 1 October 2018. Financial assets are recognised in the consolidated balance sheet when METRO becomes a contractual party to a financial instrument. Recognition is effected at the trade date. Financial assets are derecognised if the contractual rights to payments from the financial assets no longer exist or the financial assets with all material risks and rewards are transferred to another party and METRO cannot control the financial assets after the transfer. When the uncollectability of receivables is finally determined, they are derecognised. Financial assets are measured at fair value upon initial recognition. The transaction costs directly attributable to the acquisition must be taken into account, unless the financial instruments are subsequently measured at fair value through profit or loss. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 189 The subsequent measurement of financial assets is based on the allocation of the respective financial asset to one of the categories described below. The classification is determined by whether the so-called cash flow condition is met as well as by the business model used to manage the respective financial asset (or a portfolio of financial assets). The cash flow condition is metif the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. With regard to potential business models, a distinction must be made between the objectives of meeting the cash flow condition of the financial assets to either hold the receipt of these contractual cash flows (hold) or to partially hold them and partially sell them (hold and sell). Using these classification criteria, the individual financial asset is assigned to one of the following classes at initial recognition: Measured at amortised cost (AC), provided the hold criterion is met Measured at fair value through other comprehensive income (FVOCI), if the ‘hold and sell’ criterion is met Measured at fair value through profit or loss (FVPL) in all other cases Derivative financial instruments that are not designated as part of a hedge accounting relationship for accounting purposes are measured at fair value. METRO does not make use of the option to measure financial assets at fair value through profit or loss upon initial recognition (fair value option). With regard to the financial assets recognised at amortised cost (AC), impairments are recognised as expected losses, regardless of the existence of actual default events. However, if there is objective evidence that contractually agreed cash flows of a financial asset are likely to partially or completely default, they are recorded as specific bad debt allowances. If these indications cease to exist, impairment losses are reversed up to the amount of the carrying amount that would have resulted if no default event had occurred. METRO determines the expected losses on trade receivables using the so-called simplified approach by using a provision matrix structured according to various (past-due) maturities. Expected losses for other financial assets are determined in accordance with the so-called general approach. Impairment losses are generally recognised in separate accounts. Changes in the fair value of financial assets measured at fair value through other comprehensive income (FVOCI) are recognised in other comprehensive income and reclassified to the income statement when the assets are sold. Impairment losses on financial assets in the FVOCI category are determined in the same way as impairment losses on financial assets in the AC category and recognised in profit or loss. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 190 In the previous year, financial assets were accounted for in accordance with IAS 39 (Financial Instruments: Recognition and Measurement) and allocated to one of the following categories: ‘Loans and receivables’ ‘Financial instruments held to maturity’ ‘Financial assets at fair value through profit or loss’ ‘Financial assets available for sale’ Depending on the classification to the categories listed above, the subsequent measurement of financial assets was carried out at amortised cost or at fair value: ‘Loans and receivables’ comprised non-derivative financial assets with fixed or determinable payments that were not quoted in an active market. They were recognised at amortised cost using the effective interest method. The measurement category ‘financial instruments held to maturity’ included non- derivative financial assets with fixed or determinable payments and fixed maturity, with METRO having both the positive intention and the ability to hold them to maturity. They were also recognised at amortised cost using the effective interest method. ‘Financial assets at fair value through profit or loss’ included those that were either acquired or incurred with the intention of selling or repurchasing them in the near term or that were part of a portfolio of jointly managed financial instruments with a history of short-term profit-taking. Furthermore, this category included derivative financial instruments that were not designated to be part of hedge accounting. The category ‘financial assets available for sale’ represented a collective category for original financial assets that could not be assigned to any of the other 3 categories. METRO did not actively designate any financial assets to this category. Financial assets assigned to this category were measured at fair value through other comprehensive income. The cumulative changes in fair value were not reclassified to profit or loss until the financial asset was derecognised or an impairment of the assets had occurred. At each closing date, financial assets that were not measured at fair value through profit or loss were examined for objective, substantial indications of impairment. If there were any such indications, the respective financial asset was tested for impairment by comparing the carrying amount to the present value. The present value of financial assets measured at amortised cost corresponded to the present value of expected future cash flows, discounted at the original effective interest rate. However, the present value of equity instruments measured at cost in the category ‘financial assets available for sale’ corresponded to expected future cash flows discounted at the current market interest rate. If the present value was lower than the carrying amount, an impairment loss was recognised for the difference. If decreases in fair value of financial assets in the category ‘financial assets available for sale’ were recognised in other comprehensive income, such decreases in fair value were reclassified and recognised in profit or loss to the extent of the impairment loss determined. If, at a later date, the present value increased again, the impairment loss was reversed accordingly. In the case of financial assets recognised at amortised cost, the impairment loss reversal was limited to the amount of the amortised cost, which would have been recognised had the impairment not occured. In the category ‘financial assets available for sale’, the reversal of previously recognised impairment losses for equity instruments was shown outside of profit or loss in other comprehensive income, while for debt instruments it was shown in profit or loss up to the amount of the M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 191 impairment previously recognised through profit or loss. Increases in value for debt instruments beyond this level were recognised outside of profit or loss in other comprehensive income. In accordance with the provisions of IFRS 9, equity instruments held are either measured at fair value through profit or loss (FVPL) or at fair value through other comprehensive income without reclassification (FVOCInR). Cash flow hedges: as part of cash flow hedging, which continues to be accounted for in accordance with IAS 39, METRO hedges to exposure to variability in future cash flows. For this purpose, future underlying transactions and related hedging instruments are designated as hedging relationships for accounting purposes. The effective portion of changes in the fair value of the hedging instrument that regularly meets the definition criteria of a derivative is initially recognised directly in equity under consideration of deferred taxes. The ineffective portion is recognised directly in profit or loss. For future transactions that result in the recognition of a non-financial asset or a non-financial liability, the cumulative changes in the fair value of the hedging instrument, which are recognised in other comprehensive income, are removed and and included in the initial cost of the other carrying amount of the asset of liability. If the hedging transaction relates to financial assets, financial liabilities or future transactions, the changes in fair value of the hedging instrument are transferred from other comprehensive income to profit or loss in the reporting periods in which the hedged item is recognised in the income statement. The term of the hedging instrument is aligned to coincide with the occurrence of the future transaction. Other financial and other non-financial assets The assets reported under other financial assets are generally measured at amortised cost, and impairments are determined for the reporting year under review in accordance with the general approach to determine expected credit losses. Other financial assets also include derivative financial instruments that are measured at fair value through profit or loss. As prepaid expenses transitorily deferred charges are presented. Deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liabilities are determined using the asset-liability method in accordance with IAS 12 (Income Taxes). Deferred tax assets and liabilities are recognised for temporary differences between the carrying amounts of these assets or liabilities in the consolidated financial statements and their tax base. Deferred tax assets are also considered for unused tax loss and interest carry-forwards. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 192 Deferred tax assets are recognised only to the extent that it is probable that sufficient taxable profit will be available in the future to allow the corresponding benefit of that deferred tax asset to be realised. Deferred tax assets and deferred tax liabilities are netted if these income tax assets and liabilities concern the same tax authority and refer to the same tax subject or a group of different tax subjects that are jointly assessed for income tax purposes. Deferred tax assets are remeasured at each closing date and adjusted if necessary. Deferred taxes are determined on the basis of the tax rates expected in each country upon realisation. In principle, these are based on the valid laws or legislation that has been passed at the time of the closing date. The assessment of deferred taxes reflects the tax consequence arising from METRO’s expectations as of the closing date with regard to the manner in which the carrying amounts of the assets will be realised or the liabilities will be settled. Inventories In accordance with IAS 2 (Inventories), merchandise carried as inventories is reported at cost of purchase. The cost of purchase is determined either on the basis of a separate measurement of additions or by means of the weighted average cost method. Supplier compensations to be classified as a reduction in the cost of purchase is deducted when the costs of acquisition are determined. Merchandise is measured as of the closing date at the lower of cost or net realisable value. Merchandise is written down on a case-by-case basis if the net realisable value declines below the carrying amount of the inventories. Such net realisable value corresponds to the anticipated estimated selling price less the estimated direct costs necessary to make the sale. When the reasons for a write-down of the merchandise have ceased to exist, the previously recognised impairment loss is reversed. Trade receivables Trade receivables are recognised at amortised cost. For the reporting period, expected impairments determined on the basis of a provision matrix are taken into account. If there are further doubts about their recoverability, the trade receivables are recognised at the lower present value of the estimated future cash flows. In the previous year, trade receivables were recognised taking into account appropriate impairments for uncollectible receivables. Income tax assets and liabilities The income tax assets and liabilities presented concern domestic and foreign income taxes for the reporting period as well as prior periods. They are determined in compliance with the tax laws of the respective country. In addition, the effects of tax risks are considered in the determining income tax liabilities. The premises and assessments underlying these risks are regularly reviewed and considered in the determination of income tax. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 193 Cash and cash equivalents Cash and cash equivalents comprise cheques, cash on hand, bank deposits and other short-term liquid financial assets, such as accessible deposits on lawyer trust accounts or cash in transit, with an original term of up to 3 months and are valued at their respective nominal values. Non-current assets held for sale, liabilities related to assets held for sale and activities not continued In accordance with IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations), an asset is classified as a non-current asset held for sale if the respective carrying amount will be recovered principally through a disposal transaction rather than through continuing use. Analogously, liabilities related to assets held for sale are recognised separately in the balance sheet. A sale must be feasible in practice and be planned for execution within the subsequent 12 months. The valuation of the affected assets and liabilities’ carrying amounts pursuant to the relevant IFRS directly precedes the first-time classification as held for sale. In case of reclassification, the assets and liabilities of the disposal group are measured at the lower of their carrying amount and the fair value less costs to sell and reported separately in the balance sheet.Discontinued operations are components of a company that have been disposed of or are classified as held for disposal and represent a separate major operation or a separate geographical operation.. Employee benefits Employee benefits include: Short-term employee benefits Post-employment benefits Obligations similar to pensions Termination benefits Share-based payment Short-term employee benefits include wages and salaries, social security contributions, vacation pay and sickness benefits and are recognised as liabilities at the disbursement amount as soon as the associated job performance has been rendered. Post-employment benefits are provided in the context of defined benefit or defined contribution plans. In the case of defined contribution plans, periodic contribution obligations to the external pension provider are recognised as expenses for post- employment benefits at the same time as the beneficiary’s job performance. Missed payments or prepayments to the pension provider are accrued as liabilities or receivables. Liabilities with a term of over 12 months are discounted. The actuarial measurement of pension provisions for post-employment benefits plans as part of a defined benefit plan is effected in accordance with the projected unit credit method as stipulated by IAS 19 (Employee Benefits) on the basis of actuarial opinions. Based on biometric data, this method takes into account known pensions and pension entitlements at the closing date as well as expected increases in future wages and pensions. Where the employee benefit obligations determined or the fair value of the plan assets increase or decrease between the beginning and end of a financial year as a result of experience adjustments (for example, a changed fluctuation rate) or changes in underlying actuarial assumptions, this will result in actuarial gains and losses. These are recognised in other comprehensive income outside of profit or loss. Effects of plan changes and curtailments are recognised fully under service costs through profit or loss. The interest M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 194 element of the addition to the provision contained in the pension expense is presented as interest expenses under the financial result. Insofar as plan assets exist, the amount of the pension obligation is generally the result of the difference between the present value of defined benefit obligations and the fair value of the plan assets. Provisions for obligations similar to pensions (such as anniversary allowances and death benefits) are based on the present value of future payment obligations to the employee or his or her surviving dependants less any associated assets measured at fair value. The amount of provisions is determined on the basis of actuarial opinions in line with IAS 19. Actuarial gains and losses are recognised in the period in which they are incurred. Termination benefits comprise severance payments to employees. These are recognised as liabilities through profit or loss when contractual or factual payment obligations towards the employee are to be made in relation to the termination of the employment relationship. Such an obligation is given when a formal plan for the early termination of the employment relationship exists to which the company is bound. Benefits with terms of more than 12 months after the closing date are recognised at their present value. The share bonuses granted under the share-based remuneration system are classified as cash-settled share-based payments pursuant to IFRS 2 (Share-based Payment). For these share-based payments provisions are set up on a pro rata basis, measured at the fair value of the obligations entered into. The recognition of the provision follows a prorated approachover the underlying vesting period and is recognised in profit or loss as personnel expenses. The fair value is remeasured at each closing date during the vesting period based on an option pricing model. Provisions are adjusted accordingly in profit or loss. (Other) provisions In accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets), (other) provisions are recognisedif legal or constructive obligations to third parties exist that are based on past business transactions or events and will probably result in an outflow of financial resources that can be reliably measured. The provisions are stated at the anticipated settlement amount with regard to all identifiable risks attached. Long-term provisions with a term of more than one year are discounted to the closing date using an interest rate for matching maturities reflectings current market expectations regarding interest rate effects. Provisions with a term of less than one year are discounted accordingly if the interest rate effect is material. Claims for recourse are not netted with provisions, but recognised separately as an asset if their realisation is considered virtually certain. Provisions for onerous contracts are recognised if the unavoidable costs of meeting the obligations under a contract exceed the expected economic benefits resulting from the contract. Provisions for deficient rental agreements relating to leased objects are based on an item by item basis. Provisions in the amount of the present value of the funding gap recognised for all closed properties or properties with deficient rental coverage. In addition, a provision is recognisedfor store-related risks related to leased, operational or not yet closed stores insofar as a deficient coverage of operational costs or a deficient rental coverage despite considering a possible sublease of the respective location arises from current corporate planning covering the basic rental term. Provisions for restructurings are recognised if a constructive obligation to restructure has been formalised by means of the adoption of a detailed restructuring plan and its communication vis-à-vis those employees affected as of the closing date. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 195 Warranty provisions, that do not fall into the scope of IFRS 15 (Revenue from Contracts with Customers), are based on past warranty claims and considering the sales of the current financial year. (Other) financial liabilities Financial liabilities in the current financial year (in accordance with IFRS 9) or in the previous financial year (in accordance with IAS 39) that do not represent finance leases in accordance with IAS 17, are assigned to one of the following categories: At fair value through profit or loss Other financial liabilities The initial recognition of financial liabilities and the subsequent measurement of financial liabilities at fair value through profit or loss is applied in analogy to the corresponding guidance as it is applied to financial assets. All other financial liabilities are classified as miscellaneous financial liabilities. They are measured at their amortised cost using the effective interest method. The fair value option according to IFRS 9 is not applied to financial liabilities at METRO. The fair values provided for the financial liabilities in the notes have been determined on the basis of the interest rates prevailing on the closing date for the remaining terms and redemption structures. Financial liabilities from finance leases are generally measured at the present value of future minimum lease payments. A financial liability is derecognised only when it has expired or when the contractual obligations have been redeemed or annulled or have expired. Other non-financial liabilities Other non-financial liabilities are carried at their repayment amount.As deferred income transitorily deferred charges are presented. Trade liabilities Trade liabilities are recognised at amortised cost. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S Other N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 196 Contingent liabilities Contingent liabilities are, on the one hand, possible obligations arising from past events whose existence must still be confirmed by the occurrence or non-occurrence of uncertain future events that are not entirely under METRO’s control. On the other hand, contingent liabilities represent current obligations arising from past events for which, however, an outflow of economic resources is not considered probable or whose amount cannot be determined with sufficient reliability. Such liabilities are not recognised in the balance sheet but disclosed in the notes. Contingent liabilities are determined on the basis of the principles applying to the measurement of provisions. Accounting for derivative financial instruments and hedge accounting Derivative financial instruments are exclusively utilised to reduce risks. They are used in accordance with the respective group guideline. All derivative financial instruments that are not designated as part of a hedging relationship are measured at fair value in accordance with IFRS 9 – or in the previous financial year in accordance with IAS 39 – and reported under other financial assets or other financial liabilities. Derivative financial instruments are measured on the basis of interbank terms and conditions, possibly including the credit margin or stock exchange prices applicable to METRO – in this respect the average rate on the closing date is used. Where no stock exchange prices can be used, the fair value is determined by means of accepted financial models. In case of effective hedge accounting transactions (hedge accounting) in accordance with IAS 39, the effective portion of the change in the derivative used as hedging instrument is recognised in other comprehensive income as part of cash flow hedges. A transfer to the income statement is – in general – only processed when the underlying transaction is realised. The ineffective portion of the change in the value of the hedging instrument is immediately reported in profit or loss. Supplier compensation Depending on the underlying circumstances, supplier compensation is recognised as a reduction in the cost of purchase, reimbursement or payment for services rendered. Supplier compensation is deferredat the closing date insofar as it has been contractually agreed and is likely to be realised. For supplier remunerations linked to calendar year targets, the supplier`s compensation included in the financial statement is based on appropriate extrapolations. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 197 Judgements, estimates and assumptions The preparation of the consolidated financial statements was based on a number of judgements, estimates and assumptions that had an effect on the measurement and presentation of the reported assets, liabilities, income and expenses as well as contingent liabilities. Judgements Information on the key judgements that materially affected the amounts reported in these consolidated financial statements relate to the following circumstances or note disclosures: Classification of leases as finance leases or operating leases – including sale-and- leaseback transactions (no. 2 – other operating income page 200 and no. 21 – property, plant and equipment page 218 ) Determination whether METRO is the principal or agent in sales transactions (no. 1 – revenues page 200 ) Determination of the group of investments accounted for at-equity by assessing the material influence Estimates and assumptions Information on estimates and underlying assumptions with significant effects on these consolidated financial statements relates to the following circumstances or is included in the following notes: Uniform group-wide determination of expected useful lives for assets with a definite useful life (no. 15 – depreciation/amortisation/impairment losses page 209 , no. 20 – other intangible assets page 216 and no. 21 – property, plant and equipment page 218 ) Impairment testing of assets with a definite useful life triggered by indications of impairment (no. 15 – depreciation/amortisation/impairment losses page 209 , no. 20 – other intangible assets page 216 and no. 21 – property, plant and equipment page 218 ) Annual goodwill impairment tests including sensitivity analysis (no. 19 – goodwill page 212 ) Recoverability of receivables – particularly receivables due from suppliers with respect tocompensations (no. 24 – other financial and other non-financial assets page 226 ) Recognition of supplier compensation on an accrual basis (no. 24 – other financial and other non-financial assets page 226 ) Ability to realise future deferred tax assets– particularly from tax loss carry-forwards (no. 25 – deferred tax assets/deferred tax liabilities page 227 ) Measurement of inventories (no. 26 – inventories page 229 ) Determination of provisions for post-employment benefits plans (no. 32 – provisions for post-employment benefits plans and similar obligations page 239 ) Determination of other provisions – for example, for deficient rental coverage and onerous contracts, restructuring, warranties, taxes and risks emerging from legal proceedings and litigation (no. 33 – other provisions [non-current]/provisions [current] page 247 ) M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E G R O U P A C C O U N T I N G P R I N C I P L E S A N D M E T H O D S 198 Estimation of the expected timing of transactions in connection with activities not continued; with regard to the planned disposal of the hypermarket business, also taking into account events and circumstances that lead to an extension of the period required to complete the sale and are beyond the control of METRO (no. 30 – assets held for sale/liabilities related to assets held for sale page 235 ) Determination of the fair value of the hypermarket business disposal group (no. 30 – assets held for sale/liabilities related to assets held for sale page 235 ) Estimation of the probability of utilisation from supplier liabilities (no. 35 – trade liabilities page 248 ) Although great care has been taken in making these estimates and assumptions, actual measurements may deviate from them in individual cases. The estimates and assumptions used in the consolidated financial statements are regularly reviewed. Changes are taken into account at the time new information becomes available. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S C A P I T A L M A N A G E M E N T 199 CAPITAL MANAGEMENT The aim of the capital management strategy of METRO is to secure the company’s business operations to continue, to enhance its company value, to create solid capital resources to finance future growth and to provide for attractive dividend payments and debt service. The capital management strategy of METRO has remained unchanged compared with the previous year. Equity, liabilities and net debt in the consolidated financial statements Equity amounts to €2,735million (30/9/2018: €3,074 million), while liabilities amounts to €11,762 million (30/9/2018: €12,132 million). Net debt related to continuing operations decreased by €0.2 billion in the adjusted year-on-year comparison and amounted to €2.9 billion as of 30 September 2019 (30/09/2018: €3.1 billion). 30/9/20181 30/9/2018 adjusted3 30/9/2019 3,074 12,132 2,710 4,010 1,298 2 3,074 12,132 3,102 4,010 906 2 2,735 11,762 2,858 3,369 500 11 € million Equity Liabilities Net debt Financial liabilities (incl. finance leases) Cash and cash equivalents Short-term financial investments2 1 Adjustment of previous year according to explanation in notes 2 Shown in the balance sheet under other financial assets (current). 3 Adjusted for the effects of discontinued operations. Local capital requirements The capital management strategy of METRO consistently aims to ensure that the group companies’ capital resources meet the local requirements. During financial year 2018/19, all external capital requirements were fulfilled. This includes, for example, adherence to a defined level of indebtedness and a fixed equity ratio. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 200 NOTES TO THE INCOME STATEMENT 1. Sales revenues Commencing with financial year 2018/19, METRO has been applying IFRS 15 (Revenue from Contracts with Customers). The sales revenues reported for the current financial year relate exclusively to revenues from contracts with customers. Sales revenues are allocated to the following categories: € million Store-based and other business METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others Delivery sales METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others Total sales METRO Germany METRO Western Europe (excl. Germany) METRO Russia METRO Eastern Europe (excl. Russia) METRO Asia Others 2. Other operating income 2017/18 22,585 4,128 8,904 2,550 5,893 1,074 35 4,207 633 1,704 265 1,059 538 7 26,792 4,761 10,609 2,815 6,952 1,612 43 2018/19 22,487 4,075 8,885 2,406 5,986 1,097 38 4,595 660 1,867 257 1,205 599 7 27,082 4,735 10,752 2,662 7,191 1,696 46 € million 2017/18 2018/19 Gains from the disposal of fixed assets and gains from the reversal of impairment losses Income from logistics services Services Rents incl. reimbursements of subsidiary rental costs Services rendered to suppliers Miscellaneous M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 145 285 251 268 111 211 360 257 250 236 103 198 1,271 1,405 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 201 Gains from the disposal of fixed assets and gains from the reversal of impairment losses includes €354 million of income from the disposal of real estates (2017/18: €137 million) and €5 million of income from reversal of impairment losses (2017/18: €4 million). Project developments and sale-and-leaseback transactions contributed to the real estate transactions. The income from logistics services provided by METRO LOGISTICS to companies intended for disposal and non-group companies is offset by expenses from logistics services, which are reported under other operating expenses. The other operating income includes cost allocations and cost shares as well as a great number of insignificant individual items. Disclosures on companies intended for sale can be found under no. 43 – discontinued business sectors page 266 . 3. Selling expenses € million Personnel expenses Cost of material 2017/18 2018/19 1,957 2,064 4,021 2,001 2,091 4,092 In terms of selling expenses, personnel expenses increased compared to the previous year, mainly due to higher wages and salaries and variable payments. The year-on-year increase in cost of material is due in particular to higher consulting expenses. The revised disclosure of impairment losses on financial instruments had the opposite effect. In accordance with IFRS 9, from financial year 2018/19 onwards, impairment losses on financial assets are reported under earnings from impairment of financial assets. 4. General administrative expenses € million Personnel expenses Cost of material 2017/18 2018/19 386 387 773 424 398 822 The increase in personnel expenses within general administrative expenses is mainly due to higher variable payments in the operating segments and at METRO AG. The increase in cost of material is primarily due to increased amortisation of intangible assets. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 202 5. Other operating expenses € million Expenses from logistics services Losses from the disposal of fixed assets Impairment losses on goodwill Miscellaneous 2017/18 2018/19 272 4 0 17 293 254 6 3 17 279 The expenses from logistics services provided by METRO LOGISTICS to companies intended for sale and non-group companies are offset by income from logistics services, which are reported under other operating income. Disclosures on companies intended for sale can be found under no. 43 – discontinued business sectors page 266 . 6. Earnings from impairment of financial assets Earnings from impairment of financial assets amounts to €14 million. This includes expenses from additions to impairment losses, income from the reversal of impairment losses, and income from the receipt of cash and cash equivalents for financial assets that have already been derecognised. Impairment losses on receivables from contracts with customers in the amount of €9 million are included. In the previous year, the impairments were reported under sales, selling and administrative expenses. They amounted to €18 million. 7. Earnings share of operating/non-operating companies recognised at equity The earnings of operating companies recognised at equity that have an operational relation to the ordinary business activities, are shown in the income statement in the EBIT item. It amounts to €24 million (2017/18: €14 million). Of these, €15 million (2017/18: €5 million) are attributable to the METRO Western Europe (excl. Germany) segment and €9 million (2017/ 18: €8 million) to the Others segment as well as €1 million (2017/18: €1 million) to the METRO Asia segment. The earnings share of non-operating companies recognised at equity is shown in the net financial result and amounts to €0 million (2017/18: €0 million). The earnings shares of operating and non-operating companies consolidated at equity amounted to a total of €24 million (2017/18: €14 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 203 8. Other investment result Other investment results include the impact of the fair value measurement of investments in the amount of €−1 million (2017/18: €0 million). Dividends from investments amounted to €0 million (2017/18: €0 million). 9. Net interest income/interest expenses The interest result can be broken down as follows: € million Interest income thereof finance leases thereof from post-employment benefits plans thereof from financial instruments of the measurement categories according to IFRS 9 (previous year: IAS 39): Interest expenses thereof finance leases thereof from post-employment benefits plans thereof from financial instruments of the measurement categories according to IFRS 9 (previous year: IAS 39) Interest result 2017/18 2018/19 27 (0) (5) (16) −163 (−51) (−16) (−79) −136 29 (0) (7) (12) −148 (−49) (−15) (−69) −119 Interest income and interest expenses from financial instruments are assigned to the measurement categories according to IFRS 9 on the basis of the underlying transactions. The interest expenses included here (of the measurement categories in accordance with IFRS 9) primarily include interest expenses for issued bonds (including the Commercial Paper Programme) of €41 million (2017/18: €55 million) and for liabilities to banks of €19 million (2017/18: €12 million). The decline in interest expenses was primarily the result of more favourable refinancing terms. For more information about possible effects from currency risks, see no. 44 – management of financial risks page 274 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 204 10. Other financial result The other financial income and expenses from financial instruments are assigned to measurement categories according to IFRS 9 on the basis of the underlying transactions. Besides income and expenses from the measurement of financial instruments (except derivatives in hedging relationships in accordance with IAS 39), this also includes the measurement of foreign currency positions according to IAS 21. € million Other financial income thereof currency effects thereof hedging transactions Other financial expenses thereof currency effects thereof hedging transactions Other financial result thereof from financial instruments of the measurement categories according to IFRS 9 (previous year: IAS 39): thereof cash flow hedges: ineffectiveness 2017/18 2018/19 182 (126) (16) −184 (−152) (−3) −2 (−16) (7) 159 (112) (39) −158 (−116) (−18) 1 (17) (−1) The total comprehensive income from currency effects and measurement results from hedging transactions and hedging relationships totalled €17 million (2017/18: €−14 million). In addition, the other financial result reflects €−5 million (2017/18: €4 million) in currency effects resulting from the translation of the financial statements of foreign subsidiaries that are recognised through profit or loss in the year the subsidiary is deconsolidated or in the year business activities are discontinued. In addition, impairment losses on financial assets amounting to €2 million (2017/18: €0 million) were recognised in the reporting period. For more information about possible effects from currency risks, see no. 44 – management of financial risks page 274 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 205 11. Net results according to measurement categories The key effects of income from financial instruments are as follows: 2017/18 € million Investments Interest Fair value measurements Currency translation Disposals Impairments Other Loans and receivables incl. cash and cash equivalents Held to maturity Held for trading incl. derivatives in a hedging relationship according to IAS 39 Available for sale Miscellaneous financial liabilities 2018/19 0 0 0 0 0 0 16 0 0 0 −79 −63 0 0 13 0 10 23 −27 0 0 0 1 −27 0 0 0 0 4 4 −17 0 0 0 0 −17 0 0 0 0 −5 −5 Net result −29 0 13 0 −69 −85 € million Investments Interest Fair value measurements Currency translation Disposals Impairments Other Net result Financial assets measured at amortised cost, incl. cash and cash equivalents Financial assets at fair value through profit or loss incl. derivatives in a hedging relationship according to IAS 39 Equity instruments measured outside of profit or loss Financial liabilities measured at amortised cost 0 11 0 19 −1 0 0 −1 0 0 −69 −57 22 0 4 26 0 0 −23 −5 0 0 0 3 4 −16 0 13 0 0 0 −16 0 0 22 0 −4 −4 −89 −54 The income and expenses from financial instruments are assigned to measurement categories according to IFRS 9 on the basis of the underlying transactions. Investment income and income effects from the disposal of investments are included in other investment result. Interest income and expenses are part of the interest result. Fair value measurements and effects from other financial expenses and currency translation are included in the other financial result. Income effects from the disposal of other financial liabilities are included in earnings before interest and taxes (EBIT). The expenses from impairments are included in the result from impairments on financial assets. For more information about impairments, see no. 44 – management of financial risks page 274 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 206 Remaining financial income and expenses included in the other financial result primarily concern bank commissions and similar expenses that are incurred within the context of financial assets and liabilities. 12. Income taxes Income taxes include the taxes on income paid or owed in the individual countries as well as deferred taxes. € million Deferred taxes in the income statement thereof from temporary differences thereof from loss and interest carry-forwards 1 Adjustment of previous year according to explanation in notes. € million Actual taxes thereof Germany thereof international thereof tax expenses/income of current period thereof tax expenses/income of previous periods Deferred taxes thereof Germany thereof international 1 Adjustment of previous year according to explanation in notes. 2017/181 2018/19 43 (24) (19) 83 (15) (68) 2017/181 2018/19 173 (14) (159) (194) (−21) 43 (39) (4) 216 215 (9) (206) (221) (−6) 83 (104) (−21) 298 The income tax rate of the German companies of METRO consists of a corporate income tax of 15.00% plus a 5.50% solidarity surcharge on corporate income tax as well as the trade tax of 14.70% given an average assessment rate of 420.00%. All in all, this results in an aggregate tax rate of 30.53%. The tax rates are unchanged from the previous year. The income tax rates applied to foreign companies are based on the respective laws and regulations of the individual countries and vary within a range of 0.00% (2017/18: 0.00%) and 34.94% (2017/18: 44.41%). At €298 million (2017/18: €216 million), recognised income tax expenses are €81 million higher than in the previous year. In addition to an increase in pre-tax earnings, the change is due to higher expenses for impairments on deferred taxes, among other things. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 207 Applying the German group tax rate to the reported pre-tax result would result in an income tax expense of €216 million (2017/18: €176 million). The deviation of €81 million (2017/18: €40 million) from the reported tax expense of €298 million (2017/18: €216 million) can be reconciled as follows: € million EBT (earnings before taxes) Expected income tax expenses (30.53%) Effects of differing national tax rates Tax expenses and income relating to other periods Non-deductible business expenses for tax purposes Effects of not recognised or impaired deferred taxes Additions and reductions for local taxes Tax holidays Other deviations Income tax expenses according to the income statement 2017/181 2018/19 576 176 −58 −21 41 79 11 −14 3 216 709 216 −62 −6 51 114 13 −39 5 298 Group tax rate 37.6% 42.0% 1 Adjustment of previous year according to explanation in notes. The item ‘effects of differing national tax rates’ includes a deferred tax revenue of €6 million (2017/18: €23 million) from tax rate changes. Tax expenses and income relating to other periods of the previous year include a repayment of approximately €20 million because of a retrospective change in foreign law in 2018. Tax holidays for the current year include effects from real estate transactions in the amount of €30 million (2017/18: €2 million). 13. Profit or loss for the period attributable to non-controlling interests Of profit or loss for the period attributable to non-controlling interests, profit shares accounted for €13 million (2017/18: €6 million) and loss shares for €−2 million (2017/18: €−2 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 208 14. Earnings per share Weighted number of no-par-value shares Profit or loss for the period attributable to the shareholders of METRO AG (€ million) Earnings per share in € (basic = diluted) from continuing operations from discontinued operations 1 Adjustment of previous year according to explanation in notes. 2017/181 2018/19 363,097,253 363,097,253 333 −126 0.92 (0.98) (−0.06) −0.35 (1.12) (−1.46) Earnings per share are determined by dividing profit or loss for the period attributable to the shareholders of METRO AG by the weighted number of no-par-value shares. In the calculation of earnings per ordinary share, an additional dividend for preference shares is generally deducted from profit or loss for the period attributable to the shareholders of METRO AG. There was no dilution in the reporting period or the year before from so-called potential shares. Earnings per preference share correspond to earnings per share. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 209 15. Depreciation/ amortisation/ impairment losses Depreciation/amortisation/impairment losses of €538 million (2017/18: €507 million) include impairment losses totalling €20 million (2017/18: €11 million). The impairment losses mainly relate to the Others segment in the amount of €13 million and to a single property in the METRO Russia segment in the amount of €3 million. The attribution of depreciation/amortisation/impairment losses in the income statement and the affected asset categories is as follows: 2017/18 € million Cost of sales thereof depreciation/ amortisation thereof impairment Selling expenses thereof depreciation/ amortisation thereof impairment General administrative expenses thereof depreciation/ amortisation thereof impairment Other operating expenses thereof impairment Scheduled impairment losses and impairment before impairment of financial investments Net financial result thereof impairment Scheduled depreciation/ amortisation/impairment losses thereof depreciation/ amortisation thereof impairment Other intangible assets Property, plant and equipment Goodwill Investment properties Financial assets1 0 (0) (0) 0 (0) (0) 0 (0) (0) 0 (0) 0 0 (0) 0 (0) (0) 2 (2) (0) 29 (29) (0) 60 (60) (0) 0 (0) 92 0 (0) 92 (92) (0) 20 (20) (0) 370 (360) (10) 20 (19) (0) 0 (0) 410 0 (0) 410 (400) (10) 0 (0) (0) 5 (5) (0) 1 (0) (0) 0 (0) 6 0 (0) 6 (5) (1) 0 (0) (0) 0 (0) (0) 0 (0) (0) 0 (0) 0 0 (0) 0 (0) (0) Total 23 (23) (0) 404 (394) (10) 80 (80) (1) 0 (0) 507 0 (0) 507 (497) (11) 1 Also comprise investments accounted for using the equity method. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 210 2018/19 € million Cost of sales thereof depreciation/ amortisation thereof impairment Selling expenses thereof depreciation/ amortisation thereof impairment General administrative expenses thereof depreciation/ amortisation thereof impairment Other operating expenses thereof impairment Scheduled impairment losses and impairment before impairment of financial investments Net financial result thereof impairment Scheduled depreciation / amortisation/impairment losses thereof depreciation/ amortisation thereof impairment Other intangible assets Property, plant and equipment Goodwill Investment properties Financial assets1 0 (0) (0) 0 (0) (0) 0 (0) (0) 3 (3) 3 0 (0) 3 (0) (3) 3 (3) (0) 30 (30) (0) 81 (73) (8) 0 (0) 113 0 (0) 113 23 (23) (0) 373 (366) (7) 20 (20) (0) 0 (0) 416 0 (0) 416 (105) (8) (409) (7) 0 (0) (0) 4 (3) (0) 1 (1) (0) 0 (0) 4 0 (0) 4 (4) (0) 0 (0) (0) 0 (0) (0) 0 (0) (0) 0 (0) 0 2 (2) 2 (0) (2) Total 26 (26) (0) 406 (399) (7) 101 (93) (8) 3 (3) 536 2 (2) 538 (518) (20) 1 Also comprise investments accounted for using the equity method. In accordance with IFRS 5, impairment losses of METRO China are not included in the profit or loss for the period from continuing operations and thus not included in the tables above. In contrast, these impairment losses are included in the movement schedules on the development of financial assets up to the point of reclassification on 30 September 2019; for that reason, the amounts stated there may differ from those stated above. 16. Cost of materials The cost of sales includes the following cost of materials: € million Cost of raw materials, supplies and goods purchased Cost of services purchased 2017/18 21,571 13 21,584 2018/19 21,768 16 21,784 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E I N C O M E S T A T E M E N T 211 17. Personnel expenses Personnel expenses can be broken down as follows: € million Wages and salaries Social security expenses, expenses for post-employment benefits and related employee benefits thereof for post-employment benefits 2017/18 2,173 552 (43) 2,725 2018/19 2,264 552 (41) 2,816 Wages and salaries include expenses relating to restructuring measures and severance payments of €23 million (2017/18: €19 million). The variable remuneration rose from €52 million in financial year 2017/18 to €81 million in financial year 2018/19. Wages and salaries also include expenses for long-term remunerationcomponents totalling €7 million (2017/18: €16 million). Annual average number of group employees in the continuing segment: Number of employees by headcount Blue collar/white collar Apprentices/trainees 2017/18 103,072 1,840 104,912 2018/19 99,843 1,811 101,654 This includes an absolute number of 16,902 (2017/18: 17,245) part-time employees. The number of employees working outside of Germany stood at 81,607 (2017/18: 84,425). This includes 80,660 blue and white collar employees (2017/18: 83,498). In addition, 947 trainees were employed abroad (2017/18: 927). 18. Other taxes The other taxes (for example property tax, motor vehicle tax, excise tax and transaction tax) have the following effects on the income statement: € million Other taxes thereof from cost of sales thereof from selling expenses thereof from general administrative expenses 2017/18 2018/19 79 (1) (65) (13) 79 (1) (62) (16) M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 212 NOTES TO THE BALANCE SHEET 19. Goodwill Goodwill amounts to €785 million (30/9/2018: €797 million). The acquisition of Restu s.r.o resulted in goodwill of €1 million. The purchase price amounted to €1 million. The goodwill allocated to METRO Cash & Carry China in the amount of €19 million was reclassified to assets held for sale. At the closing date, the breakdown of goodwill among the major cash-generating units was as shown below: METRO Cash & Carry France METRO Cash & Carry Germany METRO Cash & Carry Poland METRO Cash & Carry Spain/Portugal METRO Cash & Carry Russia METRO Cash & Carry Romania METRO Cash & Carry Italy Pro à Pro Classic Fine Foods METRO Cash & Carry Czech Republic Others 30/9/2018 30/9/2019 WACC WACC € million % € million 293 94 58 54 39 40 38 34 23 24 100 797 5.7 5.7 6.3 6.9 7.4 7.3 7.3 5.7 6.0 6.4 293 94 57 54 42 39 38 34 25 24 85 785 % 5.0 4.7 5.6 5.7 6.6 6.2 6.7 5.0 5.0 5.3 In accordance with IFRS 3 in conjunction with IAS 36, goodwill is tested for impairment once a year. This is carried out at the level of a group of cash-generating units. Specifically, this refers to the sales line per country. In the impairment test, the cumulative carrying amount of the group of cash-generating units is compared with the recoverable amount. The recoverable amount is defined as the fair value less costs to sell, which is calculated from discounted future cash flows and the level 3 input parameters of the fair value hierarchy. The description of the fair value hierarchies is included in no. 40 – carrying amounts and fair values according to measurement categories page 258 . Expected future cash flows are based on a qualified planning process under consideration of intra-group experience as well as macroeconomic data collected by third-party sources. As a rule, the detailed planning period comprises 3 years. In individual cases, it may be extended by up to 2 years for units currently undergoing a transformation process. Following the detailed planning period, a growth rate of 1% is assumed, as in the previous year. The capitalisation rate as the weighted average cost of capital (WACC) is determined M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 213 using the capital asset pricing model. In the process, an individual peer group is assumed for all groups of cash-generating units operating in the same business segment. In addition, the capitalisation rates are determined on the basis of an assumed basic interest rate of 0.60% (30/9/2018: 1.25%) and a market risk premium of 7.00% (30/9/2018: 7.00%) in Germany as well as a beta factor of 0.97 (30/9/2018: 1.03). Country-specific risk premiums based on the respective country rating are applied to the equity cost of capital and to the borrowing costs. The capitalisation rates after taxes determined individually for each group of cash-generating units range from 4.7% to 10.1% (30/9/2018: 5.7% to 11.4%). The mandatory annual impairment test carried out by METRO as of 30 September 2019 resulted in the following assumptions regarding the development of sales, EBIT and the EBIT margin targeted for valuation purposes during the detailed planning period. The EBIT margin hereby reflects the ratio of EBIT to net sales. Sales EBIT METRO Cash & Carry France Slight growth Slight growth EBIT margin Stable development METRO Cash & Carry Germany Slight growth Slight growth Slight growth METRO Cash & Carry Poland Slight growth Slight growth Stable development METRO Cash & Carry Spain/Portugal Slight growth Slight growth Slight growth METRO Cash & Carry Russia Slight decline Noticable decline Slight decline METRO Cash & Carry Romania Pro à Pro Classic Fine Foods Substantial growth Substantial growth Substantial growth Slight growth Slight decline Substantial growth Slight growth Substantial growth Stable development Detailed planning period (years) 3 4 3 3 3 3 4 4 As of 30 June 2019, the mandatory annual impairment test confirmed the recoverability of all capitalised goodwill. An impairment loss of €3 million was recognised in the course of the year. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 214 In addition to the impairment test, 3 sensitivity analyses were conducted for each group of cash-generating units. In the first sensitivity analysis, the interest rate for each group was raised by 10.0%. The second sensitivity analysis was based on the assumption of a 1 percentage point lower growth rate. In the 3rd sensitivity analysis, a lump sum discount of 10.0% was applied to the assumed perpetual EBIT. These changes did not result in significant impairment for any of the groups of cash-generating units with the exception of METRO Cash & Carry Germany and Classic Fine Foods. In the goodwill impairment test at METRO Cash & Carry Germany, the fair value less costs to sell exceeded the carrying amount by €122 million. At a growth rate of 0.2% instead of 1%, the fair value less costs to sell would correspond to the carrying amount. In the goodwill impairment test at Classic Fine Foods, the fair value less costs to sell exceeded the carrying amount by €17 million. Assuming a 0.34 percentage point higher growth rate or a capitalisation rate of 5.31% (rather than 4.97%) or an assumed perpetual EBIT of €12.5 million (rather than €13.6 million), the fair value less costs to sell would correspond to the carrying amount. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 215 Goodwill 922 −21 0 4 0 −64 0 841 7 0 1 0 −19 0 829 47 −3 0 64 0 −64 0 0 44 −2 0 3 0 0 0 0 44 875 797 785 N O T E S N O T E S T O T H E B A L A N C E S H E E T € million Acquisition or production costs As of 1/10/2017 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2019 Depreciation As of 1/10/2017 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2019 Carrying amount as of 1/10/2017 Carrying amount as of 30/9/2018 Carrying amount as of 30/9/2019 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 216 20. Other intangible assets € million Acquisition or production costs As of 1/10/2017 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2019 Depreciation As of 1/10/2017 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2019 Carrying amount on 1/10/2017 Carrying amount 30/9/2018 Carrying amount 30/9/2019 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Intangible assets without goodwill (thereof internally generated intangible assets) 1,782 −2 0 142 −38 −83 0 1,801 10 0 170 −11 −10 7 1,967 1,309 −3 98 0 −38 −64 0 0 1,302 3 106 8 −11 −6 0 2 1,405 473 499 562 (952) (−1) (0) (67) (−3) (−37) (−2) (977) (1) (0) (137) (−5) (0) (−3) (1,106) (792) (−1) (49) (0) (−3) (−21) (0) (−0) (817) (1) (46) (6) (−5) (0) (0) (−0) (864) (160) (160) (242) N O T E S N O T E S T O T H E B A L A N C E S H E E T 217 The other intangible assets have both finite and indefinite expected useful lives. Intangible assets with a finite expected useful life are subject to scheduled depreciation/amortisation. Intangible assets with an indefinite expected useful life are subjected to annual impairment tests. Assets with an indefinite useful life regard acquired brand rights. Their carrying amount is €99 million (30/9/2018: €96 million). The expected useful life of the trademark rights is indeterminable, because METRO can use them without restrictions and an abandonment of trademark rights is not envisaged in the future. The assumptions underlying the annual impairment test are presented in no. 19 – goodwill page 212 . The trademarks are tested at the level of the cash-generating units addressed in this disclosure. Additions in the amount of €170 million (2017/18: €142 million) concern internally generated software at €137 million (2017/18: €67 million), software purchased from third parties and still in development at €19 million (2017/18: €48 million), and concessions, rights and licences at €13 million (2017/18: €27 million). The additions to depreciation/amortisation on other intangible assets in the amount of €106 million (2017/18: €98 million) are recognised in general administrative expenses at €73 million (2017/18: €60 million), in selling expenses at €30 million (2017/18: €29 million), in the cost of sales at €3 million (2017/18: €2 million). Impairment losses of €8 million (2017/18: €0 million) were recognised in financial year 2018/19 and reported in full under general administrative expenses. Research and development expenses recognised in expenses essentially concern internally generated software and amounted to €28 million (2017/18: €28 million). In accordance with IFRS 5, the scheduled depreciation of METRO China in the amount of €1 million (2017/18: €1 million) is not included in the current profit or loss for the period from continuing operations. These impairment losses are included in the movement schedules on the development of financial assets up to the point of reclassification on 30 September 2019; consequently, the amounts stated there may differ from the notes on depreciation. As in the previous year, there are no material restrictions on title or right to dispose of intangible assets. Purchasing obligations for intangible assets amounting to €1 million (30/ 9/2018: €0 million, thereof €0 million for METRO China) were recorded. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 218 21. Property, plant and equipment As of 30 September 2019, property, plant and equipment totalling €4,760 million (30/9/2018: €5,314 million) was recorded. The development of property, plant and equipment is shown in the following table. € million Acquisition or production costs As of 1/10/2017 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2019 Depreciation As of 1/10/2017 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2019 Carrying amount as of 1/10/2017 Carrying amount as of 30/9/2018 Carrying amount as of 30/9/2019 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Land and buildings Other plant, business and office equipment Assets under construction 9,223 −138 0 178 −248 −2,134 −53 6,828 149 0 100 −126 −681 32 6,303 4,290 −39 287 22 −153 −1,259 −3 −79 3,066 39 216 6 −74 −356 −4 −22 2,871 4,932 3,763 3,432 4,927 −88 0 169 −238 −1,157 315 3,928 52 0 111 −86 −363 129 3,770 3,221 −47 302 11 −228 −814 0 78 2,524 27 239 1 −79 −168 −1 4 2,547 1,705 1,404 1,223 195 −5 0 315 −10 −56 −282 158 3 0 161 −5 −15 −186 116 11 −1 0 1 −1 0 0 0 10 0 0 0 0 0 0 0 10 184 148 106 Total 14,344 −231 0 662 −496 −3,346 −19 10,914 204 0 372 −218 −1,059 −25 10,188 7,522 −86 589 34 −382 −2,073 −3 −1 5,600 67 455 7 −154 −524 −5 −18 5,429 6,822 5,314 4,760 N O T E S N O T E S T O T H E B A L A N C E S H E E T 219 The €554 million decrease in property, plant and equipment results in the amount of €409 million from the reclassification of property, plant and equipment to assets held for sale in connection with METRO China. In addition, reclassifications of property, plant and equipment to assets held for sale in connection with individual properties in the amount of €127 million and disposals of real estates in the amount of €52 million (2017/18: €95 million) led to a reduction in property, plant and equipment. In contrast, positive currency effects of €138 million (2017/18: €−144 million) increased property, plant and equipment. In accordance with IFRS 5, the scheduled depreciation of METRO China in the amount of €44 million (2017/18: €43 million) is not included in the current profit or loss for the period from continuing operations. These impairment losses are included in the movement schedules on the development of financial assets up to the point of reclassification on 30 September 2019; consequently, the amounts stated there may differ from the notes on depreciation. Restrictions on titles in the form of liens and encumbrances for items of property, plant and equipment amounted to €11 million (30/9/2018: €12 million, thereof €0 million for METRO China). Contractual commitments were recorded for items of property, plant and equipment in the amount of €42 million (30/9/2018: €84 million, thereof €0 million for METRO China). Disclosures on assets/liabilities held for sale in connection with the sale of the hypermarket business and METRO China can be found under no. 43 – discontinued operations page 266 . Leases Assets available to METRO under the terms of finance leases were recognised at €481 million (30/9/2018: €468 million, thereof €0 million for METRO China); they essentially relate to leased buildings. Finance leases generally have terms of 15 to 25 years with options under expiration to extend them at least once for 5 years. The interest rates used for discounting vary between 1.42% and 10.05%, depending on the market and the date on which the contract was concluded. In addition to finance leases, METRO also signed other types of leases classified as operating leases based on their economic value. Operating leases generally have an initial term of up to 15 years. The interest rates in the leases are based partly on variable and partly on fixed rents. Payments due under finance and operating leases in subsequent periods are shown as follows: € million Finance leases 30/9/2018 Future lease payments due (nominal) Discount Present value Operating leases 30/9/2018 Future lease payments due (nominal) M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Up to 1 year 1 to 5 years Over 5 years 126 −10 116 414 373 −88 286 517 −268 250 1,427 1,990 N O T E S N O T E S T O T H E B A L A N C E S H E E T 220 € million Finance leases 30/9/2019 Future lease payments due (nominal) Discount Present value Operating leases 30/9/2019 Future lease payments due (nominal) Up to 1 year 1 to 5 years Over 5 years 112 −8 104 410 419 −90 329 528 −229 299 1,413 1,683 Future payments due on finance leases contain purchase payments amounting to €13 million (30/9/2018: €13 million, thereof €0 million for METRO China) required for the exercise of more favourable purchase options. The nominal value of future lease payments due to METRO from the subleasing of assets held under finance leases amounts to €148 million (30/9/2018: €150 million, thereof €0 million for METRO China). The nominal value of future lease payments due to METRO from the subleasing of assets held under operating leases amounts to €319 million (30/9/2018: €364 million, thereof €0 million for METRO China). Profit or loss for the period from continuing operations includes expenses from leases totalling €484 million (2017/18: €484 million). Income from tenancy agreements totalling €236 million (2017/18: €268 million) is included. Contingent lease payments from finance leases, included as income in the net profit or loss for the period from continuing operations, amount to €0 million (2017/18: €2 million). Contingent lease payments from operating leases recognised as expenses during the period amount to €9 million (2017/18: €9 million). Conditional lease payments are sales-dependent, use-based or price-indexed payments. Lease payments due in subsequent periods from entities outside METRO for the rental of properties that are legally owned by METRO (METRO as lessor) are shown below: € million Operating leases 30/9/2018 Up to 1 year 1 to 5 years Over 5 years Future lease payments due (nominal) 29 77 52 € million Operating leases 30/9/2019 Up to 1 year 1 to 5 years Over 5 years Future lease payments due (nominal) 24 63 44 22. Investment properties Investment properties are recognised at depreciated cost. As of 30 September 2019, investment properties totalling €82 million (30/9/2018: €97 million) were recognised. The development of these real estates is shown in the following table. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 221 € million Acquisition or production costs As of 1/10/2017 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers associated with the tangible assets As of 30/9/2018 | 1/10/2018 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers associated with the tangible assets As of 30/9/2019 Depreciation As of 1/10/2017 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers associated with the tangible assets As of 30/9/2018 | 1/10/2018 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers associated with the tangible assets As of 30/9/2019 Carrying amount as of 1/10/2017 Carrying amount as of 30/9/2018 Carrying amount as of 30/9/2019 Investment properties 426 −2 0 2 −20 −128 19 297 15 0 41 −32 0 22 306 300 0 5 1 −6 −98 −2 1 200 9 61 0 −11 0 0 18 223 126 97 82 1 Including reclassifications from assets held for sale to investment properties. The decline of €15 million resulted primarily from the disposal of a single Russian property in the Others segment. The fair values of these investment properties total €148 million (30/9/2018: €205 million). They are determined on the basis of internationally recognised measurement methods, particularly the comparable valuation method and the discounted cash flow M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 222 method (level 3 of the 3-level valuation hierarchy of IFRS 13 (Fair Value Measurement). This measurement is based on a detailed planning period of 10 years. Aside from market rents, market-based discount rates were used as key valuation parameters. The discount rates are determined on the basis of analyses of relevant real estate markets as well as evaluations of comparable transactions and market publications issued by international consulting firms. The resulting discount rates reflect the respective country and location risk as well as the property-specific real estate risk. In addition, project developments are considered to determine the best use. The fair value is usually assessed by METRO PROPERTIES employees. External expert reports are used where available. Rental income from continuing operations amounts to €22 million, with finance leases accounting for €8 million of this total (2017/18: €20 million, thereof €7 million from finance leases). The related expenses amount to €13 million, with finance leases accounting for €4 million (2017/18: €12 million, thereof €4 million from finance leases). Expenses of €0 million were incurred for properties without rental income, €0 million of which are attributable to finance leases (2017/18: €0 million, thereof €0 million from finance leases). Restrictions on titles in the form of liens and encumbrances amounted to €0 million (30/ 9/2018: €0 million). As in the previous year, no contractual commitments for the acquisition of investment properties were made. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 223 23. Financial investments and investments accounted for using the equity method € million Loans Investments Securities Total financial assets Acquisition or production costs As of 1/10/2017 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2019 Depreciation As of 1/10/2017 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2019 Carrying amount as of 1/10/2017 Carrying amount as of 30/9/2018 Carrying amount as of 30/9/2019 1 Changed opening balance due to first-time application of IFRS 9. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 47 −1 0 6 −3 −13 −1 351 1 0 3 −5 0 −1 34 4 0 0 0 0 0 0 1 4 0 0 2 −2 0 0 0 5 43 31 29 51 0 0 19 −2 −17 0 481 0 0 26 −7 0 −2 66 12 0 0 0 −1 −8 0 0 01 0 0 0 0 0 0 0 0 39 48 66 9 0 0 0 0 0 0 9 0 0 0 −7 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 9 9 2 107 −1 0 26 −4 −31 −1 921 1 0 29 −19 0 −2 102 15 0 0 0 −1 −8 0 1 41 0 0 2 −2 0 0 0 5 92 88 97 N O T E S N O T E S T O T H E B A L A N C E S H E E T 224 € million Acquisition or production costs As of 1/10/2017 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions to consolidation group Additions Disposals Reclassifications in accordance with IFRS 5 Transfers As of 30/9/2019 Depreciation As of 1/10/2017 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2018 | 1/10/2018 Currency translation Additions, scheduled Additions, impairment Disposals Reclassifications in accordance with IFRS 5 Reversals of impairment losses Transfers As of 30/9/2019 Carrying amount as of 1/10/2017 Carrying amount as of 30/9/2018 Carrying amount as of 30/9/2019 Investments accounted for using the equity method 184 −8 0 9 −6 0 0 179 −6 0 16 −9 0 0 180 1 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 1 183 178 179 Disclosures on the major investments accounted for using the equity method can be found in the following table. Apart from Habib METRO Pakistan (closing date 30 June), all companies mentioned above have 31 December as the closing date. The companies are included in the consolidated financial statements of METRO AG with their latest available financial statements. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 225 Habib METRO Pakistan OPCI FWP OPCI FWS Mayfair group1 Miscellaneous Total 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 2017/ 18 2018/ 19 14 17 127 141 199 204 12 6 0 0 6 2 47 22 2 2 64 40 26 15 41 11 5 0 0 5 2 38 22 2 2 56 40 22 13 35 23 15 0 0 15 1 18 12 0 0 12 1 23 15 0 0 15 3 18 12 0 0 12 4 8 0 0 8 0 8 0 0 8 0 287 279 270 264 190 185 4 4 5 116 108 110 0 0 0 4 96 0 8 0 8 2 0 2 175 176 164 172 190 184 25 25 40 40 5 9 – 9 5 9 – 9 41 – 41 43 75 73 – – – 63 67 107 105 0 0 63 1 – – – – – – – – 0 0 0 0 0 0 67 107 105 8 7 14 – – – – – – – – – – – – – – – – – – – – – – – – 43 75 73 12 17 178 179 € million Disclosures on the income statement Sales revenues Tax profit for the period from continuing operations Tax profit for the period from discontinued operations Other comprehensive income Total comprehensive income Dividend payments to the group Disclosures on the balance sheet Non-current assets Current assets Non-current liabilities Current liabilities Net assets Amount of the share (in %) Share of the group in the net assets Adjustment of asset values Carrying amount of the share in the group 1 The Mayfair group comprises 10 real estate companies. METRO’s representation on the supervisory board of OPCI FRENCH WHOLESALE PROPERTIES – FWP ensures that significant influence is maintained and that the holding will be accounted for using the equity method although the investment only amounts to 5%. The investments accounted for using the equity method within the group are mainly associate companies and rental companies. The main purpose of the leasing companies is to acquire, lease out and manage assets. The assets of these real estate companies are exclusively leased by METRO companies. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 226 24. Other financial and other non-financial assets 30/9/2018 30/9/2019 Remaining term Remaining term € million Total up to 1 year over 1 year Total up to 1 year over 1 year Receivables due from suppliers Miscellaneous financial assets Other financial assets Other tax receivables Prepaid expenses and deferred charges Miscellaneous non-financial assets Other non-financial assets 328 271 600 237 226 53 515 327 233 561 237 68 48 353 1 38 39 0 158 5 163 316 324 640 178 101 42 322 316 287 603 178 66 35 279 1 37 37 0 35 8 43 Receivables due from suppliers comprise both invoiced and deferred income for subsequent supplier compensation (for example bonuses, advertising subsidies) and creditors with debit balances. The miscellaneous financial assets primarily consist of receivables from the disposal of non-current assets, receivables from credit card transactions, receivables from finance lease agreements, receivables from other financial transactions and receivables and other assets from the real estate sector. The previous year’s figures for the other financial assets include €27 million and the previous year’s figures for other non-financial assets include €205 million attributable to the assets held for sale in connection with the sale of METRO China. The other tax receivables include value added tax refunds, later offsettable input tax and miscellaneous tax receivables. Prepaid expenses and deferred charges include deferred rental, leasing and interest charges as well as miscellaneous prepaid expenses and deferred charges. Miscellaneous non-financial assets mainly consist of prepayments on inventories and raw materials and supplies. In addition, they include contract assets in the amount of €1 million (1/10/2018: €0 million) as well as assets for the right to recover products from a customer on settling the refund liabilities in the amount of €1 million (no balances existed at the date of first application of IFRS 15). The decrease of the other non-financial assets is predominantly attributable to the assets of METRO China, which were still included in previous year’s figure. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 227 25. Deferred tax assets/deferred tax liabilities Deferred tax assets on tax loss carry-forwards and temporary differences amount to €607 million before offsetting (30/9/2018: €719 million), a decline of €112 million compared to 30 September 2018. The carrying amounts of deferred tax liabilities increased by €24 million to €534 million compared with the previous year (30/9/2018: €511 million). The previous year’s figures include €72 million in deferred tax assets and €6 million in deferred tax liabilities (before offsetting) attributable to METRO China. Deferred taxes relate to the following balance sheet items: 30/9/20181 30/9/2019 Change through profit or loss Assets Liabilities Assets Liabilities Assets Liabilities € million Goodwill Other intangible assets Property, plant and equipment and investment properties Financial investments and investments accounted for using the equity method Inventories Other financial and non-financial assets Assets held for sale Provisions for post-employment benefits plans and similar obligations Other provisions Financial liabilities Other financial and non-financial liabilities Write-downs of temporary differences Loss carry-forwards Carrying amount of deferred taxes before offsetting 27 17 60 10 26 82 1 95 38 192 57 −22 136 719 29 86 292 8 5 29 8 36 0 5 13 0 0 23 10 74 5 19 40 0 117 42 177 60 −28 67 511 607 Offsetting −390 −390 −416 Carrying amount of deferred taxes 329 120 191 1 Adjustment of previous year according to explanation in notes. 33 103 307 4 1 34 0 30 4 3 15 0 0 534 −416 119 −5 −7 21 −5 −3 −5 −1 5 4 −13 34 −6 −68 −49 −34 −83 4 17 15 −3 −2 12 −8 −5 5 −3 0 0 0 34 −34 0 Of the deferred tax assets shown, €52 million (30/9/2018: €130 million) are attributable to the group of incorporated companies of METRO AG. The additional deferred tax assets of €21 million (30/9/2018: €79 million) are attributable to various companies abroad. Based on business planning, realisation of these tax assets is to be considered sufficiently likely. In accordance with IAS 12 (Income Taxes), deferred tax liabilities relating to differences between the carrying amount of a subsidiary’s pro rata equity in the balance sheet and the carrying amount of the investment for this subsidiary in the parent company’s tax statement must be recognised (so-called outside basis differences) if the tax benefit is likely to be realised in the future. The differences can primarily be attributed to retained earnings of subsidiaries in Germany and abroad. No deferred taxes were recognised for these retained earnings as they will be reinvested over an indefinite period of time or are not subject to relevant taxation. Any dividends paid by subsidiaries would be subject to M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 228 dividend tax. In addition, foreign dividends may trigger a withholding tax. As of 30 September 2019, no deferred tax liabilities from outside basis differences were recognised for planned dividend payments (30/9/2018: €0 million). The sum of the amount of temporary differences in connection with investments in subsidiaries for which no deferred tax liabilities were recognised was not determined as this would have been disproportionately expensive due to the level of detail of the METRO group. No deferred tax assets were capitalised for the following tax loss carry-forwards and interest carry-forwards or temporary differences because realisation of the assets in the short-to-medium term is not expected: € million Corporate tax losses Trade tax losses Interest carry-forwards Temporary differences 30/9/2018 30/9/2019 4,320 3,296 57 104 4,883 3,679 83 120 The loss carry-forwards as of the closing date predominantly concern the German consolidation group. They can be carried forward without limitation. TAX EFFECTS ON COMPONENTS OF OTHER COMPREHENSIVE INCOME € million Currency translation differences from translating the financial statements of foreign operations thereof currency translation differences from net investments in foreign operations Effective portion of gains/losses from cash flow hedges Gains/losses on remeasuring financial instruments in the category ‘available for sale’ Effects from the fair value measurement of equity instruments Effects from the fair value measurement of debt instruments Remeasurement of defined benefit pension plans Remaining income tax on other comprehensive income 2017/18 2018/19 Before taxes Taxes After taxes Before taxes Taxes After taxes −190 0 −190 138 0 138 (3) (0) (3) (40) (0) (40) 2 9 0 0 17 0 −162 0 0 0 0 −6 4 −2 2 9 0 0 11 4 −164 2 0 −3 0 −94 0 43 0 0 0 0 22 −4 17 2 0 −3 0 −73 −4 59 Deferred taxes on components of other comprehensive income primarily apply to the remeasurement of defined benefit pension plans. The other components are not tax- effective. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 229 26. Inventories € million Food merchandise Non-food merchandise 30/9/2018 30/9/2019 1,517 591 2,108 1,408 539 1,946 The inventories are reduced by €162 million from €2,108 million to €1,946 million. The previous year’s figures include €203 million attributable to METRO China. Positive currency effects, resulting in particular from the development of the Russian rouble and the Turkish lira, increased inventories by a total of €41 million. Inventories include impairments of €62 million (30/9/2018: €70 million). The inventories are subject to the customary or statutory retention of title. 27. Trade receivables Trade receivables declined by €90 million, from €571 million to €482 million. These are receivables with a remaining term of up to 1 year. The previous year’s figures include €75 million attributable to METRO China. Currency effects increased the trade receivables by €9 million. Higher direct payments reduce trade receivables in the METRO Western Europe (excluding Germany) segment by €8 million. 28. Impairments of financial assets Since 1 October 2018, METRO has applied the new accounting and measurement methods in accordance with the impairment requirements of IFRS 9. The following disclosures on impairment losses under IFRS 9 are not comparable to the previous year’s disclosures under IFRS 7 or IAS 39, which are explained at the end of this chapter. In the previous year, impairment losses of €100 million were recognised for financial assets. As of 30 September 2019, impairment losses recognised in the balance sheet amounted to €104 million. The impact of the first-time application of IFRS 9 is insignificant. Disclosures regarding the conversion effects from the introduction of IFRS 9 can be found in the notes to the group accounting principles and methods page 170 . The following explanations relate to the financial assets to which the impairment requirements of IFRS 9 are applied. For trade receivables, METRO makes use of the simplified procedure to determine expected credit losses provided for in IFRS 9. METRO records the expected credit losses over the entire term of the financial instruments on the basis of a provision matrix. Trade receivables are combined in different portfolios with similar credit risk characteristics for this purpose. This is based on the regions used for METRO’s segment reporting. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 230 The loss default rates per past-due category of these portfolios are estimated on the basis of previous experience with credit losses from such financial assets. The loss default rates determined in this way are adjusted by including a projected global corporate insolvency index. The table below shows the expected credit losses on trade receivables for each maturity band as of 30 September 2019, calculated on the basis of the provision matrix: € million Gross carrying amount Total 454 thereof not past- due thereof up to 90 days past-due thereof 91 to 180 days past-due thereof 181 to 270 days past-due thereof 271 to 360 days past-due thereof more than 360 days past-due 353 86 7 3 3 3 Bandwidth of calculated default rates +0.21% to +1.12% 1.00% to 6.97% 3.40% to 26.00% 6.62% to 28.18% 10.72% to 47.34% 11.91% to 86.49% Risk provisions 7 2 2 1 0 1 1 Loss allowances on trade receivables are reconciled according to the simplified calculation as follows: € million Loss allowances in accordance with IAS 39 as of 30 September 2018 Retrospective adjustment (recognised in reserves retained from earnings) Loss allowances according to IFRS 9 as of 1 October 2018 Addition to impairment through profit or loss Reversal of impairment through profit or loss Utilisation Currency effects Other changes Loss allowances as of 30 September 2019 Trade receivables 43 3 47 23 −15 −8 1 0 47 The loss allowances as of 30 September 2019 amounted to €47 million (30/9/2018: €43 million, thereof €1 million for METRO China) and include impairments of €40 million on individual receivables for which there are objective indications of an impairment of creditworthiness. The valuation adjustment of trade receivables resulting from the first-time application of IFRS 9 in financial year 2018/19 with regard to impairment amounted to €3 million. This effect was recognised directly in reserves retained from earnings. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 231 The following table shows the gross carrying amounts of trade receivables that were or were not past-due as of the closing date on 30 September 2019, which were depreciated either on the basis of the respective applied provision matrix or on the basis of objective indications of default: € million Not past-due Up to 90 days past-due 91 to 180 days past-due 181 to 270 days past-due 271 to 360 days past-due More than 360 days past-due Gross carrying amount Loss allowances Maximum credit risk Trade receivables 367 93 15 6 6 31 517 −47 470 In addition, for trade receivables of €12 million (30/9/2018: €7 million, thereof €0 million for METRO China) collaterals are available. These receivables were not impaired. METRO applies the general impairment requirements of IFRS 9 to receivables from suppliers, credit card transactions and loans. A possible credit risk in these cases is determined on the basis of the counterparty’s creditworthiness. For this purpose, METRO uses external ratings of well-known rating agencies as well as internal credit risk rating grades based on the risk of default of the respective financial instrument. The creditworthiness of the counterparties is continuously monitored so that METRO recognises a significant increase in the credit risk and can react promptly to any changes. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 232 The following table shows the development of risk provisions in relation to financial assets to which the general impairment requirements of IFRS 9 are applied: € million Risk provision as of 30 September 2018 Retrospective IFRS 9 adjustment (recognised in reserves retained from earnings) Risk provision as of 1 October 2018 Newly originated/acquired financial assets Other changes within one stage Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Derecognised financial assets Utilisation Other changes1 Risk provision as of 30 September 2019 No significantly increased credit risk since recognition (stage 1) Increased credit risk (stage 2) Impaired credit- worthiness (stage 3) Total – – 1 0 0 0 0 0 0 0 0 1 – – 0 0 0 0 0 0 0 0 0 0 – – 28 0 9 0 0 0 −5 −4 −2 27 29 0 29 0 9 0 0 0 −5 −4 −2 28 1 Other changes include currency translation differences, changes in the consolidation group and reclassifications to assets held for sale. Risk provisions as of 30 September 2019 amounted to € 28 million (30/9/ 2018: € 29 million, thereof € 2 million for METRO China). Stage 1 of the model contains financial assets that have a low credit risk or whose credit risk has not increased significantly since the initial recognition of the asset. At this stage, the risk provision is calculated as the 12-month expected credit loss. If the credit risk on the closing date is significantly higher than at the time of initial recognition, the financial asset is reclassified to stage 2. The amount of the risk provision is determined at this level as the expected losses that can arise from all possible default events over the expected entire term of the financial instrument. If there is objective evidence that a financial asset will not be collected in whole or in part, it is reclassified to stage 3. Default is defined as the failure to maintain contractually agreed cash flows. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 233 The table below shows the gross carrying amounts as of 30 September 2019 for those financial instruments for which the impairment losses are determined according to the general approach; they are differentiated according to the external rating of the counterparties: € million AAA, AA+, AA, AA− A+, A, A− BBB+, BBB, BBB− BB+, BB, BB− B+ or lower Gross carrying amount Risk provision Maximum credit risk No significantly increased credit risk since recognition (stage 1) Increased credit risk (stage 2) Impaired credit- worthiness (stage 3) 7 16 10 2 44 80 0 80 1 0 0 0 0 1 0 1 1 0 0 0 0 2 −1 1 Total 9 17 10 2 44 82 −1 82 METRO minimises credit risk by exclusively investing in first-class debt capital instruments from counterparties with a good to very good external rating (investment grade). Therefore, a significant portion of the financial assets is allocated to stage 1 of the impairment model. For counterparties that do not have an external rating and are therefore assigned to the internal risk classes, the credit risk determined according to the general approach is as follows: € million Internal risk class 1 (not past-due or up to 30 days past-due) Internal risk class 2 (31 to 90 days past-due) Internal risk class 3 (more than 90 days past-due) Gross carrying amount Risk provision Maximum credit risk No significantly increased credit risk since recognition (stage 1) 294 15 12 321 −1 320 Increased credit risk (stage 2) Impaired credit- worthiness (stage 3) 0 1 0 1 0 1 2 1 33 37 −27 10 Total 297 16 46 358 −27 331 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 234 The figures for the previous year were based on the requirements of IAS 39 and IFRS 7 (Financial Instruments: Disclosures). Impairment losses on financial assets developed as follows: € million As of 30/9/2017 and 1/10/2017 Currency translation Additions Reversal Reclassifications in accordance with IFRS 5 Utilisation Transfers As of 30/9/2018 Category ‘loans and receivables’ thereof loans thereof other current receivables 117 −5 40 −19 −5 −29 1 100 (4) (0) (0) (0) (0) (0) (1) (5) (113) (−5) (40) (−18) (−5) (−29) (0) (95) In financial year 2017/18, impairment losses in the amount of €2 million were included, which were attributable to METRO China. The maturity structure of the financial assets recognised as of 30 September 2018 is as follows: € million Assets thereof past-due, no specific allowances Total carrying amount 30/9/ 2018 thereof not past- due, not impaired Up to 90 days past-due 91 to 180 days past-due 181 to 270 days past-due 271 to 360 days past-due More than 360 days past-due in the category ‘loans and receivables’ thereof loans thereof other current receivables in the category ‘held to maturity’ in the category ‘held for trading’ in the category ‘available for sale’ 1,170 (33) 928 (33) 78 (0) (1,138) (895) (78) 0 7 49 0 0 1 0 0 0 1,227 929 78 8 (0) (8) 0 0 0 8 1 (0) (1) 0 0 0 1 1 (0) (1) 0 0 0 1 4 (0) (4) 0 0 0 4 In financial year 2017/18, financial assets that were not past-due but also not individually impaired included €110 million, financial assets that were past-due up to 90 days but not specifically impaired included €5 million attributable to METRO China. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 235 29. Cash and cash equivalents € million Cheques and cash on hand Bank deposits and other financial assets with short-term liquidity 30/9/2018 30/9/2019 31 1,267 1,298 20 479 500 The previous year’s figures include €392 million attributable to METRO China. Of the cash and cash equivalents, €0 million (30/9/2018: €0 million) are subject to restrictions on title. For more information, see the cash flow statement and no. 41 – notes to the cash flow statement page 263 . 30. Assets held for disposal/liabilities related to assets held for sale Real estate The value of individual real estate properties held for sale changed from €26 million to €0 million during financial year 2018/19. On the one hand, reclassifications from non- current assets increased the item by €127 million. On the other hand, the sale of real estate assets in the amount of €137 million caused assets held for sale to decline. In addition, this item was reduced to €0 million by the reintegration of real estate assets into non-current assets. Disclosures on assets/liabilities held for sale in connection with the sale of the hypermarket business and METRO China can be found under no. 43 – discontinued business sectors page 266 . 31. Equity The subscribed capital of METRO AG amounts to €363,097,253. It is divided as follows: No-par-value bearer shares, accounting par value of €1.00 30/9/2018 30/9/2019 Ordinary shares Number of shares 360,121,736 360,121,736 Preference shares Total shares Total share capital € 360,121,736 360,121,736 Number of shares € 2,975,517 2,975,517 2,975,517 2,975,517 Number of shares 363,097,253 363,097,253 € 363,097,253 363,097,253 As of 30 September 2019 and as of 30 September 2018, the subscribed capital of METRO AG amounted to €363,097,253. It is divided into a total of 360,121,736 ordinary no- par-value bearer shares (pro rata value of the share capital: €360,121,736, approximately 99.18%), as well as 2,975,517 preference no-par-value bearer shares (pro rata value of the M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 236 share capital: €2,975,517, approximately 0.82%). Each no-par-value share in the company has a notional interest of €1.00 in the share capital. Each ordinary share entitles to a single vote in the company’s Annual General Meeting. The ordinary shares carry full dividend rights. In contrast to ordinary shares, preference shares do not carry voting rights but confer a preferential entitlement to profits as prescribed in § 21 of the Articles of Association of METRO AG, which state: ‘(1) Holders of non-voting preference shares will receive a preliminary dividend from the annual balance sheet profit in the amount of €0.17 for each preference share. (2) Should the balance sheet profit available for distribution not suffice in any one financial year to pay the preliminary dividend, the arrears (excluding any interest) shall be paid from the balance sheet profit of subsequent financial years in an order based on age, meaning in such manner that any older arrears are paid off prior to any more recent ones and that the preference dividends payable from the profit of a financial year are not distributed until all accrued arrears have been paid. (3) Following distribution of the preliminary dividends, the holders of ordinary shares will be paid a dividend of €0.17 for each ordinary share. Subsequently, a non-cumulative extra dividend per share will be paid to the holders of non-voting preference shares. The extra dividend shall amount to 10% of the dividend paid to the holders of ordinary shares under observation of Section 4, provided such dividend equals or exceeds €1.02 per ordinary share. (4) The holders of non-voting preference shares and those holding ordinary shares will equally share in any additional profit distribution in the proportion corresponding to the number of shares held by them in the share capital.’ Authorised capital The Annual General Meeting on 16 February 2018 authorised the Management Board to increase the share capital, subject to the consent of the Supervisory Board, by issuing new ordinary bearer shares against cash or non-cash contributions in one or several tranches for a total maximum of €181,000,000 by 28 February 2022 (authorised capital). The Management Board is, subject to the consent of the Supervisory Board, authorised to exclude shareholder subscription rights in certain cases. To date, the authorised capital has not been fully utilised. Contingent capital The Annual General Meeting held on 16 February 2018 resolved a contingent increase in the share capital by up to €50,000,000, divided into a maximum of 50,000,000 ordinary shares (contingent capital). This contingent capital increase is related to the establishment of an authority of the Management Board to issue, subject to the consent of the Supervisory Board, one or several tranches of warrant or convertible bearer bonds (collectively ‘bonds’) with an aggregate par nominal value of €1,500,000,000 prior to 15 February 2023, and to grant the holders of warrant or convertible bearer bonds warrant or conversion rights or to impose warrant or conversion obligations upon them for ordinary bearer shares in METRO AG representing up to €50,000,000 of the share capital in accordance with the terms of the warrant or convertible bearer bonds, or to provide for the company’s right to deliver ordinary shares in the company as full or partial payment in lieu of a cash redemption of the bonds. The Management Board is, subject to the consent of the Supervisory Board, authorised to exclude shareholder subscription rights in certain cases. To date, no warrants and/or convertible bearer bonds have been issued under the aforementioned authority. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 237 Repurchase of own shares On the basis of § 71 Section 1 No. 8 of the German Stock Corporation Act, the Annual General Meeting on 11 April 2017 authorised the company to acquire own shares of any share class representing a maximum of 10% of the share capital issued at the time the authority became effective, or – if this figure is lower – at the time the authority is exercised. The authority expires on 28 February 2022. To date, neither the company nor any company controlled or majority-owned by it, any other company acting on behalf of the company or of any company controlled or majority-owned by that company, has exercised this authority. For more information on the company’s authorised capital, contingent capital, the authority to issue warrants and/or convertible bearer bonds as well as share repurchasing, see chapter – 7 takeover-related disclosures page 141 in the combined management report. Capital reserve and reserves retained from earnings Prior to the effective date of the reclassification and demerger of CECONOMY AG on 12 July 2017, METRO AG was not yet a group within the meaning of IFRS 10. Accordingly, combined financial statements of METRO Wholesale & Food Specialist GROUP (hereinafter: MWFS GROUP) were prepared for the IPO prospectus of METRO AG. Equity in the combined financial statements was the residual amount from the combined assets and liabilities of MWFS GROUP. Following the demerger, METRO became an independent group with METRO AG as the listed parent company. Therefore, the equity in the consolidated financial statements is subdivided according to legal requirements. The subscribed capital of €363 million and the capital reserve of €6,118 million were recognised at the carrying amounts from the METRO AG Annual Financial Statements as of 30 September 2017. For this purpose, a transfer was made from the equity item net assets, recognised as of 1 October 2016, attributable to the former METRO GROUP of the combined financial statements of MWFS GROUP. The remaining negative amount of this equity item was reclassified to reserves retained from earnings. It cannot be traced back to a history of loss. Reserves retained from earnings can be broken down as follows: € million 30/9/2018 30/9/2019 Effective portion of gains/losses from cash flow hedges Equity and debt instruments1 Currency translation differences from translating the financial statements of foreign operations Remeasurement of defined benefit pension plans Income tax on components of other comprehensive income Other reserves retained from earnings 1 Previous year: gains/losses on remeasuring financial instruments in the category ‘available for sale’. 2 Adjustment of previous year according to explanation in notes. 0 9 −738 −410 91 −2,4012 −3,449 2 −3 −602 −500 106 −2,782 −3,778 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 238 Changes in the financial instruments presented above consist of the following components: € million 2017/18 2018/19 Initial or subsequent measurement of derivative financial instruments Derecognition of cash flow hedges thereof in inventories thereof in net financial result Effective portion of gains/losses from cash flow hedges Equity and debt instruments1 1 Previous year: Gains/losses on remeasuring financial instruments in the category ‘available for sale’. 9 −7 (0) (−7) 2 9 11 0 2 (0) (2) 2 −3 −1 The valuation effects of equity and debt instruments relate to the subsequent measurement of investments. In addition, currency translation differences increased by €136 million (2017/18: €−189 million). They can be broken down as follows: The translation of the local balance sheets to the group currency resulted in an increase of €131 million in other comprehensive income. In addition, the effective derecognition of cumulative currency differences of companies that were deconsolidated or discontinued operation within financial year 2018/19 had an effect of €5 million. The remeasurement of defined benefit pension plans resulted in effects outside of profit or loss before deferred taxes in the amount of €−90 million. An overview of the tax effects on components of other comprehensive income can be found under no. 25 – deferred tax assets/deferred tax liabilities page 227 . Other reserves retained from earnings decreased by €381 million from €−2,401 million to €−2,782 million. The profit or loss for the period from continuing operations results in an increase in other reserves retained from earnings. The profit or loss for the period from discontinued operations as well as dividend payments for financial year 2017/18 have an opposite effect. Non-controlling interests Non-controlling interests comprise the shares held by third parties in the equity of the consolidated subsidiaries. As of 30 September 2019, they amount to €32 million (30/9/ 2018: €41 million). An overview of subsidiaries with major non-controlling interests is published in the notes to the group accounting principles and methods page 170 . Appropriation of the balance sheet profit, dividend Dividend distribution of METRO AG is based on the METRO AG Annual Financial Statements prepared under German commercial law. Concerning the appropriation of the balance sheet profit for 2018/19, the Management Board of METRO AG will propose to the Annual General Meeting to distribute a dividend in the amount of €0.70 per ordinary share and €0.70per preference share – that is, a total of M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 239 €254million – from the reported balance sheet profit of €266 million and to carry forward the remaining amount to the new account. 32. Provisions for post-employment benefits plans and similar obligations € million 30/9/2018 30/9/2019 Provisions for post-employment benefits plans (employer’s commitments) Provisions for indirect commitments Provisions for voluntary pension benefits Provisions for post-employment benefit plans Provisions for obligations similar to pensions 344 12 0 71 427 41 468 414 17 0 78 509 34 543 Provisions for post-employment benefits plans are recognised in accordance with IAS 19 (Employee Benefits). Provisions for post-employment benefits plans consist of commitments primarily related to benefits defined by the provisions of company pension plans. These take the form of defined benefit plans directly from the employer (employer’s commitments) and defined benefit plans from external pension providers (benevolent funds in Germany and international pension funds). The external providers’ assets serve exclusively to finance the pension entitlements and qualify as plan assets. The benefits under the different plans are based on performance and length of service. The most important performance-based pension plans are described in the following. Germany METRO grants many employees in Germany retirement, disability and surviving dependant’s benefits. New commitments are granted in the form of ‘defined benefit’ commitments in the meaning of IAS 19 (contribution-oriented commitments pursuant to German company pension law), which comprise a payment contribution component and an employer-matching component. Contributions are paid to a pension reinsurance from which benefits are paid out when the insured event occurs. A provision is recognised for entitlements not covered by pension reinsurance. In addition, various pension funds exist that are closed for new contributions. In general, these provide for lifelong pensions starting with the start of retirement or recognised invalidity. Benefits are largely defined as fixed payments or on the basis of set annual increases. In special cases, benefits are calculated in consideration of accrued statutory pension entitlements. The commitments provide for a widow’s or widower’s pension of varying size, depending on the benefits the former employee received or would have received in case of invalidity. Legacy commitments are partially covered by assets held in benevolent funds. Provisions are recognised for those commitments not covered. The benevolent funds’ decision-making bodies (management board and general assembly of members) comprise both employer and employee representatives. The respective members of the Management Board decide on the deployment of funds and financial investments. It may commission third parties to manage fund assets. No statutory minimum endowment M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 240 obligations exist. Insofar as pledged benefits cannot be paid out of the benevolent fund assets, the employer is obliged to directly assume these payments. There are also deferred compensation contracts with the ‘Hamburger Pensionskasse’ (Hamburg pension fund). Netherlands A defined benefit pension plan exists in the Netherlands which provides for pension payments in addition to invalidity and death benefits. The amount of the benefits depends on the pensionable salary per year of service. Benefits are funded through a pension fund whose decision-making bodies (management board, as well as administration, finance and investment committee) include employer and employee representatives. The fund’s management board has responsibility for asset management. The pension fund’s investment committee exists for this purpose. In line with statutory minimum funding requirements, the pension fund’s management board must ensure that commitments are covered by assets at all times. In case of underfunding, the pension fund’s management board may take different measures to compensate for deficient cover. These measures include the requirement for additional contributions by the employer and curtailments in employee benefits. United Kingdom In July 2012, the former METRO GROUP sold its cash-and-carry business in the United Kingdom to Booker Group PLC. Pension commitments were not part of the sale. Since the date of the disposal, only vested benefits and current pensions from service years at the former METRO GROUP have existed. In accordance with legal stipulations, the vested interests must be adjusted for inflation effects. The commitments are covered by assets which are managed and invested by a corporate trustee. A major share of these commitments was fully funded through a buy-in. The management board of this corporate trustee consists of employer and employee representatives. In any case, the trustee must ensure that benefits can be paid at all times in the future. This is regulated on the basis of statutory minimum financing requirements. In case of underfunding, the trustee may require additional employer contributions to close the funding gap. Belgium There are both retirement pensions and capital commitments; the amount depends on the pensionable length of service and pensionable income. In addition, groups of employees are granted interim allowances. In principle, benefits are funded through group insurance contracts that are subject to Belgian regulatory law. Additional retirement plans are reported cumulatively under other countries. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 241 The following table provides an overview of the present value of defined benefit obligations by METRO countries as well as material obligations: € million Germany Netherlands United Kingdom Belgium Other countries 30/9/2018 30/9/2019 374 469 211 88 109 1,251 448 611 241 85 131 1,516 The plan assets of METRO are distributed between the following countries: € million Germany Netherlands United Kingdom Belgium Other countries 30/9/2018 30/9/2019 71 584 209 50 26 940 81 671 237 52 25 1,066 The above commitments are valued on the basis of actuarial calculations in accordance with relevant provisions of IAS 19. The basis for the measurement is the legal and economic circumstances prevailing in each country. The following assumptions regarding the material parameters were used in the actuarial measurements: % Germany 30/9/2018 Nether- lands United Kingdom 30/9/2019 Belgium Germany Nether- lands United Kingdom Belgium Actuarial interest rate Pension trend 2.20 2.40 2.70 2.20 1.00 1.20 2.00 1.20 1.50 0.90 2.40 2.00 1.50 0.70 2.50 2.00 As in previous years, METRO used generally recognised methods to determine the actuarial interest rate. With these, the respective actuarial interest rate based on the yield of investment grade corporate bonds is determined as of the closing date taking account of the currency and maturity of the underlying obligations. The actuarial interest rate for the Eurozone and the UK is based on the results of a method applied in a uniform manner across the group. The interest rate for this is set on the basis of the returns of high-quality corporate bonds and the duration of commitments. In countries without a liquid market of M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 242 suitable corporate bonds, the actuarial interest rate was determined on the basis of government bond yields. Aside from the actuarial interest rate, the pension trend represents another key actuarial parameter. In Germany, the rate of pension increases is derived directly from the inflation rate insofar as pension adjustments can be determined on the basis of the increase in the cost of living. In international companies, pension adjustments are also generally determined on the basis of the inflation rate. The other parameters are not relevant for the measurement of pension obligations. The impact of changes in fluctuation and mortality assumptions was analysed for major plans. As of 30 September 2019, the mortality rate for the German group companies are based on the 2018 G tables from Prof. Dr Klaus Heubeck. The actuarial measurements outside of Germany are based on country-specific mortality tables. The resulting effects of fluctuation and mortality assumptions have been deemed immaterial and are not listed as a separate component. The results of a sensitivity analysis for the key measurement parameters with respect to the present value of pension entitlements are presented below. The actuarial interest rate and the pension trend were identified as key parameters with an impact on the present value of pension entitlements. The sensitivity analysis used the same methods as were applied in the previous year. The analysis considered changes in parameters that are considered possible within reason. The selection of the respective spectrum of possible changes in parameters is based on historical multi-year observations. The following illustrates the impact of an increase/decrease in the actuarial interest rate by 100 basis points or an increase/decrease in the pension trend by 25 basis points. For interpretation of the values, it should be noted that the obligations in the Netherlands and the United Kingdom are backed to a large extent and that the plan assets also regularly show a compensating sensitivity with regard to the development of the general interest rate level. € million Actuarial interest rate Increase by 100 basis points Decrease by 100 basis points Pension trend Increase by 25 basis points Decrease by 25 basis points 30/9/2018 30/9/2019 Germany Nether- lands United Kingdom Belgium Germany Nether- lands United Kingdom Belgium −46 −89 −33 −3 −59 −126 −38 −4 58 9 −9 123 13 −13 43 5 −6 5 0 0 77 12 175 19 −11 −18 50 7 −6 6 0 0 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 243 Changes in the present value of defined benefit obligations have developed as follows: € million 2017/18 2018/19 Present value of defined benefit obligations As of the beginning of the period Recognised under Interest expenses Current service cost Past service cost (incl. curtailments and changes) Settlement expenses Recognised outside of profit or loss under ‘remeasurement of defined benefit pension plans’ in other comprehensive income Actuarial gains/losses from changes in demographic assumptions (−/+) financial assumptions (−/+) experience-based correction (−/+) Other effects Benefit payments (incl. tax payments) Contributions from plan participants Change in consolidation group / transfers Reclassifications in accordance with IFRS 5 Currency effects As of end of period 1,342 1,251 55 30 25 0 0 −39 −4 −20 −15 −107 −59 11 0 −55 −4 1,251 50 29 21 0 0 251 10 237 4 −36 −48 9 1 0 2 1,516 Changes in parameters on the basis of actuarial calculations led to a total increase in the present value of defined benefit obligations by €247 million (2017/18: €−24 million). Most of the effects result from the reduction of the applied invoice rates. The weighted average term of defined benefit commitments for the countries with material pension obligations amounts to: Years Germany Netherlands United Kingdom Belgium Other countries 30/9/2018 30/9/2019 16 22 18 4 11 16 24 18 6 11 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 244 The present value of defined benefit obligations can be broken down as follows based on individual groups of eligible employees: % Active members Former claimants Pensioners 30/9/2018 30/9/2019 32 38 30 34 38 28 The granting of defined benefit pension entitlements exposes METRO to various risks. These include general actuarial risks resulting from the measurement of pension commitments (for example, interest rate risks) as well as capital and investment risks related to plan assets. With a view to the funding of future pension payments from indirect commitments and a stable actuarial reserve, METRO primarily invests plan assets in low-risk investment forms. The funding of direct pension commitments is secured through operating cash flow at METRO. The fair value of plan assets by asset category can be broken down as follows: Fixed-interest securities Shares, funds Real estate Other assets 30/9/2018 30/9/2019 % 36 26 4 34 100 € million 337 247 36 320 940 % 38 25 5 32 € million 407 264 50 345 100 1,066 Fixed-interest securities, shares and funds are regularly traded in active markets. As a result, the relevant market prices are available. The asset category ‘fixed-interest securities’ only includes investments in investment grade corporate bonds, government bonds and mortgage-backed bonds (Investment Grade). Risk within the category shares, funds is minimised through geographic diversification. The majority of real estate assets are invested in real estate funds. Other assets essentially comprise receivables from first-class insurance companies in Germany, Belgium and the United Kingdom. The actual return on plan assets amounted to €125 million in the reporting period (2017/ 18: €45 million). For financial year 2019/20, the company expects employer payments to external pension providers totalling approximately €18 million and employee contributions of €9 million in plan assets, with contributions in the Netherlands, Belgium and Germany accounting for the major share of this total. Expected contributions from payment contribution commitments in Germany are not included in expected payments. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 245 The fair value of plan assets developed as follows: € million Change in plan assets Fair value of plan assets as of beginning of period Recognised under Interest income Recognised outside of profit or loss under ‘remeasurement of defined benefit pension plans’ in other comprehensive income Gains/losses from plan assets excl. interest income (+/−) Other effects Benefit payments (incl. tax payments) Settlement payments Employer contributions Contributions from plan participants Change in consolidation group / transfers Reclassification in accordance with IFRS 5 Currency effects Fair value of plan assets as of end of period € million Financing status Present value of defined benefit obligations less the fair value of plan assets Asset adjustment (asset ceiling) Net liability / assets thereof recognised under provisions thereof recognised under net assets 2017/18 2018/19 905 21 21 24 24 −10 −34 −6 35 11 0 −16 0 940 940 23 23 102 102 0 −27 0 18 9 0 0 1 1,066 30/9/2018 30/9/2019 1,251 940 115 427 (427) (0) 1,516 1,066 59 509 (509) (0) At one Dutch company, plan assets exceeded the value of commitments as of the closing date. Since the company cannot draw any economic benefits from this overfunding, the balance sheet amount was reduced to €0 in line with IAS 19.64 (b). The change in the effect of the asset ceiling in the amount of €58 million (2017/18: €−46 million) was largely recognised in other comprehensive income as a loss from remeasuring. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 246 The pension expenses of the direct and indirect company pension plan commitments can be broken down as follows: € million Current service cost1 Net interest expenses2 Past service cost (incl. curtailments and changes) Settlements Other pension expenses Pension expenses 1 Netted against employees’ contributions. 2 Included therein: Interest effect from the adjustment of the asset ceiling. 2017/18 2018/19 24 11 0 0 1 36 21 9 0 0 1 31 The entire loss to be recognised outside of profit or loss in the other comprehensive income amounts to €90 million in financial year 2018/19. This figure is comprised of the effect from the change in actuarial parameters in the amount of €+247 million and the experience-based adjustments of €+4 million. It was offset by income from plan assets of €103 million and a gain of €58 million resulting from the change in the effect of the asset ceiling in the Netherlands. In addition to expenses from defined benefit commitments, expenses for payments to external pension providers relating to defined contribution pension commitments of €82 million in financial year 2018/19 (2017/18: €82 million) were recorded. These figures also include payments to statutory pension insurance. The provisions for obligations similar to pensions essentially comprise commitments from employment anniversary allowances, death benefits and partial retirement plans. Provisions amounting to €34 million (30/9/2018: €41 million) were allocated for these commitments. The commitments are valued on the basis of actuarial expert opinions. The valuation parameters used for this purpose are generally determined in the same way as for the company pension plan. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 247 33. Other provisions (non-current) / provisions (current) In the reporting period, other provisions (non-current)/provisions (current) changed as follows: € million As of 1/10/2018 Transfer due to IFRS 15 Currency translation Addition Reversal Utilisation Change in consolidation group Interest portion of the addition/change in interest rate Reclassification in accordance with IFRS 5 Transfer As of 30/9/2019 thereof non-current thereof short-term Real estate- related obligations Obligations from trade transactions Restructuring Taxes Miscellaneous 135 0 2 22 −10 −19 0 1 −42 −8 79 (46) (33) 21 −3 0 27 0 42 0 0 15 −8 −23 −22 0 0 0 7 30 (0) (30) 0 0 −1 0 26 (3) (23) 14 0 0 9 −4 −4 0 0 0 2 18 (11) (7) 187 0 1 110 −31 −83 0 1 −37 −1 148 (72) (76) Total 399 −3 4 183 −54 −151 0 2 −80 −1 300 (132) (168) Provisions for real estate-related obligations primarily concern deficient rental covers in the amount of €24 million (30/9/2018: €34 million), dismantling and removing obligations amounting to €22 million (30/9/2018: €20 million), reinstatement obligations amounting to €15 million (30/9/2018: €24 million), store-related risks in the amount of €9 million (30/9/ 2018: €15 million) as well as rental commitments amounting to €7 million (30/9/2018: €40 million). The most significant component of provisions for obligations from trade transactions are risks from subsequent charges to suppliers. Supplementary components are provisions for warranties amounting to €1 million (30/9/ 2018: €1 million). Other provisions primarily relate to provisions for litigation costs/risks in the amount of €48 million (30/9/2018: €49 million), the provisions for long-term remuneration in the amount of €18 million (30/9/2018: €36 million) and provisions for guarantee and warranty risks amounting to €18 million (30/9/2018: €23 million). The previous year’s figures for other provisions include €71 million attributable to METRO China. For more information about the long-term remuneration components, see no. 50 – long-term incentive for executives page 284 . Depending on the respective term and country, interest rates for non-interest-bearing, non- current provisions range from 0.00% to 5.32%. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 248 34. Liabilities € million Remaining term Remaining term 30/9/ 2018 Total up to 1 year 1 to 5 years over 5 years 30/9/ 2019 Total up to 1 year 1 to 5 years over 5 years Trade liabilities 3,993 3,993 0 0 3,572 3,572 0 0 Bonds incl. commercial papers 2,920 1,026 1,195 699 2,301 Liabilities to banks Promissory note loans Liabilities from finance leases 383 55 652 318 1 74 65 54 213 0 0 365 359 55 653 Financial liabilities 4,010 1,420 1,526 1,063 3,369 Payroll liabilities 450 449 Liabilities from other financial transactions Miscellaneous other financial liabilities Other financial liabilities Prepayments received on orders Contract liabilities Deferred income Other tax liabilities Miscellaneous other liabilities Other liabilities Income tax liabilities 6 6 345 801 32 0 170 195 61 459 191 289 744 32 0 124 195 41 392 191 0 0 4 4 0 0 12 0 4 16 0 0 0 52 52 0 0 34 0 16 50 0 531 279 1 60 871 472 472 14 14 299 784 0 35 57 158 54 305 169 243 728 0 35 11 158 28 233 169 1,122 648 80 54 259 1,515 0 0 8 8 0 0 12 0 5 17 0 0 0 335 983 0 0 48 48 0 0 34 0 21 55 0 9,454 6,741 1,547 1,166 8,199 5,574 1,540 1,085 35. Trade liabilities Trade liabilities declined by €421 million, from €3,993 million to €3,572 million. The previous year’s figures include €490 million attributable to METRO China. Currency effects increased trade payables by €52 million, which mainly resulted from the Russian rouble (€23 million), the Turkish lira (€18 million) and the Ukrainian hryvnia (€14 million). The increase after currency effects amounts to €17 million and is predominantly attributable to modified payment terms and increased purchasing volumes in a number of different countries. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 249 36. Financial liabilities The company’s medium-term and long-term financing needs are covered by an ongoing capital market bond programme with a maximum volume of €5 billion. On 1 March 2019, a due bond of €500 million was repaid with a coupon of 3.375% and was not refinanced through the bond issuance programme. As of 30 September 2019, the utilised bond issuance programme amounted to a total of €1,901 million. Short-term financing requirements are covered through the Euro Commercial Paper Programme with a maximum volume of €2 billion. On average, the programme was used at €785 million during the reporting period. As of 30 September 2019, the utilisation amounted to €387 million (30/9/2018: €497 million). In addition, METRO has access to syndicated credit facilities totalling €1,750 million (30/ 9/2018: €1,750 million) with terms ending between 2021 and 2024. If the credit facilities are used, the interest rates range between EURIBOR +50.0 basis points (BP) and EURIBOR +55.0 BP. As was the case in the previous year, the credit facilities were not utilised in financial year 2018/19. The contract terms for the syndicated credit facilities provide for a decrease of 10 BP in the spread if METRO’s credit rating is raised by one grade. In the event of a downgrade in METRO’s rating, the margins increase by 25 BP. As of 30 September 2019, METRO had access to additional bilateral bank credit facilities totalling €609 million (30/9/2018: €633 million), of which €279 million (30/9/2018: €318 million) had a remaining term of up to one year. As of the closing date, €359 million (30/9/2018: €383 million) of the bilateral credit facilities had been utilised. Of this amount, €279 million (30/9/2018: €318 million) had a remaining term of up to one year. As of the closing date, there were €250 million of free multi-year bilateral credit facilities available. UNDRAWN CREDIT FACILITIES BY METRO 30/9/2018 30/9/2019 Remaining term Remaining term € million Total up to 1 year over 1 year Total up to 1 year over 1 year Bilateral credit facilities Utilisation Undrawn bilateral credit facilities Syndicated credit facilities Utilisation Undrawn syndicated credit facilities Total credit facilities Total utilisation Total undrawn credit facilities 633 −383 250 1,750 0 1,750 2,383 −383 2,000 318 −318 0 0 0 0 318 −318 0 315 −65 250 1,750 0 1,750 2,065 −65 609 −359 250 1,750 0 1,750 2,359 −359 2,000 2,000 279 −279 0 0 0 0 279 −279 0 330 −80 250 1,750 0 1,750 2,080 −80 2,000 Default by a lender can be covered at any time by the existing undrawn credit facilities or the available money and capital market programmes. METRO therefore does not bear any creditor default risk. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 250 METRO principally does not provide collateral for financial liabilities. One exception concerns the first-time consolidation of METRO PROPERTIES GmbH & Co. KG as well as its subsidiaries in 2003. As of 30 September 2019, collateral securities in the amount of €11 million (30/9/2018: €13 million) was provided for financial liabilities. The following tables show the maturity structure of the financial liabilities. The carrying amounts and fair values indicated include the interest accrued when the maturity is less than one year. BONDS INCL. COMMERCIAL PAPERS Currency EUR 30.9.2018 30/9/2019 Nominal values Nominal values Carrying amounts Fair values Nominal values Nominal values Carrying amounts Fair values Remaining term in million currency € million € million € million in million currency € million € million € million up to 1 year 1 to 5 years over 5 years 997 997 1,026 1,200 1,200 1,195 701 701 699 – – – 512 512 531 1,126 1,126 1,122 650 650 648 – – – 2,898 2,898 2,920 2,925 2,288 2,288 2,301 2,375 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 251 LIABILITIES TO BANKS (excl. current account) Currency EUR INR JPY MMK UAH 30/9/2018 30/9/2019 Nominal values Nominal values Carrying amounts Fair values Nominal values Nominal values Carrying amounts Fair values Remaining term in million currency € million € million € million in million currency € million € million € million up to 1 year 1 to 5 years over 5 years up to 1 year 1 to 5 years over 5 years up to 1 year 1 to 5 years over 5 years up to 1 year 1 to 5 years over 5 years up to 1 year 1 to 5 years over 5 years 201 201 202 16 0 16 0 16 0 – – – 183 183 184 12 0 12 0 12 0 – – – 217 217 218 218 195 195 196 197 1,150 2,700 0 3,850 970 2,225 0 3,195 14,530 0 0 14,530 950 0 0 950 14 32 0 46 7 17 0 24 8 0 0 8 29 0 0 29 14 32 0 46 7 17 0 24 8 0 0 8 29 0 0 29 – – – 0 2,700 0 47 2,700 – – – 625 1,600 0 25 2,225 – – – 8 – – – 8,300 30,580 0 38,880 260 0 0 29 260 0 35 0 35 5 14 0 19 5 18 0 23 10 0 0 10 0 35 0 35 5 14 0 19 5 18 0 23 10 0 0 10 – – – 35 – – – 19 – – – 30 – – – 10 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 252 PROMISSORY NOTE LOANS Currency EUR 30/9/2018 30/9/2019 Nominal values Nominal values Carrying amounts Fair values Nominal values Nominal values Carrying amounts Fair values Remaining term in million currency € million € million € million in million currency € million € million € million up to 1 year 1 to 5 years over 5 years 0 54 0 54 0 54 0 54 1 54 0 55 – – – 61 0 54 0 54 0 54 0 54 1 54 0 55 – – – 61 Redeemable loans that are reported under liabilities to banks are listed with the remaining terms corresponding to their redemption date. The following tables show the interest rate structure of the financial liabilities: BONDS INCL. COMMERCIAL PAPERS Interest terms Fixed interest Currency Remaining term EUR up to 1 year 1 to 5 years over 5 years Variable interest EUR up to 1 year 1 to 5 years over 5 years 30/9/2018 30/9/2019 Nominal values € million Nominal values € million 500 1,200 701 497 0 0 125 1,126 650 387 0 0 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 253 LIABILITIES TO BANKS (excl. current account) Interest terms Fixed interest Currency Remaining term 30/9/2018 30/9/2019 Nominal values € million Nominal values € million EUR up to 1 year 201 183 1 to 5 years over 5 years INR up to 1 year 1 to 5 years over 5 years MMK up to 1 year 1 to 5 years over 5 years UAH up to 1 year 1 to 5 years over 5 years Variable interest JPY up to 1 year 1 to 5 years over 5 years PROMISSORY NOTE LOANS Interest terms Fixed interest Currency Remaining term EUR up to 1 year 1 to 5 years over 5 years Variable interest EUR up to 1 year 1 to 5 years over 5 years 16 0 14 32 0 8 0 0 29 0 0 7 17 0 12 0 0 35 0 5 18 0 10 0 0 5 14 0 30/9/2018 30/9/2019 Nominal values € million Nominal values € million 0 54 0 0 0 0 0 54 0 0 0 0 The fixed interest rate on short- and medium-term financial liabilities and the interest rate adjustment dates of all fixed-interest financial liabilities are essentially the same as those shown. The repricing dates for variable interest rates are less than one year. The effects of interest rate changes in the variable share of financial liabilities on profit or loss for the period and the equity of METRO are described in detail in no. 44 – management of financial risks page 274 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 254 37. Other financial and other non-financial liabilities Key items in the remaining miscellaneous other financial liabilities concern liabilities from the acquisition of non-current assets of €100 million (30/9/2018: €137 million), liabilities from put options of non-controlling shareholders in the amount of €50 million (30/9/2018: €64 million), liabilities to customers of €49 million (30/9/2018: €44 million) as well as liabilities from real estate totalling €4 million (30/9/2018: €5 million). In addition, the remaining miscellaneous other financial liabilities also include numerous other individual items. The previous year’s figures for other financial liabilities include €46 million attributable to METRO China. Other tax liabilities include sales tax, land tax, wage and church tax as well as other taxes. Deferred income includes accrued rental, leasing and interest income. The previous year included deferred sales from customer loyalty programmes and the sale of vouchers as well as other deferred items. Contract liabilities are periodic accruals for sales to customers and mainly comprise accruals for advance payments on orders and own customer loyalty programmes. Net sales realised in the reporting period from contract liabilities existing at the beginning of the period amounted to €27 million. Significant items in miscellaneous other non-financial liabilities are leases (no finance leases) totalling €27 million (30/9/2018: €21 million). The previous year’s figures for other non-financial liabilities include €137 million attributable to METRO China. € million Payroll liabilities Miscellaneous other financial liabilities Other financial liabilities Other tax liabilities Deferred income Contract liabilities Miscellaneous other non- financial liabilities Other non-financial liabilities 30/9/2018 30/9/2019 Remaining term Remaining term Total up to 1 year over 1 year Total up to 1 year over 1 year 450 449 351 801 195 170 0 93 459 295 744 195 124 0 73 392 0 56 56 0 47 0 20 67 472 313 784 158 57 35 54 305 472 257 728 158 11 35 28 233 0 56 56 0 45 0 26 71 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 255 38. Offsetting financial assets and financial liabilities Financial assets and financial liabilities that are subject to offsetting agreements, enforceable master netting arrangements and similar agreements, were as follows: 30/9/2018 (a) (b) (c) = (a) − (b) (d) (e) = (c) − (d) Gross amounts of recognised financial liabilities/ assets that are netted in the balance sheet Net amounts of financial assets/ liabilities that are shown in the balance sheet Gross amounts of recognised financial assets/ liabilities Corresponding amounts that are not netted in the balance sheet Financial instruments Received/ provided collateral Net amount 521 11 532 4,186 5 4,191 193 0 193 193 0 193 328 11 339 3,993 5 3,998 46 1 46 46 1 46 0 0 0 0 0 0 282 10 293 3,948 4 3,952 € million Financial assets Receivables due from suppliers Derivative financial instruments Financial liabilities Trade liabilities Derivative financial instruments M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 256 30/9/2019 (a) (b) (c) = (a) − (b) (d) (e) = (c) − (d) Gross amounts of recognised financial liabilities/ assets that are netted in the balance sheet Net amounts of financial assets/ liabilities that are shown in the balance sheet Gross amounts of recognised financial assets/ liabilities Corresponding amounts that are not netted in the balance sheet Financial instruments Received/ provided collateral Net amount 462 14 477 3,719 12 3,730 146 0 146 146 0 146 316 14 330 3,572 12 3,584 36 1 37 36 1 37 0 0 0 0 0 0 280 13 294 3,536 11 3,547 € million Financial assets Receivables due from suppliers Derivative financial instruments Financial liabilities Trade liabilities Derivative financial instruments The amounts that are not netted in the balance sheet include both financial instruments and collateral. The financial instruments that have not been netted could be netted based on the underlying framework agreements, but do not fulfil the netting criteria of IAS 32 (Financial Instruments: Presentation). For more information about collateral, see no. 44 – management of financial risks page 274 . M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 257 39. Undiscounted cash flows of financial liabilities The undiscounted cash flows of financial liabilities, trade liabilities and derivative liabilities are as follows: Carrying amount 30/9/ 2018 € million Financial liabilities Cash flows up to 1 year Cash flows of 1 to 5 years Cash flows over 5 years Interest Redemption Interest Redemption Interest Redemption Bonds incl. commercial papers 2,920 Liabilities to banks Promissory note loans Finance leases Trade liabilities Other financial liabilities Interest-based derivatives carried as liabilities Currency derivatives carried as liabilities Commodity derivatives carried as liabilities 383 55 652 3,993 801 0 5 0 50 1 2 52 0 0 0 0 0 997 317 0 74 3,993 744 0 5 0 109 2 7 161 0 0 0 0 0 1,200 65 54 213 0 4 0 0 0 28 0 0 153 0 0 0 0 0 701 0 0 365 0 52 0 0 0 Carrying amount 30/9/ 2019 € million Financial liabilities Cash flows up to 1 year Cash flows of 1 to 5 years Cash flows over 5 years Interest Redemption Interest Redemption Interest Redemption Bonds incl. commercial papers 2,301 Liabilities to banks Promissory note loans Finance leases Trade liabilities Other financial liabilities Interest-based derivatives carried as liabilities Currency derivatives carried as liabilities Commodity derivatives carried as liabilities 359 55 653 3,572 784 0 12 0 34 1 2 52 0 0 0 0 0 512 278 0 60 3,572 728 0 12 0 89 1 5 160 0 0 0 0 0 1,126 79 54 15 0 0 259 193 0 8 0 0 0 0 0 0 0 0 650 0 0 335 0 48 0 0 0 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 258 40. Carrying amounts and fair values according to measurement categories The carrying amounts and fair values of recognised financial instruments are as follows: 30/9/2018 Balance sheet value Carrying amount (Amortised) cost Fair value through profit or loss Fair value outside of profit or loss Fair value € million Assets Loans and receivables Loans Receivables due from suppliers Trade receivables Miscellaneous financial instruments Held to maturity Miscellaneous financial assets Held for trading Derivative financial instruments not in a hedging relationship according to IAS 39 Available for sale Investments Securities Derivative financial instruments in a hedging relationship according to IAS 39 15,206 1,170 33 328 571 238 0 0 7 7 49 48 1 4 n/a 1,170 33 328 571 238 0 0 0 0 2 2 0 0 Cash and cash equivalents 1,298 1,298 Receivables from finance leases (amount according to IAS 17) Assets not classified according to IFRS 7 Equity and liabilities Held for trading Derivative financial instruments not in a hedging relationship according to IAS 39 29 12,648 15,206 4 4 n/a n/a n/a 0 0 Other financial liabilities 8,148 8,148 Borrowings excl. finance leases (incl. hedged items in hedging relationships according to IAS 39) Trade liabilities Miscellaneous financial liabilities Derivative financial instruments in a hedging relationship according to IAS 39 Liabilities from finance leases (amount according to IAS 17) Equity and liabilities not classified according to IFRS 7 3,359 3,993 796 1 652 6,402 3,359 3,993 796 0 n/a n/a M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 n/a n/a 0 0 0 0 0 0 0 7 7 0 0 0 0 0 n/a n/a n/a 4 4 0 0 0 0 0 n/a n/a 0 0 0 0 0 0 0 0 0 47 46 1 4 0 n/a n/a n/a 0 0 0 0 0 0 1 n/a n/a n/a 1,177 32 328 571 246 0 0 7 7 n/a n/a 1 4 1,298 37 n/a n/a 4 4 8,161 3,372 3,993 796 1 854 n/a N O T E S N O T E S T O T H E B A L A N C E S H E E T 259 30/9/2019 Balance sheet value Fair value re- cognised in equity without reclassifi- cation Fair value through profit or loss Fair value recognised in equity with re- classifi- cation Fair value Carrying amount (Amortised) cost 14,497 n/a n/a n/a n/a n/a € million Assets Financial instruments measured at amortised cost 1,108 1,108 Loans Receivables due from suppliers Trade receivables Miscellaneous financial instruments Financial instruments measured at fair value through profit or loss Investments Derivative financial instruments not in a hedging relationship according to IAS 39 Securities Loans Financial instruments measured at fair value through other comprehensive income Investments Securities Derivative financial instruments in a hedging relationship according to IAS 39 28 316 482 282 78 62 9 4 4 3 3 0 5 28 316 482 282 0 0 0 0 0 0 0 0 0 Cash and cash equivalents 500 500 Receivables from finance leases (amount according to IAS 17) Assets not classified according to IFRS 7 Equity and liabilities Financial instruments measured at fair value through profit or loss Derivative financial instruments not in a hedging relationship according to IAS 39 28 12,775 14,497 11 11 n/a n/a n/a 0 0 Financial instruments measured at amortised cost 7,060 7,7060 Borrowings excl. finance leases (incl. hedged items in hedging relationships according to IAS 39) Trade liabilities Miscellaneous financial liabilities Derivative financial instruments in a hedging relationship according to IAS 39 Liabilities from finance leases (amount according to IAS 17) Equity and liabilities not classified according to IFRS 7 2,715 3,572 772 1 653 6,727 2,715 3,572 772 0 n/a n/a 0 0 0 0 0 78 62 9 4 4 0 0 0 0 0 n/a n/a n/a 11 11 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 0 n/a n/a n/a n/a n/a n/a 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1,117 28 316 482 290 78 62 9 4 4 3 3 0 5 500 35 n/a n/a 11 11 7,153 2,804 3,572 777 1 n/a n/a n/a n/a n/a 849 n/a n/a M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 260 Classes were formed based on similar risks for the respective financial instruments and correspond to the categories of IFRS 9. Derivative financial instruments in a hedging relationship under IAS 39 and other financial liabilities are classified in each case to a separate class. The fair value hierarchy comprises 3 levels which reflect the degree of closeness to the market of the input parameters used in the determination of the fair values. In cases in which the measurement is based on different input parameters, the fair value is attributed to the hierarchy level corresponding to the input parameter of the lowest level that is significant for the valuation. Input parameters for level 1: quoted prices (that are adopted unchanged) in active markets for identical assets or liabilities which the company can access at the valuation date. Input parameters for level 2: other input parameters than the quoted prices included in level 1 which are either directly or indirectly observable for the asset or liability. Input parameters for level 3: input parameters that are not observable for the asset or liability. Of the total carrying amount of investments of €66 million (30/9/2018: €48 million), €62 million (30/9/2018: €2 million) is recognised through profit or loss. This concerns off- exchange financial instruments for which there is also no active market. The remaining investments amounting to €3 million (30/9/2018: €46 million) are recognised at fair value in equity. The classification (FVOCInR) was chosen because investments were made in these equity instruments with a longer-term investment horizon. In addition, securities totalling €4 million (30/9/2018: €1 million) are recognised through profit or loss. These primarily concern highly liquid exchange-listed money market funds. The following table depicts the financial instruments that are recognised at fair value in the balance sheet. These are classified into a 3-level fair value hierarchy whose levels reflect the degree of closeness to the market of the data used in the determination of the fair values: M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 261 Total 58 7 46 1 4 5 4 0 0 1 53 30/9/2018 Level 1 Level 2 Level 3 1 0 0 1 0 0 0 0 0 0 1 57 7 46 0 4 5 4 0 0 1 52 0 0 0 0 0 0 0 0 0 0 0 30/9/2019 Total Level 1 Level 2 Level 3 87 62 4 4 9 5 3 12 11 0 1 75 0 0 0 0 0 0 0 0 0 0 0 0 87 62 4 4 9 5 3 12 11 0 1 75 0 0 0 0 0 0 0 0 0 0 0 0 € million Assets Held for trading Derivative financial instruments not in a hedging relationship according to IAS 39 Available for sale Investments Securities Derivative financial instruments in a hedging relationship according to IAS 39 Equity and liabilities Held for trading Derivative financial instruments not in a hedging relationship according to IAS 39 Miscellaneous financial liabilities Other financial liabilities Miscellaneous financial liabilities Derivative financial instruments in a hedging relationship according to IAS 39 € million Assets Financial assets measured at fair value through profit or loss Investments Loans Securities Derivative financial instruments not in a hedging relationship according to IFRS 9 Derivative financial instruments in a hedging relationship according to IAS 39 Financial assets measured at fair value through other comprehensive income Investments Equity and liabilities Financial liabilities measured at fair value through profit or loss Derivative financial instruments not in a hedging relationship according to IFRS 9 Miscellaneous financial liabilities Derivative financial instruments in a hedging relationship according to IAS 39 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S N O T E S T O T H E B A L A N C E S H E E T 262 The measurement of securities (level 1) is carried out based on quoted market prices in active markets. Interest rate swaps and currency transactions (all level 2) are measured using the mark- to-market method based on quoted exchange rates and market yield curves. The measurement of investments (all stage 2) is based on comparable transactions in the past. No transfers between levels 1 and 2 were effected during the reporting period. Financial instruments that are recognised at amortised cost in the balance sheet, but for which the fair value is stated in the notes, are also classified according to a 3-level fair value hierarchy. Due to their mostly short terms, the fair values of receivables due from suppliers, trade receivables and liabilities as well as cash and cash equivalents essentially correspond to their carrying amounts. The measurement of the fair value of bonds, liabilities to banks and promissory note loans is based on the market interest rate curve following the discounted cash flow method in consideration of credit spreads (level 2). The amounts comprise the interest prorated to the closing date. The fair values of all other financial assets and liabilities that are not listed on an exchange correspond to the present value of payments underlying these balance sheet items. The calculation was based on the applicable country-specific yield curve (level 2) as of the closing date. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 263 OTHER NOTES 41. Notes to the cash flow statement In accordance with IAS 7 (Statement of Cash Flows), the consolidated cash flow statement describes changes in the group’s cash and cash equivalents through cash inflows and outflows during the reporting period. The item cash and cash equivalents includes cheques and cash on hand as well as cash in transit and bank deposits with a remaining term of up to 3 months. The cash flow statement distinguishes between changes in cash levels from operating, investing and financing activities. Cash flows from discontinued operations are reported separately where they concern discontinued business sectors. Cash flows from discontinued operations concern the hypermarket business to be disposed of as well as METRO China. The following explanations relate to continuing operations. During the reporting period, cash flows from operating activities amounted to €796 million (2017/18: €766 million). Depreciation/amortisation/impairment losses are attributable to property, plant and equipment at €416 million (2017/18: €410 million), other intangible assets at €113 million (2017/18: €92 million), goodwill at €3 million (2017/18: €0 million) and investment properties at €4 million (2017/18: €6 million). This is contrasted by reversals of impairment losses in the amount of €5 million (2017/18: €4 million). The change in net working capital amounts to €+27 million (2017/18: €+141 million) and includes changes in inventories, trade receivables and receivables due from suppliers, included in the item ‘other financial assets’. Furthermore, it includes changes in trade liabilities. The decline in the cash flow from changes in the net working capital is predominantly attributable to the segments METRO Germany and METRO Western Europe (excluding Germany). Other operating activities resulted in a total cash inflow of €28 million (2017/18: cash outflow of €59 million). This item includes other taxes, payroll liabilities, changes in other assets and liabilities as well as deferred income and prepaid expenses. In addition, it includes changes in the assets and liabilities held for sale, adjustments of unrealised currency effects and the reclassification of deconsolidation results recognised in EBIT. In the reporting period, investing activities led to cash inflow in the amount of €46 million (2017/18: cash outflow of €292 million). The amount of investments in property, plant and equipment shown as cash outflows differs from the additions shown in the asset reconciliation in the amount of non-cash transactions. These essentially concern additions from finance leases, currency effects and changes in liabilities from the acquisition of miscellaneous other assets. The financial investments comprise bank deposits with a residual term of more than 3 months to 1 year, as well as near money market investments that are not classified as cash and cash equivalents, such as shares in money market funds. The balance of capital expenditure in financial investments and the disposal of financial investments amounts to €−2 million (2017/18: €−1 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 264 In the reporting period, cash flow from financing activities totalled €1,122 million (2017/ 18: cash outflow of €587 million). Cash and cash equivalents were subject to restrictions on title in the amount of €0 million (2017/18: €1 million). RECONCILIATION OF THE CASH FLOW FROM FINANCIAL LIABILITIES TO THE CHANGE IN FINANCIAL LIABILITIES REPORTED IN THE BALANCE SHEET € million 30/9/2017 Cash item Bonds incl. commercial papers 3,229 −309 Liabilities to banks Promissory note loans Liabilities from finance leases 281 64 1,132 4,706 188 −9 −128 −259 Additions to finance leases Reclassification in accordance with IFRS 5 Exchange rate movements 30/9/2018 0 0 0 145 145 0 −65 0 −493 −558 0 −20 0 −4 −25 2,920 383 55 652 4,010 RECONCILIATION OF THE CASH FLOW FROM FINANCIAL LIABILITIES TO THE CHANGE IN FINANCIAL LIABILITIES REPORTED IN THE BALANCE SHEET € million 30/9/2018 Cash item Additions to finance leases Reclassification in accordance with IFRS 5 Exchange rate movements 30/9/2019 Bonds incl. commercial papers 2,920 Liabilities to banks Promissory note loans Liabilities from finance leases 383 55 652 4,010 −619 −30 0 −68 −717 0 0 0 70 70 0 0 0 0 0 0 5 0 0 6 2,301 359 55 653 3,369 42. Segment reporting Segmentation follows the group’s internal reporting as it is used as a basis for resource allocation and performance measurement by the Chief Operating Decision Maker (member of the Management Board of METRO AG). METRO is active in the self-service wholesale trade with the brands METRO and MAKRO as well as in the delivery sales (FSD) with the METRO delivery service and, among others, with the supply specialists Classic Fine Foods, Pro à Pro and Rungis Express. Operating segments are aggregated to form reporting segments based on the division of the business into individual regions. The individual regions are Germany, Western Europe (excluding Germany), Russia, Eastern Europe (excluding Russia) and Asia. The Others segment includes in particular Hospitality Digital, the business unit that bundles the group’s digitalisation initiatives. It also includes service companies METRO PROPERTIES, METRO LOGISTICS, METRO-NOM, METRO ADVERTISING and METRO SOURCING and others, which provide group-wide services in the areas of real estate, logistics, information technology, advertising and procurement. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 265 Based on the decision of the Management Board of METRO AG of the hypermarket business and METRO China, these operating reporting units form discontinued business sectors, which are also presented as discontinued operations in the segment reporting. The key components of segment reporting are as follows: External sales represent sales of the operating segments to third parties outside the group. Internal sales represent sales between the group’s operating segments. These transactions are settled at normal market conditions. Segment EBITDA comprises EBIT before depreciation and reversals of goodwill, impairment losses of property, plant and equipment, other intangible assets and investment properties. The earnings contributions from real estate transactions include the EBITDA-effective earnings from the disposal of land and land usage rights and/or buildings as part of a disposal transaction. Earnings from the disposal of dedicated real estate companies or the disposal of shares in such companies capitalised at-equity are, as a result of their commercial substance, also included in the earnings contributions from real estate transactions. The earnings have been reduced by cost components incurred in relation to real estate transactions. All earnings contributions from real estate transactions are adjusted in the EBITDA excluding earnings contributions from real estate transactions. EBIT is the key ratio for segment reporting and describes operating earnings for the period before net financial result and income taxes. Intra-group rental contracts are shown as operating leases in the segments. The rental takes place at normal market conditions. The properties are leased at market terms. In principle, store-related risks and impairment risks related to non-current assets are only shown in the segments where they represent group risks. In analogy, this also applies to deferred assets and liabilities, which are only shown at segment level if this was also required in the consolidated balance sheet. Segment investments include additions (including additions to the consolidation groups) to goodwill, other intangible assets and property, plant and equipment and investment properties. Exceptions to this are additions due to the reclassification of ‘assets held for sale’ as non-current assets. The non-current segment assets include the non-current assets reported in the balance sheet with the exception of financial investments and investments accounted for using the equity method, and tax items. In principle, transfers between segments are made based on the costs incurred from the group’s perspective. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 266 The reconciliation from non-current segment assets to non-current group assets is shown in the following table: non-current assets according to segment reporting only include the values of continuing operations in the previous year. Therefore, the non-current assets of METRO China must be taken into account in the previous year and are therefore part of the reconciliation: € million Non-current segment assets plus non-current segment assets METRO China Financial assets Investments accounted for using the equity method Deferred tax assets Other Non-current group assets 1 Adjustment of previous year according to explanation in notes. 43. Discontinued operations 30/9/20181 30/9/2019 6,348 6,268 560 88 178 329 1 0 97 179 191 1 7,503 6,736 Disposal of the hypermarket business The Management Board of METRO AG decided in its meeting on 13 September 2018 to sell the hypermarket business including 80 real estate properties that are being used for this and are owned by Real or group companies The decision was made with the intention to focus exclusively on wholesale trade in the future. In addition to all Real locations, the hypermarket business also includes companies providing procurement and online services for Real as well as real estate and a supplier. Together, the assets and liabilities have been treated as discontinued operations within the meaning of IFRS 5 since September 2018. In view of the progress of the divestment process and the expected completion of the sale in the near future, the hypermarket business as of 30 September 2019 will continue to be classified as a discontinued operation until its deconsolidation. Profit or loss for the period after taxes The current result of the hypermarket business, together with all related consolidation entries recognised in the income statement, was shown in a separate section in the consolidated income statement as ‘profit or loss for the period from discontinued operations after taxes’. To increase the economic meaningfulness of the earnings statement of the continued sector, its shares in the consolidation effects were also included in the discontinuing section of the earnings statement as far as they were related to business relations that are to be upheld in the long term even after the planned disposal. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 267 The fair value measurement of the hypermarket business disposal group was based on an analysis of the available purchase offers, taking into account an estimate of the expected negotiation results and the development of the disposal group up to the date of disposal, in particular with regard to a purchase price mechanism that still needs to be negotiated. Since the influencing factors cannot be observed on an active market and are subject to uncertainties, the valuation in the fair value hierarchy is assigned to level 3. A detailed description of the fair value is included in no. 40 – carrying amounts and fair values according to measurement categories page 258 . Profit or loss for the period from discontinued operations after taxes is attributable to the shareholders of METRO AG in the amount of €−649 million (2017/18: €−110 million). Non- controlling interests account for €1 million of earnings (2017/18: €0 million). In connection with the divestment process, expenses in the low 2-digit million euros range have been incurred to date. As a result, profit or loss for the period from discontinued operations after taxes for the hypermarket business is made up as follows: € million Sales Expenses Current earnings from discontinued operations before taxes Income taxes on gains/losses on the current result Current earnings from discontinued operations after taxes Gains/losses from the remeasurement or disposal of discontinued operations before taxes Gains/losses from the remeasurement or disposal of discontinued operations after taxes Profit or loss for the period from discontinued operations after taxes 2017/18 6,803 −6,918 −115 5 −110 0 0 −110 2018/19 6,704 −6,889 −185 −63 −248 −401 −401 −649 Effects of other comprehensive income Of the other comprehensive income for financial year 2018/19 attributable to the shareholders of METRO AG, €−8 million (2017/18: €−1 million) is attributable to the discontinued operations of the hypermarket business. This includes components that can be recognised as income in the future, €0 million (2017/18: €0 million), and components that can not be recognised as income in the future, €−8 million (2017/18: €−1 million) Assets/liabilites held for sale As a result of the classification as discontinued operation and after consolidation measures were carried out, €2,206 million (30/9/2018: €2,580 million) was reclassified in the consolidated balance sheet as of 30 September 2019 into the item assets held for sale and €1,745 million (30/9/2018: €1,691 million) into the item liabilities related to assets held for sale. The respective asset and liability items to be consolidated were recognised in the corresponding balance sheet items of both the continued and the discontinuing segment. As of the end of the financial year, the assets held for disposal and the liabilities of the hypermarket business to be disposed of are comprised as follows: M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 268 ASSETS € million Non-current assets Other intangible assets Property, plant and equipment Investment properties Financial assets Other financial assets Other non-financial assets Deferred tax assets Current assets Inventories Trade receivables Financial assets Other financial assets Other non-financial assets Cash and cash equivalents LIABILITIES € million Non-current liabilities Provisions for post-employment benefits plans and similar obligations Other provisions Financial liabilities Other financial liabilities Other non-financial liabilities Deferred tax liabilities Current liabilities Trade liabilities Provisions Financial liabilities Other financial liabilities Other non-financial liabilities Income tax liabilities 30/9/2018 30/9/2019 1,381 19 1,253 11 23 2 4 70 1,198 747 30 1 280 43 97 1,091 27 1,028 8 21 0 3 4 1,115 749 17 0 242 40 68 30/9/2018 30/9/2019 623 42 34 498 1 47 0 646 47 60 499 1 40 0 1,068 1,100 741 93 60 146 28 0 688 207 51 123 30 0 Effects of other comprehensive income The components of the other comprehensive income of the hypermarket business attributable to the shareholders of METRO AG as of 30 September 2019 amounted to €−17 million (30/9/2018: €−9 million). This includes components that can be recognised as income in the future in the amount of €0 million (30/9/2018: €0 million) and components that cannot be recognised as income in the future amounting to €−17 million (30/9/2018: €−9 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 269 Cash flow The cash flows of the hypermarket business are as follows: € million Cash flow from operating activities of discontinued operations Cash flow from investing activities of discontinued operations Cash flow from financing activities of discontinued operations 2017/18 2018/19 31 −86 −79 −22 −136 −103 Leases Payments due under finance and operating leases in subsequent periods for the discontinued business sector of the hypermarket business are shown as follows: € million Finance leases 30/9/2018 Future lease payments due (nominal) Discount Present value Operating leases 30/9/2018 Future lease payments due (nominal) € million Finance leases 30/9/2019 Future lease payments due (nominal) Discount Present value Operating leases 30/9/2019 Future lease payments due (nominal) Up to 1 year 1 to 5 years Over 5 years 66 2 64 209 249 34 214 670 318 104 215 621 Up to 1 year 1 to 5 years Over 5 years 68 3 66 210 259 35 224 689 312 98 214 471 The rental of real estate gives rise to claims for lease payments from third parties (with METRO as lessor) that will become due in subsequent periods for the discontinued business sector of the hypermarket business as follows: € million Up to 1 year 1 to 5 years Over 5 years Operating leases 30/9/2018 Future lease payments due (nominal) 17 30 9 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 270 € million Up to 1 year 1 to 5 years Over 5 years Operating leases 30/9/2019 Future lease payments due (nominal) 6 45 17 Other disclosures The hypermarket business is subject to restrictions on titles in the form of liens and encumbrances for property, plant and equipment in the amount of €3 million (30/9/2018: €7 million). Contractual commitments for the acquisition of property, plant and equipment in the amount of €3 million (30/9/2018: €4 million) were recorded. As in the previous year, there are no purchase obligations, no material restrictions on title or right to dispose of investment property and intangible assets. Contingent liabilities from guarantee and warranty contracts in the amount of €45 million (30/9/2018: €45 million) relate in particular to contractual obligations from bank guarantees for claims from retailers from the Real online marketplace business. As of 30 September 2019, the nominal value of other financial commitments amounted to €99 million (30/9/2018: €99 million) and primarily concerned purchasing commitments from service agreements. On an annual average, the discontinued operation of the hypermarket business employed 35,073 people (2017/18: 35,348). The personnel expenses amount to €1,110 million (2017/18: €1,033 million) Disposal of METRO China On 11 October 2019, METRO AG (‘METRO’) entered into an agreement with Wumei Technology Group, Inc. (‘Wumei’), a leading Chinese retailer, to form a strategic partnership for the Chinese operations of METRO (‘METRO China’). This partnership includes the sale of METRO’s entire indirect investment in METRO China (excluding a real estate company sold separately in September 2019) to a subsidiary of Wumei (the buyer) for a company value (enterprise value, 100%) of approximately €1.9 billion. The consideration includes an estimated net cash inflow of more than €1.0 billion as well as a 20% investment of METRO in METRO China. The closing of this transaction is subject to the approval of the regulatory authorities. Since the transaction was already expected with sufficient probability as of 30 September 2019, METRO China is presented as a discontinued business sector in the consolidated financial statements as of 30 September 2019. Profit or loss for the period after taxes The current result of METRO China was reclassified in the consolidated income statement under the item ‘profit or loss for the period from discontinued operations after taxes’, taking into account necessary consolidation measures. To increase the economic meaningfulness of the earnings statement of the continuing sector, its shares in the consolidation effects were also included in the discontinued section of the earnings statement as far as they were related to business relations that are to be upheld in the long term even after the planned disposal. The previous year’s figures of the income statement were adjusted accordingly. Profit or loss for the period from discontinued operations after taxes is attributable to the shareholders of METRO AG in the amount of €118 million (2017/18: €87 million). Non- controlling interests account for €5 million of earnings (2017/18: €1 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 271 In connection with the divestment process, expenses in the low 2-digit million euros range have been incurred to date. As a result, profit or loss for the period from discontinued operations after taxes is made up as follows for METRO China: € million Sales Expenses Current earnings from discontinued operations before taxes Income taxes on gains/losses on the current result Current earnings from discontinued operations after taxes Gains/losses from the remeasurement or disposal of discontinued operations before taxes Gains/losses from the remeasurement or disposal of discontinued operations after taxes Profit or loss for the period from discontinued operations after taxes 2017/18 2,680 −2,563 117 −29 88 0 0 88 2018/19 2,901 −2,736 165 −43 122 0 0 122 Effects of other comprehensive income Of the other comprehensive income for financial year 2018/19 attributable to the shareholders of METRO AG, €14 million (2017/18: €−11 million) is attributable to the discontinued operations of METRO China. This includes components that can be recognised in income in the future, €14 million (2017/18: €−11 million) and components that can not be recognised in income in the future, €0 million (2017/18: €0 million). Assets/liabilities held for sale As a result of the classification as discontinued business sector and after consolidation measures were carried out, €1,552 million were reclassified in the consolidated balance sheet as of 30 September 2019 into the item assets held for sale and €856 million into the item liabilities related to assets held for sale. The respective asset and liability items to be consolidated were recognised in the corresponding balance sheet items of both the continuing and the discontinued segment. As of the end of the financial year, the assets held for sale and the liabilities of METRO China to be disposed of are comprised as follows: M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 272 ASSETS € million Non-current assets Goodwill Other intangible assets Property, plant and equipment Other non-financial assets Deferred tax assets Current assets Inventories Trade receivables Other financial assets Other non-financial assets Entitlements to income tax refunds Cash and cash equivalents LIABILITIES € million Non-current liabilities Deferred tax liabilities Current liabilities Trade liabilities Provisions Financial liabilities Other financial liabilities Other non-financial liabilities Income tax liabilities 30/9/2019 619 19 5 409 114 73 932 220 89 64 83 0 476 30/9/2019 1 1 855 546 80 0 62 137 29 Effects of other comprehensive income The components of the other comprehensive income of METRO China attributable to the shareholders of METRO AG as of 30 September 2019 amounted to €13 million (30/9/2018: €−1 million). This includes components that can be recognised as income in the future in the amount of €13 million (30/9/2018: €−1 million) and components that can not be recognised as income in the future amounting to €0 million (30/9/2018: €0 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 273 Cash flow The cash flows of METRO China from discontinued operations are as follows: € million Cash flow from operating activities of discontinued operations Cash flow from investing activities of discontinued operations Cash flow from financing activities of discontinued operations 2017/18 2018/19 108 −3 6 179 0 −6 Leases There are no obligations from finance leases. Payments due under operating leases in subsequent periods for the discontinued business sector of METRO China are shown as follows: € million Operating leases 30/9/2019 Up to 1 year 1 to 5 years Over 5 years Future lease payments due (nominal) 31 128 289 For METRO China, lease payments due in subsequent periods from entities outside METRO for the rental of properties (with METRO as lessor) are shown below: € million Up to 1 year 1 to 5 years Over 5 years Operating leases 30/9/2019 Future lease payments due (nominal) 4 12 12 Other disclosures There are no purchase obligations, ownership restrictions or restrictions on disposal for property, plant and equipment, investment property or intangible assets. As of 30 September 2019, the nominal value of other financial commitments amounted to €10 million and primarily concerned purchasing commitments from service agreements. On an annual average, the discontinued operations of METRO China employed 11,836 people (2017/18: 12,166). The personnel expenses amount to €189 million (2017/18: €168 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 274 44. Management of financial risks METRO Treasury manages the financial risks of METRO. Specifically, these include: Price risks Liquidity risks, Credit risks Cash flow risks For more information about the risk management system, see the combined management report − 3 economic report − 3.2. asset, financial and earnings position – financial and asset position – financial management page 87 . Price risks For METRO, price risks result from the impact of changes in market interest rates and foreign currency exchange rates on the value of financial instruments. Interest rate risks are caused by changes in interest rate levels. If necessary, interest rate derivatives are used to cap these risks. METRO’s remaining interest rate risk is assessed in accordance with IFRS 7 using a sensitivity analysis. In the process, the following assumptions are applied in the consideration of changes in interest rates: The total impact determined by the sensitivity analysis relates to the actual balance as of the closing date and reflects the impact for 1 year. Primary floating-rate financial instruments whose interest payments are not designated as the underlying transaction in a cash flow hedge against changes in interest rates are recognised in the interest result in the sensitivity analysis. The sensitivity is determined for a change of 10 basis points. Primary fixed-interest financial instruments are generally not recognised in the interest result. They are only recognised in other financial result if they are designated as the underlying transaction within a fair value hedge and measured at fair value. In this case, however, the interest-related change in the value of the underlying transaction is offset by the change in the value of the hedging transaction upon full effectiveness of the hedging transaction. The variable interest flows within the group that result from a fair value hedge are recognised in the interest result. Financial instruments designated as the hedging transaction within a cash flow hedge to hedge against variable interest flows will only be recognised in the interest result when the payment flows have actually been initiated. However, the measurement of the hedging transaction at fair value is recognised in reserves retained from earnings outside of profit or loss. Interest rate derivatives that are not part of a qualified hedging relationship under IAS 39 are recognised at fair value in profit or loss in other financial result and, through resulting interest flows, in the interest result. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 275 As of the closing date, METRO’s remaining interest rate risk is primarily the result of variable interest rate receivables and liabilities to banks as well as other short-term liquid financial assets (reported under cash and cash equivalents) with an aggregate debit balance after consideration of hedging transactions of €−1 million (30/9/2018: €688 million). Given this total balance, an interest rate rise of 10 basis points would result in €0 million (2017/18: €1 million) higher revenues in the interest result per year. An interest rate decrease of 10 basis points would have the opposite effect of €0 million (2017/18: €−1 million). METRO faces currency risks in its international procurement of merchandise and because of costs and financings that are incurred in a currency other than the relevant local currency or are pegged to the development of another currency. In accordance with the group guideline ‘Foreign Currency Transactions’, resulting foreign currency positions must be hedged. Exceptions from this hedging requirement exist where hedging is not economically reasonable and in the case of legal and regulatory restrictions in the respective countries. Forward currency contracts are used in the hedging. In line with IFRS 7, the presentation of the currency risk resulting from the exceptions is also based on a sensitivity analysis. In the process, the following assumptions are made in the consideration of a devaluation or revaluation of the euro vis-à-vis foreign currencies: In terms of its amount and result characteristic, the total effect presented by the sensitivity analysis relates to the amounts of foreign currency held within the consolidated subsidiaries of METRO and states the effect of a devaluation or revaluation of the euro. A devaluation of the euro will result in a positive effect if a receivable in the foreign currency exists at a subsidiary which uses the euro as its functional currency and if a liability in euros exists at a subsidiary which does not use the euro as its functional currency. The following table shows the nominal volumes of currency pairs in this category with a positive sign. A devaluation of the euro will result in a negative effect if a receivable in euros exists at a subsidiary which does not use the euro as its functional currency and if a liability in the foreign currency exists at a subsidiary which uses the euro as its functional currency. Correspondingly, the following table shows the nominal volumes of currency pairs in this category with a negative sign. By contrast, an appreciation of the euro will have the opposite effect for all currency pairs shown above. In the sensitivity analysis, the effects of the measurement of non-equity foreign currency positions that are calculated based on the exchange rate at closing date in line with IAS 21 are recognised in the income statement. In the case of net investments in a foreign operation, the effects of the closing date measurement are recognised in equity (other comprehensive income) outside of profit or loss. Forward currency contracts/options and interest rate and currency swaps that are not part of a qualified hedging relationship under IAS 39 are recognised through the fair value measurement in the income statement. In fully effective hedging transactions, this effect is offset by the effect from the measurement of the underlying foreign currency transaction. In the consolidated financial statements, foreign currency future transactions are designated as hedging transactions within a cash flow hedges to hedge merchandise procurement and sales. Changes in the fair value of these hedging instruments are recognised in other comprehensive income until the underlying transaction is recognised through profit or loss. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 276 Effects from the currency translation of financial statements whose functional currency is not the reporting currency of METRO do not affect cash flows in local currency and are therefore not part of the sensitivity analysis. As of the closing date, the remaining currency risk of METRO, which is essentially due to an inability to hedge certain currencies for legal reasons or due to insufficient market depth, was as follows: € million Currency pair Volume 30/9/2018 Volume 30/9/2019 Profit or loss for the period +/− +/− Impact of devaluation/revaluation of euro by 10% CHF/EUR CNY/EUR CZK/EUR EGP/EUR GBP/EUR HKD/EUR KZT/EUR MDL/EUR PLN/EUR PKR/EUR RON/EUR RSD/EUR RUB/EUR TRY/EUR UAH/EUR USD/EUR CNY/EUR CZK/EUR HUF/EUR KZT/EUR PLN/EUR RON/EUR RSD/EUR RUB/EUR UAH/EUR USD/EUR +11 +33 −17 +29 −7 −18 +19 +1 +3 +4 −13 +11 +12 +11 +37 +16 +101 −4 −4 +117 +68 −7 +16 −19 +200 +101 1 3 −2 3 −1 −2 2 0 0 0 −1 1 1 1 4 2 +/− 10 0 0 12 7 −1 2 −2 20 10 +10 +17 −25 +31 −8 −17 +12 +1 −6 +11 −12 +9 +27 0 +43 +5 +103 0 0 +126 +70 0 +16 0 +200 +90 1 2 −3 3 −1 −2 1 0 −1 1 −1 1 3 0 4 1 +/− 10 0 0 13 7 0 2 0 20 9 Equity Currency risks existing in addition to these are mainly the result of USD currency holdings in various subsidiaries in which the functional currency is not the US dollar or the euro. At a nominal US dollar volume of €14 million (30/9/2018: €4 million), a devaluation of the US dollar by 10% would result in positive effects of €1 million in profit or loss for the period (30/9/2018: €0 million), while an appreciation would lead to negative effects of €1 million (30/9/2018: €0 million). M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 277 At a nominal volume of €8 million (30/9/2018: €0 million), the currency pair USD/AED accounts for the main share of this effect, while in the previous year the currency pair MMK/USD accounted for the largest share of this effect. Interest rate and currency risks are substantially reduced and limited by the principles laid down in the internal treasury guidelines of METRO. These include a regulation that is applicable throughout the group whereby all hedging operations must adhere to predefined limits and must not lead to increased risk exposure under any circumstances. METRO is aware that this severely limits the opportunities to exploit current or expected interest rate and exchange rate movements to optimise results. In addition, hedging may be carried out only with standard derivative financial instruments whose correct actuarial and accounting mapping and measurement in the treasury system are guaranteed. As of the closing date, the following derivative financial instruments were being used for risk reduction: € million Currency transactions Forward currency contracts/options thereof within fair value hedges thereof within cash flow hedges thereof not part of hedges Interest rate/currency swaps 30/9/2018 30/9/2019 Fair Values Fair Values Nominal volume1 Financial assets Financial liabilities Nominal volume1 Financial assets Financial liabilities 390 (0) (164) (226) 0 390 11 (0) (4) (7) 0 11 5 (0) (1) (4) 0 5 605 (0) (193) (412) 0 605 14 (0) (5) (9) 0 14 12 (0) (1) (11) 0 12 1 Nominal volumes with a positive prefix indicate a purchase of forward currency contracts. Nominal volumes where they negative prefix indicate a disposal of forward currency contracts. The nominal volume of forex futures/options and interest limitation agreements results from the net position of the buying and selling values in foreign currency underlying the individual transactions translated at the relevant exchange rate on the closing date. The nominal volume of interest rate swaps or interest rate/currency swaps and interest rate hedging agreements is shown on a gross basis. All fair values represent the theoretical value of these instruments upon dissolution of the transaction as of the closing date. Under the premise that instruments are held until the end of their term, these are unrealised gains and losses that, by the end of the term, will be fully set off by gains and losses from the underlying transactions in the case of fully effective hedging transactions. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 278 In order to appropriately show this reconciliation for the period, relationships are created between hedging transactions and underlying transactions and recognised as follows: Within a fair value hedge, both the hedging transaction and the hedged risk of the underlying transaction are recognised at their fair value. The fluctuations in the fair value of both transactions are shown in the income statement, where they will be fully set off against each other in the case of full effectiveness. Within a cash flow hedge, the hedging transactions are also principally recognised at their fair value. In the case of full effectiveness of the hedging transaction, the value changes will be recognised in equity until the hedged payment flows or expected transactions impact the earnings. Only then will they be recognised in the income statement. Hedging transactions that, according to IAS 39, are not part of a hedge are recognised at their fair value. Value changes are recognised directly in the income statement. Even if no formal hedging relationship was created, these are hedging transactions that are closely connected to the underlying transaction and whose impact on earnings will be netted by the underlying transaction (natural hedge). Only derivatives in the form of forward exchange transactions are used as hedging instruments in hedge accounting (cash flow hedging) to hedge off-balance sheet currency risks. Generally, one underlying transaction is hedged in each case by means of a forward currency contract. The effectiveness of these hedges is assessed on the basis of the hypothetical derivative method. The ineffectiveness determined using this method results from the difference between the changes in value of the hedged item and the changes in value of the hedging transaction. Currency derivatives are used primarily for Chinese renminbi, Hong Kong dollar, Japanese yen, Polish złoty, Romanian leu, Russian rouble, Swiss franc, Czech koruna, Hungarian forint and US dollar. The average hedging rates for METRO for the 2 particularly important currency pairs resulting from such hedges are as follows: 1.14 USD/EUR and 7.93 CNY/EUR. The maturity of derivatives used for hedging purposes in the amount of €5 million (30/9/2018: €3 million) is less than one year. Liquidity risks Liquidity risk describes the risk of being unable to procure or provide funding or being able to only procure or provide funding at a higher cost. Liquidity risks may arise, for example, as a result of temporary capital market disruptions, creditor defaults, insufficient credit facilities or the absence of budgeted incoming payments. METRO AG acts as financial coordinator for METRO companies to ensure that they are provided with the necessary financing to fund their operating and investing activities at all times and in the most cost- efficient manner possible. The necessary information is provided by means of a group financial plan, which is updated monthly and checked monthly for deviations. This financial plan is complemented by a weekly rolling 14-day liquidity plan. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 279 Instruments used for financing purposes include money and capital market products (time deposits, call money, promissory note loans, commercial papers and listed bonds sold as part of ongoing capital market programmes) as well as bilateral and syndicated loans. METRO has a sufficient liquidity reserve so that liquidity risks are not likely, even if an unexpected event has a negative financial impact on the company’s liquidity situation. For more information about the instruments used for financing purposes and credit facilities, see the explanatory notes to the respective balance sheet items. For more information, see no. 29 – cash and cash equivalents liabilities page 249 . page 235 as well as no. 36 – financial Intra-group cash pooling allows the surplus liquidity of individual group companies to be used for providing internal finance to other group companies. This reduces the group’s amount of debt and thus its interest expenses. In addition, METRO AG draws on the financial expertise pooled in the treasury of METRO AG to advise the group companies in all relevant financial matters and provide support. This ranges from the elaboration of investment financing concepts to supporting the responsible financial officers of the individual group companies in their discussions with local banks and financial service providers. This ensures, on the one hand, that the financial resources of METRO are optimally employed, and, on the other, that all group companies benefit from the strength and credit standing of METRO in negotiating their financing terms. Credit risks Credit risks arise from the total or partial default by a counterparty, for example, through bankruptcy or in connection with financial investments and derivative financial instruments with positive market values. METRO’s maximum credit risk as of the closing date is reflected by the carrying amount of financial assets totalling €1,722 million (30/9/2018: €2,558 million). For more information about the amount of the respective carrying amounts, see no. 40 – carrying amounts and fair values according to measurement categories page 258 . Cash on hand considered in cash and cash equivalents totalling €16 million (30/9/2018: €25 million) is not exposed to any credit risk. In the course of the risk management of financial investments totalling €453 million (30/ 9/2018: €1,205 million) and derivative financial instruments totalling €14 million (30/9/ 2018: €11 million), minimum creditworthiness requirements and individual maximum exposure limits for the engagement have been defined for all business partners of METRO. Cheques and money in circulation are not considered in the determination of credit risks. This is based on a system of limits laid down in the treasury guidelines, which are based mainly on the ratings of international rating agencies, developments of credit default swaps or internal credit assessments. An individual limit is allocated to every counterparty of METRO; compliance is constantly monitored by the treasury systems. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 280 The following table shows a breakdown of business partners of continuing and discontinued operations by rating class: Rating classes Volume in % Standard & Poor’s Moody’s Germany Financial investments Western Europe (excl. Germany) Russia Eastern Europe (excl. Russia) Asia and others Derivatives with positive market values Total Grade Investment grade Non- investment grade No rating AAA Aaa AA+ to AA− Aa1 to Aa3 A+ to A− A1 to A3 BBB+ to BBB− Baa1 to Baa3 BB+ to BB− Ba1 to Ba3 B+ to B− B1 to B3 CCC+ to C Caa1 to Ca 0.0 3.4 2.7 1.1 0.0 0.1 0.0 0.0 7.3 0.6 0.9 1.6 0.0 0.2 0.0 0.0 3.3 0.0 0.0 0.0 0.0 0.4 0.0 0.4 5.4 8.2 54.1 0.0 0.2 0.7 1.2 10.8 4.6 0.8 97.1 0.0 0.0 0.0 0.0 1.6 0.0 1.3 0.0 0.6 0.2 0.1 0.0 0.4 18.5 67.6 0.0 0.0 0.0 0.0 1.7 1.9 1.0 100.0 The table shows that, as of the closing date, about 97.1% of the capital investment volume, including the positive market value of derivatives, had been placed with investment-grade counterparties, in other words, those with good or very good credit ratings. Most of the counterparties that do not yet have an internationally accepted rating are respected financial institutions whose creditworthiness can be considered flawless based on analyses. METRO also operates in countries where local financial institutions do not have investment- grade ratings due to the rating of their country. For country-specific reasons as well as cost and efficiency considerations, cooperation with these institutions is unavoidable. These institutions account for about 1.9% of the total volume. METRO’s level of exposure to credit risks is thus very low. Cash flow risks A future change in interest rates may cause cash flow from variable interest rate asset and liability items to fluctuate. Stress tests are used to determine the potential impact interest rate changes may have on cash flow and how they can be capped through hedging transactions in accordance with the group’s internal treasury guidelines. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 281 45. Contingent liabilities € million 30/9/2018 30/9/2019 Contingent liabilities from guarantee and warranty contracts Contingent liabilities from the provision of collateral for third-party liabilities Other contingent liabilities 18 9 0 27 17 12 1 30 Contingent liabilities from guarantee and warranty contracts are primarily rent guarantees with terms of up to 10 years if utilisation is not considered entirely unlikely. Disclosures on assets/liabilities held for sale in connection with the sale of the hypermarket business and METRO China can be found under no. 43 – discontinued business sectors page 266 . 46. Other financial commitments As of 30 September 2019, the nominal value of other financial commitments amounted to €232 million (30/9/2018: €247 million) and primarily concerned purchasing commitments from service agreements. The previous year’s figures for the other financial commitments include €4 million attributable to METRO China. For more information about contractual commitments for the acquisition of other intangible assets and property, plant and equipment, obligations from finance and operating leases as well as investment properties, see no. 20 – other intangible assets page 216 , no. 21 – property, plant and equipment 218 and no. 22 – investment properties Disclosures on assets/liabilities held for sale in connection with the sale of the hypermarket business and METRO China can be found under no. 43 – discontinued business sectors page 220 . page 266 . page 47. Remaining legal issues Successful completion of the demerger In connection with the demerger of the group, several shareholders took legal action against CECONOMY AG by seeking various legal remedies at the Düsseldorf District Court, such as action for annulment, rescission and/or declaratory action, including against the resolution passed by the Annual General Meeting of CECONOMY AG on 6 February 2017 concerning the meeting’s approval of the demerger and spin-off agreement (demerger agreement) as well as partially against the agreement itself. Pursuant to the provisions of the demerger agreement, METRO AG has to bear the costs of the litigation and proceedings relating to the demerger. On 24 January 2018, the Düsseldorf District court rejected the complaint in its entirety. All plaintiffs have filed appeals against all these decisions with the Düsseldorf Higher Regional Court . On 4 April 2019, the Düsseldorf Higher Regional Court rejected all appeals. In the appeal judgement in the rescission proceedings concerning the resolutions of the Annual General Meeting, the appeal was admitted and lodged with the German Federal Court of Justice. The Higher Regional Court of Düsseldorf did not allow the appeal in the proceedings for a declaration of invalidity or M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 282 pending ineffectiveness of the spin-off and demerger agreement. In one of these assessment proceedings, the plaintiffs filed an appeal against denial of leave to appeal with the Federal Court of Justice. The judgement in the other assessment proceedings is final. METRO AG maintains its position that all of these legal challenges are inadmissible and/or unfounded and has therefore not recognised corresponding risk provisions in its accounts. Legal action against credit card companies Companies of the METRO group had submitted complaints against credit card companies. The complaints claimed damages based on the EU Commission’s ban on credit card companies setting multilateral interchange fees on an EU level. The European Court of Justice confirmed the decision of the EU Commission against one credit card company in the final instance. Settlements reached during the first half of financial year 2018/19 with respect to the claimed damages contributed a sum in the low double-digit millions to earnings. As a result, METRO abandoned its complaints against the credit card companies. Arbitration proceedings against Hudson’s Bay Company METRO AG is a plaintiff in arbitration proceedings against the Canadian retail group Hudson’s Bay Company (HBC). The background of the arbitration proceedings is an outstanding purchase price claim of METRO AG against HBC, resulting from the disposal of Galeria Kaufhof in 2015. METRO AG had initially retained minority interests in individual real estates and granted HBC call options. In January 2016, HBC exercised its call options and paid a preliminary purchase price. METRO AG believes that the paid preliminary purchase price was insufficient and disputes the applied valuation basis. Further remaining legal issues Companies of the METRO group form a party to judicial or arbitration proceedings as well as antitrust law proceedings in various European countries. Insofar as the liability has been sufficiently specified, appropriate risk provisions have been formed for these proceedings. METRO AG and its group companies respectively have also filed claims for damages against companies that have been convicted of illegal competition agreements (including truck and sugar cartel). 48. Events after the closing date METRO AG sells majority share in METRO China to Wumei Technology Group On 11 October 2019, METRO AG (‘METRO’) entered into an agreement with Wumei Technology Group, Inc. (‘Wumei’), a leading Chinese retailer, to form a strategic partnership for the Chinese operations of METRO (‘METRO China’). This partnership includes the sale of METRO’s entire indirect investment in METRO China (excluding a real estate company sold separately in September 2019) to a subsidiary of Wumei (the buyer) for a company value (enterprise value, 100%) of approximately €1.9 billion. The consideration includes an estimated net cash inflow of more than €1.0 billion as well as a 20% investment of METRO in METRO China. The closing of this transaction is subject to the approval of the regulatory authorities. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 283 EP Global Commerce GmbH increases its share of voting rights in METRO AG EP Global Commerce GmbH increased its voting rights in METRO AG from 17.52% to 29.99% as of 6 November 2019 based on the notifications of voting rights submitted to the company. They and possibly other affiliated companies and related parties will thus become related companies and parties of METRO AG as of this date. Franz Haniel & Cie. GmbH and its subsidiaries are no longer related parties due to the reduction of their voting rights. 49. Notes on related parties In financial year 2018/19, METRO maintained the following business relations to related companies: € million Services provided Associates Joint ventures Miscellaneous related parties Services received Associates Joint ventures Miscellaneous related parties Receivables from services provided, as of 30/9 Associates Joint ventures Miscellaneous related parties Liabilities from goods/services received as of 30/9 Associates Joint ventures Miscellaneous related parties 2017/18 2018/19 8 5 3 0 96 78 8 10 0 0 0 0 1 0 0 1 8 5 3 0 93 76 7 10 0 0 0 0 1 0 0 1 Transactions with associated companies and other related parties The services received totalling €93 million (2017/18: €96 million) that METRO companies received from associates and other related parties in financial year 2018/19 consisted mainly of real estate leases in the amount of €79 million (2017/18: €80 million), thereof €76 million from associates; (2017/18: €78 million) and the rendering of services in the amount of €15 million (2017/18: €16 million), thereof €7 million from joint ventures; (2017/18: €8 million). Other future financial commitments in the amount of €667 million (2017/18: €719 million) consist of tenancy agreements with the following associated companies: OPCI FWP France, OPCI FWS France, Habib METRO Pakistan and the Mayfair group. In financial year 2018/19, METRO companies provided services to companies belonging to the group of associates and related parties in the amount of €8 million (2017/18: €8 million). A dividend of €38 million has been paid out to a shareholder with significant influence. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 284 Business relations with related parties are based on contractual agreements providing for arm’s length prices. As in financial year 2017/18, there were no business relations with related natural persons and companies of management in key positions in financial year 2018/19. Related persons (compensation for management in key positions) The management in key positions consists of members of the Management Board and the Supervisory Board of METRO AG. Thus, the expenses for members of the Management Board of METRO AG amounted to €6.9 million (2017/18: €5.2 million) for short-term benefits and €3.7 million (2017/18: €7.0 million) for post-employment benefits. Thereof an amount of €3.0 million relates to termination benefits paid in financial year 2018/19. The expenses for existing compensation programmes with long-term incentive effect in financial year 2018/19, calculated in accordance with IFRS 2, amounted to €2.6 million (2017/18: €0.7 million). The short-term compensation for the members of the Supervisory Board of METRO AG amounted to €2.2 million (2017/18: €2.2 million). The total compensation for members of the Management Board in key positions in financial year 2018/19 amounted to €15.4 million (2017/18: €15.1 million). For more information about the basic principles of the remuneration system and the amount of Management Board and Supervisory Board compensation, see no. 51 – Management Board and Supervisory Board page 289 . 50. Long-term incentive for executives Authorisations for the continuing operations of METRO The Long-Term Incentive developed in financial year 2015/16 for the METRO Wholesale sales line (MCC LTI) was adjusted for the continuing operations of METRO and granted to the senior executives of METRO and the management bodies of the METRO Wholesale subsidiaries as of 1 April 2019. The METRO LTI is a cyclical plan that is issued once every 3 years. The respective performance targets focus on value creation in the individual national subsidiaries, the relative total shareholder return of the METRO share compared to a comparable market as well as the sustainable development and future orientation of METRO. The performance period of the METRO LTI extends from 1 April 2019 to 31 March 2022. The individual target amounts are accumulated proportionally during this period. The final target amount that has been accumulated at the end of the performance period is based on the period of eligibility for the METRO LTI as well as the individual’s position. According to the plan conditions, executives can be newly admitted to the circle of beneficiaries on a pro rata basis or be removed from the plan. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 285 Operating principles METRO LTI After the end of each performance period, the payout amount is determined by multiplying the respectively accumulated individual target amount with a total goal achievement factor. This factor consists of the achievement of the country performance component (60%), the achievement of the METRO performance component (30%) and the achievement of the sustainability component (10%). The payout amount is capped and the total goal achievement factor cannot drop below 0. For the country performance component, the success of the respective national subsidiary is decisive for the beneficiaries of the national METRO Wholesale subsidiaries, while the overall success of all national subsidiaries is taken as the basis for the other beneficiaries. The overall success of METRO is determined for the METRO performance and sustainability components. The country performance component rewards the achievement of internal economic targets and is measured on the basis of a cash proxy achieved cumulatively for the METRO Wholesale subsidiaries in financial years 2018/19 to 2020/21. In each case, a value for the factor 0.0 and a target value for the target achievement factor 1.0 were defined. In the case of intermediate values and values above 1.0, the factor for goal achievement is calculated using linear interpolation to 2 decimal points. The goal achievement factor for the country performance component cannot drop below 0 and is capped. The METRO performance component is based on the success of METRO, expressed as the relative total shareholder return (TSR) compared to a comparison group. This group consists of the MDAX (50%) and the selected competitors (50%). The comparison group of competitors consists of the following companies: Bidcorp (ISIN ZAE000216537) Bizim Toptan (ISIN TREBZMT00017) Marr (ISIN IT0003428445) Eurocash Group (ISIN PLEURCH00011) Performance Food Group (ISIN US71377A1034) US Foods (ISIN US9120081099) Sysco (ISIN US8718291078) Sligro (ISIN NL0000817179) If the total shareholder returns of METRO AG and the comparison group run in parallel, the performance target is 100% met; for an underperformance of −20%, the performance target is met by one third; for anything below that, the target achievement is 0. Between these 2 points and beyond, linear interpolation or extrapolation is used to determine target achievement. The achievement of targets is capped. Performance achievement for the sustainability component is determined on the basis of the average rating which METRO AG is awarded in an external corporate sustainability assessment during each performance period. Each year during the performance period, METRO AG participates in the Corporate Sustainability Assessment conducted by the independent service provider RobecoSAM. RobecoSAM AG uses this assessment to determine METRO AG’s ranking within the industry group Food & Staples Retailing that is defined in accordance with the Global Industry Classification Standard (GICS). RobecoSAM AG will inform METRO AG of any changes in its sector classification. In case of material changes in the composition of companies or the ranking method, RobecoSAM AG can determine adequate comparable values. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 286 The company’s average ranking, rounded to whole numbers, is determined on the basis of the rankings communicated during each performance period. The factor for the sustainability component is determined in the following manner on the basis of the average of the performance period: Average ranking (rounded) Sustainability factor 1 2 3 4 5 6 7 Below rank 7 3.00 2.00 1.50 1.00 0.75 0.50 0.25 0.00 METRO mid-term incentive In financial year 2018/19, a mid-term incentive (MTI) was launched to support the transformation of METRO over a 2-year period. This plan allows top executives to participate in METRO’s success and rewards the achievement of important internal transformation goals, such as customer satisfaction and master data quality. The METRO mid-term incentive (METRO MTI) has a term (performance period) of 2 years and was granted to the senior executives of METRO and the management bodies of the METRO Wholesale subsidiaries as of 1 April 2019. This is a one-time issue. The METRO MTI is a phantom share plan in which a phantom share represents the value of the METRO ordinary share. Participants were allocated an initial number of phantom shares based on a target amount at the beginning of the performance period. At the end of the performance period, the final number of phantom shares will be determined for each participant and paid out with the dividend-adjusted value. Half of the final number of phantom shares is measured by the achievement of an internal EBITDA target, based on METRO as a whole, and half by country-specific transformation targets (transformation KPIs). The individual performance targets cannot fall below 0 and are capped. The total payout from the plan is also capped. The EBITDA target is based on the EBITDA of METRO excluding earnings contributions from real estate transactions in financial year 2018/19. Targets were set for 50%, 100% and 150% degrees of target achievement. The achievement of targets is determined by linear interpolation between these values. The achievement of targets is limited at the lower and upper levels. Targets were set for all METRO Wholesale subsidiaries for the transformation KPIs performance target ‘in the equally weighted components like-for-like sales growth in strategic customer groups, Net Promoter Score (NPS) and master data quality. A country- specific overall factor is determined from the achievement of the respective targets with regard to the transformation KPIs. With regard to the target for like-for-like sales growth in strategic customer groups, growth targets were set for individual customer groups in line with the strategic orientation of the respective national subsidiary. For each national subsidiary and for each of the strategic customer groups relevant for that country, the Management Board of METRO AG M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 287 set separate target values for the achievement of the factor 1.00. Furthermore, a threshold (a minimum performance target where the factor is 0.00) and the target values for reaching a factor of 2.00 and 3.00 were defined. Linear interpolation is performed between these values to determine the achievement of the respective targets. The goal achievement factor cannot drop below 0 and is capped. The NPS factor (qualitative) rewards the careful implementation and maintenance of the NPS system by the national subsidiaries, which was entrenched in the NPS target image of METRO. The relevant measurement of the performance for the determination of the target achievement is carried out during the performance period on 2 dates. The measurement focuses in particular on the routines and processes associated with the introduction of the NPS as well as the success of the respective national subsidiary. The goal achievement cannot drop below 0 and is capped. The master data quality component rewards a sustainable improvement of the core attributes of article master data and customer contact data, since complete and correct data are a basic requirement for all METRO processes. 4 relevant data clusters have been defined (purchasing units, sales units, customers and authorised buyers). Separate target values for achieving factor 1.00 were set for each national subsidiary. Furthermore, a threshold (a minimum performance target where the factor is 0.00) and the target values for reaching a factor of 2.00 and 3.00 were defined. Linear interpolation is performed between these values to determine the achievement of the respective targets. Each identified factor for the past performance component cannot drop below 0 and is capped. The transformation KPIs target achievement for METRO as a whole is calculated separately for each subcomponent as a sales-weighted average of the respective factors determined for the national subsidiaries. As of the closing date on 30 September 2019, the initially granted number of phantom shares was 1,217,690. Assuming that all performance targets can be achieved to the maximum extent possible, the maximum number of phantom shares is 2,739,803. Permissions for the retail business segment (Real LTI) In financial year 2016/17, the Real long-term incentive (Real LTI) was developed for the retail business segment. The authorised executives and senior executives of the retail business segment were eligible. The performance period started on 1 April 2017 and ends on 31 March 2020. The operating principles are shown below. Operating principles Real LTI After the end of each performance period, the payout amount is determined by multiplying the respectively accumulated individual target amount with a total goal achievement factor. The goal achievement rate of this factor for the past performance and future value components accounts for 45% each; the remaining 10% are accounted for by the goal achievement rate of the sustainability component. The payout amount is capped and the total goal achievement factor cannot drop below 0. For the past performance and future value components, the overall success of Real is key for the achievement of objectives. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 288 The past performance component rewards the achievement of internal economic target values and is determined on the basis of the EBITDA after special items generated cumulatively over financial years 2016/17 to 2018/19. Separate target values for goal achievement factors 1.0 and 0.0 have been defined. In the case of intermediate values and values above 1.0, the factor for goal achievement is calculated using linear interpolation to 2 decimal points. The goal achievement factor for the past performance component cannot drop below 0 and is capped. The future value component mirrors Real’s external measurement with respect to the expected future performance of each sales line as a whole from an analyst’s perspective. For the purpose of target setting, the company value was determined on the basis of analyst measurements before the start of the performance period. It is determined again at the end of the performance period. Separate target values for a goal achievement factor of 1.0 and 0.0, respectively, have been defined. In the case of intermediate values and values above 1.0, the factor for goal achievement is calculated using linear interpolation to 2 decimal points. The goal achievement factor for the future value component cannot drop below 0 and is capped. Performance achievement for the sustainability component is determined on the basis of the average rating which METRO AG is awarded in an external corporate sustainability assessment during the performance period. In each year of the performance period, METRO AG participates in the Corporate Sustainability Assessment conducted by the independent service provider RobecoSAM. RobecoSAM AG uses this assessment to determine METRO AG’s ranking within the industry group Food & Staples Retailing that is defined in accordance with the Global Industry Classification Standard (GICS). RobecoSAM AG will inform METRO AG of any changes in its sector classification. In case of material changes in the composition of companies or the ranking method, RobecoSAM AG can determine adequate comparable values. The company’s average ranking, rounded to whole numbers, is determined on the basis of the rankings communicated during each performance period. The factor for the sustainability component is determined in the following manner on the basis of the average of the performance period: Average ranking (rounded) Sustainability factor 1 2 3 4 5 6 7 8 9 Below rank 9 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 3.00 2.50 2.00 1.50 1.25 1.00 0.75 0.50 0.25 0.00 N O T E S O T H E R N O T E S 289 As of 30 September 2019, the target amount for the eligible group of persons was €13.1 million. The mentioned tranches of share-based payment programmes resulted in total expenses of €12.0 million (2017/18: €9 million). The related provisions as of 30 September 2019 amount to €12.5 million (30/9/2018: €28 million). The provisions correspond to the fair value of the plans calculated pro rata temporis. This fair value is determined by an external expert using recognised financial mathematical methods. The basis for this is a risk-neutral, arbitrage-free valuation model of the option price theory (in this case using Monte Carlo simulation). The input data for the simulation are measurements and estimates of internal key performance indicators as of the reporting date and the external market values as of the valuation date. 51. Management Board and Supervisory Board Remuneration of members of the Management Board in financial year 2018/19 The remuneration of the active members of the Management Board essentially consists of a fixed salary, a short-term performance-based remuneration component (short-term incentive and special bonuses), as well as the performance-based remuneration component with a long-term incentive effect (long-term incentive) granted in financial year 2018/19. The short-term incentive for members of the Management Board is essentially determined by the development of financial performance targets related to that financial year and also considers the attainment of agreed-upon targets. The remuneration of the active members of the Management Board in financial year 2018/19 amounted to €9.8 million (2017/18: €7.0 million). This includes €3.5 million (2017/18: €3.7 million) in fixed salaries, €2.0 million (2017/18: €0.4 million) in short-term performance-based remuneration, €3.9 million (2017/18: €2.7 million) in performance-based remuneration with a long-term incentive effect and €0.3 million (2017/18: €0.2 million) in non-monetary and supplemental benefits. The share and performance-based remuneration component with long-term incentive effect granted in financial year 2018/19 (performance share plan) was recognised at fair value as of the date granted. The number of conditionally allocated performance shares for the members of the Management Board amounts to a total of 311,477. In financial year 2018/19, value adjustments resulted from the current tranches of performance-based payment programmes with a long-term incentive effect. The company’s expenses amounted to €0.78 million for Mr Koch, €0.50 million for Mr Baier, €1.23 million for Mr Hutmacher and €0.09 million for Mr Palazzi. As of 30 September 2019, the provisions for the members of the Management Board totalled €3.46 million. Of this amount, €1.17 million was attributable to Mr Koch, €0.69 million to Mr Baier, €1.52 million to Mr Hutmacher and €0.09 million to Mr Palazzi. Expenses and provisions were determined by external experts using a recognised financial mathematical procedure. An agreement was reached with Mr Hutmacher in the reporting year for the premature termination of his service contract with effect from the end of 31 December 2019. A severance payment of €2,957,700 was agreed to settle the remaining term of his service contract (1 January 2020 to 30 September 2020) and the short-term incentive for the period from 1 October 2019 to 31 May 2019. This settlement covers Mr Hutmacher’s claims, taking into account the contractually agreed severance payment cap in accordance with the German Corporate Governance Code. The severance payment, which is due in financial M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 290 year 2019/20, was fully accrued in financial year 2018/19. The tranches of the long-term incentive already granted to Mr Hutmacher will be settled in accordance with the terms of the plan. Total compensation of former members of the Management Board There are congruent, reinsured liabilities from pension provisions of €1.5 million towards former members of the Management Board. Individual versions of the disclosures released pursuant to § 314 Section 1 No. 6a Sentences 5 to 8 of the German Commercial Code can be found in chapter 6 remuneration report management report. page 124 in the combined Compensation of members of the Supervisory Board The total remuneration of all members of the Supervisory Board in financial year 2018/19 amounted to €2.2 million (2017/18: €2.2 million). For more disclosures about the compensation of the members of the Supervisory Board, see chapter page 124 ’ in the combined management report. ‘6 remuneration report 52. Auditor’s fees for the financial year pursuant to § 314 Section 1 No. 9 of the German Commercial Code (HGB) KPMG AG Wirtschaftsprüfungsgesellschaft invoiced total professional fees in the amount of €5.1 million for services rendered. €4.3 million of this amount was attributable to professional fees for the audit of the financial statements, €0.2 million to other assurance services and €0.6 million to other services. Only services that are consistent with the task of the auditor of the annual financial statements and consolidated financial statements of METRO AG were provided. The fees for audit services provided by KPMG AG Wirtschaftsprüfungsgesellschaft relate to the audit of the consolidated financial statements and the annual financial statements of METRO AG, including statutory order extensions. In addition, the fees for the audits of IFRS reporting packages of subsidiaries of METRO AG for inclusion in the METRO consolidated financial statements as well as for the audits of annual financial statements of subsidiaries under commercial law are included here. In addition, the audit-integrated reviews of interim financial statements, project-related audits within the framework of the introduction of new accounting standards and ISAE 3402 audit-related services were performed. The other assurance services include contracted audits (for example, sales lease agreements, compliance certificates, comfort letters, declaration of completeness of the packaging ordinance), the voluntary audit of the internal audit system according to IDW PS 983, the voluntary audit of the corporate responsibility report according to ISAE 3000 and ISAE 3410 and the business audit of the non-financial statement. The other services relate to fees for financial due diligences, for auditing support services within the framework of a sales tax compliance management system and auditing support services based on IDW PS 980 in connection with the IT compliance system. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 291 53. Declaration of conformity with the German Corporate Governance Code In September 2019, the Management Board and the Supervisory Board issued the annual declaration of conformity pursuant to § 161 of the German Stock Corporation Act (AktG) concerning the recommendations of the Government Commission on the German Corporate Governance Code. The statement is published permanently on the website of METRO AG (www.metroag.de/en). 54. Election to be exempt from §§ 264 Section 3 and 264b of the German Commercial Code The following domestic subsidiaries in the legal form of stock corporations or partnerships will use the exemption provisions according to § 264 Section 3 and § 264b of the German Commercial Code, and will thus refrain from preparing their annual financial statements for financial year 2018/19 as well as mostly from preparing their notes and management report (according to the German Commercial Code). a) Operating companies and service entities MIP METRO Group Intellectual Property Management GmbH N & NF Trading GmbH METRO Siebte Gesellschaft für Vermögensverwaltung mbH real,- Handels GmbH Hospitality Digital GmbH METRO GROUP Accounting Center GmbH METRO Innovations Holding GmbH METRO Groß- und Lebensmitteleinzelhandel Holding GmbH MGL METRO Group Logistics Warehousing Beteiligungs GmbH METRO LOGISTICS Germany GmbH MGC METRO Group Clearing GmbH METRO Finanzdienstleistungs Pensionen GmbH real,- Digital Services GmbH DAYCONOMY GmbH Fulltrade International GmbH MIP METRO Group Intellectual Property GmbH & Co. KG METRO Dienstleistungs-Holding GmbH METRO Re AG METRO Advertising GmbH real,- Holding GmbH real,- Digital Fulfillment GmbH METRO Travel Services GmbH METRO Insurance Broker GmbH METRO-nom GmbH Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Wörrstadt Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf METRO SB-Großmärkte GmbH & Co. Kommanditgesellschaft Esslingen am Neckar METRO SB-Großmärkte GmbH & Co. Kommanditgesellschaft NordRhein Trading GmbH Linden Düsseldorf M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 292 METRO Großhandelsgesellschaft mbH real GmbH METRO Deutschland GmbH MGE Warenhandelsgesellschaft mbH MGL METRO Group Logistics GmbH real,- SB-Warenhaus GmbH MCC Trading International GmbH METRO Cash & Carry International GmbH Meister feines Fleisch - feine Wurst GmbH Multi-Center Warenvertriebs GmbH METRO Erste Erwerbsgesellschaft mbH MCC Trading Deutschland GmbH Goldhand Lebensmittel- u. Verbrauchsgüter-Vertriebsgesellschaft mbH Liqueur & Wine Trade GmbH Johannes Berg GmbH, Weinkellerei Weinkellerei Thomas Rath GmbH METRO INTERNATIONAL SUPPLY GmbH METRO FSD Holding GmbH RUNGIS express GmbH Petit RUNGIS express GmbH CCG DE GmbH cc delivery gmbh HoReCa Investment Management GmbH DISH Plus GmbH HoReCa Komplementär GmbH HoReCa Innovation I GmbH & Co. KG HoReCa Investment I GmbH & Co. KG HoReCa Strategic I GmbH & Co. KG METRO Wholesale & Food Services Vermögensverwaltung GmbH & Co. KG METRO Wholesale & Food Services Vermögensverwaltung Management GmbH MIP METRO Holding Management GmbH Markthalle GmbH METRO Hospitality Digital Holding GmbH METRO Dritte Verwaltungs GmbH METRO Vierte Verwaltungs GmbH METRO Fünfte Verwaltungs GmbH METRO Sechste Verwaltungs GmbH METRO Siebte Verwaltungs GmbH Hospitality Digital Services Germany GmbH HoReCa Innovation I Carry GmbH & Co. KG HoReCa Innovation I Team GmbH & Co. KG HoReCa Investment I Carry GmbH & Co. KG HoReCa Investment I Team GmbH & Co. KG HoReCa Strategic I Carry GmbH & Co. KG Hospitality.systems GmbH METRO Markets GmbH M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Gäufelden Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Meckenheim Meckenheim Kelsterbach Meckenheim Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf N O T E S O T H E R N O T E S 293 real Digital Agency GmbH Heim & Büro Versand GmbH hospitality.data GmbH METRO Payment Services GmbH METRO Fulfillment GmbH b) Real estate companies METRO Leasing GmbH METRO Asset Management Services GmbH Immobilien-Vermietungsgesellschaft von Quistorp GmbH & Co. Objekt Altlandsberg KG ADAGIO 3. Grundstücksverwaltungsgesellschaft mbH ARKON Grundbesitzverwaltung GmbH METRO PROPERTIES Holding GmbH MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Augsburg KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Bochum Otto Straße KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Rastatt KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Frankenthal KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Frankenthal-Studernheim KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Paderborn ‘Südring Center’ KG RUTIL Verwaltung GmbH & Co. SB-Warenhaus Bielefeld KG GKF Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Schaper Bremen- Habenhausen KG Blabert Grundstücksverwaltungsgesellschaft mbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hamm KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Oldenburg KG Renate Grundstücksverwaltungsgesellschaft mbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Mönchengladbach-Rheydt KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Emden KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Entwicklungsgrundstücke KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Arrondierungsgrundstücke KG RUDU Verwaltungsgesellschaft mbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Ratingen KG GKF Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Donaueschingen KG GKF Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Köln-Porz KG TIMUG GmbH & Co. Objekt Homburg KG ASSET Zweite Immobilienbeteiligungen GmbH AIB Verwaltungs GmbH SIL Verwaltung GmbH & Co. Objekt Haidach KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Gäufelden KG DFI Verwaltungs GmbH KUPINA Grundstücks-Verwaltungsgesellschaft mbH & Co. KG METRO Retail Real Estate GmbH METRO Wholesale Real Estate GmbH ADAGIO Grundstücksverwaltungsgesellschaft mbH ADAGIO 2. Grundstücksverwaltungsgesellschaft mbH 2. Schaper Objekt GmbH & Co. Kiel KG M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Düsseldorf Nister Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf N O T E S O T H E R N O T E S 294 Adolf Schaper GmbH & Co. Grundbesitz-KG ASH Grundstücksverwaltung XXX GmbH ZARUS Verwaltung GmbH & Co. Objekte Niedersachsen KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hildesheim-Senking KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Brühl KG ZARUS Verwaltung GmbH & Co. Objekt Mutterstadt KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Edingen-Neckarhausen KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hannover / Davenstedter Straße KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hannover-Linden KG GKF 6. Objekt Vermögensverwaltungsgesellschaft mbH GKF Vermögensverwaltungsgesellschaft mbH & Co. 8. Objekt - KG METRO PROPERTIES GmbH & Co. KG GKF Vermögensverwaltungsgesellschaft mbH & Co. 10. Objekt-KG MCC Vermögensverwaltungsgesellschaft mbH & Co. Objekt Ludwigshafen KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hannover Fössestraße KG FZB Fachmarktzentrum Bous Verwaltungsgesellschaft mbH & Co. KG Wolfgang Wirichs GmbH Wirichs Immobilien GmbH MTE Grundstücksverwaltung GmbH & Co. Objekt Duisburg oHG GKF Vermögensverwaltungsgesellschaft mbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Gewerbegrundstücke KG BAUGRU Immobilien - Beteiligungsgesellschaft mit beschränkter Haftung & Co. Grundstücksverwaltung KG GBS Gesellschaft für Unternehmensbeteiligungen mbH STW Grundstücksverwaltung GmbH PIL Grundstücksverwaltung GmbH NIGRA Verwaltung GmbH & Co. Objekt Moers KG NIGRA Verwaltung GmbH & Co. Objekt Detmold KG METRO Cash & Carry Grundstücksverwaltungsgesellschaft mbH NIGRA Verwaltung GmbH & Co. Objekt Eschweiler KG NIGRA Verwaltung GmbH & Co. Objekt Langendreer KG NIGRA Verwaltung GmbH & Co. Objekt Rendsburg KG GKF Vermögensverwaltungsgesellschaft mbH & Co. 25. Objekt-KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Herten KG NIGRA Verwaltung GmbH & Co. Objekt Neunkirchen KG Deutsche SB-Kauf GmbH & Co. KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Saar-Grund KG Schaper Grundbesitz-Verwaltungsgesellschaft mbH MDH Secundus GmbH & Co. KG NIGRA Verwaltung GmbH & Co. Objekt Germersheim KG Kaufhalle GmbH & Co. Objekt Lager Apfelstädt KG Kaufhalle GmbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Espelkamp KG ASSET Immobilienbeteiligungen GmbH ASSET Köln-Kalk GmbH Horten Nürnberg GmbH M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf N O T E S O T H E R N O T E S 295 METRO International Beteiligungs GmbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Duisburg KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Heinsberg KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Stralsund KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Bitterfeld KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Nettetal KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Krefeld KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Aachen SB-Warenhaus KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Braunschweig Hamburger Straße KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Wülfrath KG GKF Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Wolfenbüttel KG GKF Grundstücksverwaltung GmbH & Co. Objekt Bremen-Vahr KG GKF Grundstücksverwaltung GmbH & Co. Objekt Emden KG GKF Grundstücksverwaltung GmbH & Co. Objekt Groß-Zimmern KG GKF Grundstücksverwaltung GmbH & Co. Objekt Norden KG TIMUG Verwaltung GmbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Mönchengladbach ZV II KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekte Amberg und Landshut KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Göttingen KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Kulmbach KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Regensburg KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Pfarrkirchen KG METRO Leasing Objekt Schwerin GmbH GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Kassel KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Bannewitz KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Mönchengladbach ZV I KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hürth KG Deutsche SB-Kauf Beteiligungsverwaltung GmbH Schaper Beteiligungsverwaltung GmbH MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Porta-Westfalica KG MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt München-Pasing KG MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Schwelm KG MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Berlin-Friedrichshain KG MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Hamburg-Altona KG METRO Campus Services GmbH Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 296 55. Overview of the major fully consolidated group companies Registered office Stake in % Sales1 in € million Name Holding companies METRO AG Düsseldorf, Germany METRO Cash & Carry International GmbH Düsseldorf, Germany 100.00 METRO Wholesale METRO Deutschland GmbH Düsseldorf, Germany METRO France S.A.S. METRO Jinjiang Cash & Carry Co., Ltd. METRO Cash & Carry OOO Nanterre, France Shanghai, China Moscow, Russia METRO Italia Cash and Carry S. p. A. San Donato Milanese, Italy Makro Cash and Carry Polska S.A. Makro Autoservicio Mayorista S. A. U. Warsaw, Poland Madrid, Spain METRO CASH & CARRY ROMANIA SRL Bucharest, Romania MAKRO Cash & Carry CR s.r.o. Prague, Czech Republic METRO Grosmarket Bakirköy Alisveris Hizmetleri Ticaret Ltd. Sirketi Istanbul, Turkey METRO Cash & Carry India Private Limited Bengaluru, India METRO Distributie Nederland B. V. Amsterdam, Netherlands METRO Cash & Carry Österreich GmbH Vösendorf, Austria 100.00 100.00 90.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 73.00 0 0 4,423 4,280 2,812 2,700 1,723 1,385 1,255 1,191 1,080 1,027 848 780 760 Real real GmbH Other companies Düsseldorf, Germany 100.00 6,970 METRO Sourcing International Limited Hong Kong, China METRO LOGISTICS Germany GmbH Düsseldorf, Germany METRO PROPERTIES GmbH & Co. KG Düsseldorf, Germany METRO-nom GmbH METRO International AG 1 Including consolidated national subsidiaries. Düsseldorf, Germany Baar, Switzerland, 100.00 100.00 92.90 100.00 100.00 24 0 0 0 0 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 297 56. Boards of METRO AG and mandates of their members Members of the Supervisory Board (As of 3 December 2019) Jürgen Steinemann (Chairman) CEO of JBS Holding GmbH Shareholder representative Herbert Bolliger Self-employed business consultant Shareholder representatives a) Big Dutchman AG (Vice Chairman) a) None b) Bankiva B.V., Wezep, Netherlands – b) Amann Wine Group Holding SA, Zug, Supervisory Board (Chairman) Barry Callebaut AG1, Zurich, Switzerland – Board of Directors, until 11 December 2019 Lonza Group AG1, Basle, Switzerland – Board of Directors Switzerland – Board of Directors BNP Paribas (Suisse) AG1, Geneva, Switzerland – Board of Directors MTH Retail Group Holding GmbH, Vienna, Austria – Supervisory Board Office World Holding AG, Bolligen, Switzerland – Board of Werner Klockhaus (Vice Chairman) Directors (Vice President) Chairman of the Group Works Council of METRO AG Gwyn Burr Chairman of the General Works Council of Member of the Board of Directors of Real GmbH Hammerson plc, London, United Kingdom Employee representative Shareholder representative a) Hamburger Pensionskasse von 1905 Versicherungsverein auf Gegenseitigkeit Real GmbH2 (Vice Chairman) b) None Stefanie Blaser Chairwoman of the General Works Council of METRO PROPERTIES GmbH & Co. KG Saarbrücken Employee representative a) None b) None a) None b) Hammerson plc1, London, United Kingdom – Board of Directors Ingleby Farms and Forests ApS, Køge, Denmark – Board of Directors Just Eat plc1, London, United Kingdom – Board of Directors Sainsbury’s Bank plc1, London, United Kingdom – Board of Directors Taylor Wimpey plc1, London, United Kingdom – Board of Directors Thomas Dommel Chairman of the General Works Council of METRO LOGISTICS Germany GmbH Employee representative a) METRO LOGISTICS Germany GmbH2 (Vice Chairman) b) None a) Memberships in other statutory supervisory boards within the meaning of § 125 Section 1 Sentence 5, 1st alt. of the German Stock Corporation Act (AktG) b) Memberships in comparable German and international supervisory bodies of commercial enterprises within the meaning of § 125 Section 1 Sentence 5, 2nd alt. of the German Stock Corporation Act (AktG) 1 Listed company 2 Intra-group mandate M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 298 Prof. Dr Edgar Ernst Peter Küpfer President of the German Financial Self-employed business consultant Reporting Enforcement Panel (FREP) Shareholder representative a) TUI AG1 Vonovia SE1 (Vice Chairman) b) None Shareholder representative a) CECONOMY AG1, until 30 April 2019 b) AHRA AG, Zurich, Switzerland – Board of Directors (President) AHRB AG, Zurich, Switzerland – Board of Directors (President) Dr Florian Funck (until 7 December 2019) ARH Resort Holding AG, Zurich, Member of the Management Board of Franz Switzerland – Board of Directors (President) Haniel & Cie. GmbH Breda Consulting AG, Zurich, Switzerland – Shareholder representative a) CECONOMY AG1 TAKKT AG1 (Chairman, since 15 May 2019) Vonovia SE1 b) None Board of Directors (President) Cambiata Ltd, Road Town, Tortola, British Virgin Islands – Board of Directors Cambiata Schweiz AG, Zurich, Switzerland – Board of Directors Gebr. Schmidt GmbH & Co. KG – Advisory Michael Heider Council Vice Chairman of the General Works Council Lake Zurich Fund Exempt Company, George of METRO Deutschland GmbH Town, Grand Cayman, Cayman Islands – Chairman of the Works Council of the Board of Directors METRO wholesale store Schwelm Supra Holding AG, Zug, Switzerland – Board Employee representative a) METRO Großhandelsgesellschaft mbH2 b) None of Directors Susanne Meister Member of the General Works Council of Real GmbH Employee representative a) None b) None Dr Angela Pilkmann Category Manager Food at Real GmbH Employee representative a) None b) None a) Memberships in other statutory supervisory boards within the meaning of § 125 Section 1 Sentence 5, 1st alt. of the German Stock Corporation Act (AktG) b) Memberships in comparable German and international supervisory bodies of commercial enterprises within the meaning of § 125 Section 1 Sentence 5, 2nd alt. of the German Stock Corporation Act (AktG) 1 Listed company 2 Intra-group mandate M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 299 Dr Fredy Raas Alexandra Soto Managing Director of Beisheim Holding Group Executive Director, Managing GmbH, Baar, Switzerland and Beisheim Director and Global Chief Operating Officer Group GmbH & Co. KG of Lazard Financial Advisory, Lazard & Co., Shareholder representative a) CECONOMY AG1 b) ARISCO Holding AG, Baar, Switzerland – Board of Directors HUWA Finanz- und Beteiligungs AG, Au, Limited, London, United Kingdom Shareholder representative a) None b) None Switzerland – Board of Directors Angelika Will (President), since 23 October 2018 Honorary Judge at the Federal Labour Montana Capital Partners AG, Baar, Court Secretary of the Regional Association Switzerland – Board of Directors, until Board North Rhine-Westphalia of DHV – Die 31 December 2018 Berufsgewerkschaft e.V. (federal specialist group trade and Xaver Schiller logistics) Chairman of the General Works Council of Employee representative METRO Deutschland GmbH Chairman of the Works Council of the METRO wholesale store Munich-Brunnthal Employee representative a) METRO Großhandelsgesellschaft mbH2 (Vice Chairman) b) None Eva-Lotta Sjöstedt Self-employed Business Consultant Shareholder representative a) None b) None a) None b) None Manfred Wirsch Secretary of the National Executive Board of Verdi Vereinte Dienstleistungsgewerkschaft e. V Employee representatives a) METRO Großhandelsgesellschaft mbH2 b) None Silke Zimmer Secretary of the National Executive Board of Verdi Vereinte Dr Liliana Solomon Dienstleistungsgewerkschaft e. V. Chief Financial Officer of Awaze Group Employee representative Limited, London, United Kingdom Shareholder representative a) Scout24 AG1 (Vice Chairwoman), until 30 August 2019 b) None a) None b) None a) Memberships in other statutory supervisory boards within the meaning of § 125 Section 1 Sentence 5, 1st alt. of the German Stock Corporation Act (AktG) b) Memberships in comparable German and international supervisory bodies of commercial enterprises within the meaning of § 125 Section 1 Sentence 5, 2nd alt. of the German Stock Corporation Act (AktG) 1 Listed company 2 Intra-group mandate M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 300 Permanent Supervisory Board committees and their composition (As of 3 December 2019) Presidential Committee Jürgen Steinemann (Chairman) Nomination Committee Jürgen Steinemann (Chairman) Werner Klockhaus (Vice Chairman) Gwyn Burr Xaver Schiller Dr Liliana Solomon Prof. Dr Edgar Ernst Audit Committee Prof. Dr Edgar Ernst (Chairman) Werner Klockhaus (Vice Chairman) Thomas Dommel Dr Florian Funck Dr Fredy Raas Xaver Schiller Mediation Committee pursuant to § 27 Section 3 of the German Co-determination Act Jürgen Steinemann (Chairman) Werner Klockhaus (Vice Chairman) Prof. Dr Edgar Ernst Xaver Schiller M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 301 Members of the Management Board (As of 3 December 2019) Olaf Koch (Chairman) a) Real GmbH2 (Chairman) METRO-NOM GmbH2 (Chairman), since 1 November 2019 b) Hospitality Digital GmbH2 – Advisory Board (Chairman) Christian Baier (Chief Financial Officer) a) METRO Großhandelsgesellschaft mbH2 METRO RE AG2 – Supervisory Board (Chairman) b) Hospitality Digital GmbH2 – Advisory Board METRO Cash & Carry International Holding GmbH2, Vösendorf, Austria – Supervisory Board (Chairman) METRO Holding France S. A.2, Vitry-sur-Seine, France – Board of Directors Andrea Euenheim (Chief Human Resources Officer and Labour Director, since 1 November 2019) Since 1 November 2019 METRO Großhandelsgesellschaft mbH2, since 1 November 2019 Real GmbH2, as of 1 January 2020 None Heiko Hutmacher (Chief Human Resources Officer and Labour Director, until 31 October 2019) Until 31 December 2019 a) METRO Großhandelsgesellschaft mbH2, until 31 October 2019 Real GmbH2, until 31 December 2019 METRO-NOM GmbH2 (Chairman), until 31 October 2019 b) None Philippe Palazzi (Chief Operating Officer) a) None b) Hospitality Digital GmbH2 – Advisory Board METRO Holding France S. A.2, Vitry-sur- Seine, France – Board of Directors (Chairman) METRO FSD France S.A.S.2, Rungis, France – Board of Directors (Chairman) METRO Wholesale Myanmar Ltd.2, Rangoon, Myanmar – Supervisory Board Classic Fine Foods Netherlands B.V.2, Amsterdam, Netherlands – Board of Directors a) Memberships in other statutory supervisory boards within the meaning of § 125 Section 1 Sentence 5, 1st alt. of the German Stock Corporation Act (AktG) b) Memberships in comparable German and international supervisory bodies of commercial enterprises within the meaning of § 125 Section 1 Sentence 5, 2nd alt. of the German Stock Corporation Act (AktG) 2 Intra-group mandate M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 302 57. Affiliated companies of the group METRO AG as of 30 September 2019 pursuant to § 313 of the German Commercial Code Name Consolidated subsidiaries Registered office Country Share in capital in % 2. Schaper Objekt GmbH & Co. Kiel KG Düsseldorf ADAGIO 2. Grundstücksverwaltungsgesellschaft mbH Düsseldorf ADAGIO 3. Grundstücksverwaltungsgesellschaft mbH Düsseldorf ADAGIO Grundstücksverwaltungsgesellschaft mbH Adolf Schaper GmbH & Co. Grundbesitz-KG AIB Verwaltungs GmbH ARKON Grundbesitzverwaltung GmbH ASH Grundstücksverwaltung XXX GmbH ASSET Immobilienbeteiligungen GmbH ASSET Köln-Kalk GmbH ASSET Zweite Immobilienbeteiligungen GmbH Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Aubepine SARL Châlette-sur-Loing France Avilo Marketing Gesellschaft m. b. H. Vösendorf Austria BAUGRU Immobilien - Beteiligungsgesellschaft mit beschränkter Haftung & Co. Grundstücksverwaltung KG Düsseldorf Germany Beijing Weifa Trading & Commerce Co. Ltd. Beijing Blabert Grundstücksverwaltungsgesellschaft mbH Düsseldorf cc delivery gmbh CCG DE GmbH CJSC METRO Management Ukraine Meckenheim Kelsterbach Kiev China Germany Germany Germany Ukraine Classic Coffee & Beverage Sdn Bhd Kuala Lumpur Malaysia Classic Fine Foods (Hong Kong) Limited Classic Fine Foods (Macau) Ltd Classic Fine Foods (Singapore) Private Limited Classic Fine Foods (Thailand) Company Limited Hong Kong Macao Singapore Bangkok Classic Fine Foods (Thailand) Holding Company Limited Bangkok China China Singapore Thailand Thailand Classic Fine Foods (Vietnam) Limited Ho Chi Minh City Vietnam Classic Fine Foods China Holdings Limited Classic Fine Foods China Trading Limited Classic Fine Foods EM LLC Classic Fine Foods Group Limited Classic Fine Foods Holdings Limited Classic Fine Foods Japan Holdings Classic Fine Foods Macau Holding Limited Classic Fine Foods Netherlands BV Classic Fine Foods Philippines Inc. Classic Fine Foods Rungis SAS Classic Fine Foods Sdn Bhd Hong Kong Hong Kong Abu Dhabi London London Tokyo Hong Kong Rotterdam Makati Rungis China China United Arab Emirates United Kingdom United Kingdom Japan China Netherlands Philippines France Kuala Lumpur Malaysia Classic Fine Foods UK Limited London United Kingdom 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 94.00 100.00 100.00 100.00 100.00 100.00 99.80 100.00 100.00 49.00 100.00 100.00 100.00 50.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 N O T E S O T H E R N O T E S 303 Classic Fine Foodstuff Trading LLC Concarneau Trading Office SAS COOL CHAIN GROUP PL Sp. z o.o. Culinary Agents Italia s.r.l. Abu Dhabi Concarneau Cracow San Donato Milanese Dalian METRO Warehouse Management Co., Ltd. Dalian United Arab Emirates France Poland Italy China DAYCONOMY GmbH Düsseldorf Germany Deelnemingmaatschappij Arodema B.V. Amsterdam Netherlands Deutsche SB-Kauf Beteiligungsverwaltung GmbH Deutsche SB-Kauf GmbH & Co. KG DFI Verwaltungs GmbH Dinghao Foods (Shanghai) Co. Ltd. Düsseldorf Düsseldorf Düsseldorf Shanghai Germany Germany Germany China DISH Plus GmbH Düsseldorf Germany Doxa Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Mönchengladbach KG Mainz Etablissements Blin SAS Fideco AG French F&B (Japan) Co., Ltd. Freshly CR s.r.o. Saint-Gilles Germany France Courgevaux Switzerland Tokyo Prague Japan Czech Republic Fulltrade International GmbH Düsseldorf Germany FZB Fachmarktzentrum Bous Verwaltungsgesellschaft mbH & Co. KG Düsseldorf GBS Gesellschaft für Unternehmensbeteiligungen mbH Düsseldorf GKF 6. Objekt Vermögensverwaltungsgesellschaft mbH Düsseldorf Germany Germany Germany GKF Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Donaueschingen KG GKF Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Köln-Porz KG Düsseldorf Germany Düsseldorf Germany GKF Grundstücksverwaltung GmbH & Co. Objekt Bremen- Vahr KG Düsseldorf GKF Grundstücksverwaltung GmbH & Co. Objekt Emden KG Düsseldorf GKF Grundstücksverwaltung GmbH & Co. Objekt Groß- Zimmern KG Düsseldorf GKF Grundstücksverwaltung GmbH & Co. Objekt Norden KG Düsseldorf Germany Germany Germany Germany GKF Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Schaper Bremen-Habenhausen KG Düsseldorf Germany GKF Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Wolfenbüttel KG GKF Vermögensverwaltungsgesellschaft mbH GKF Vermögensverwaltungsgesellschaft mbH & Co. 10. Objekt-KG GKF Vermögensverwaltungsgesellschaft mbH & Co. 25. Objekt-KG GKF Vermögensverwaltungsgesellschaft mbH & Co. 8. Objekt-KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Arrondierungsgrundstücke KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Entwicklungsgrundstücke KG GKF Vermögensverwaltungsgesellschaft mbH & Co. Gewerbegrundstücke KG Düsseldorf Düsseldorf Germany Germany Düsseldorf Germany Düsseldorf Germany Düsseldorf Germany Düsseldorf Germany Düsseldorf Germany Düsseldorf Germany M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 49.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 0.001 100.00 100.00 93.83 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 94.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 N O T E S O T H E R N O T E S 304 GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Aachen SB-Warenhaus KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Bannewitz KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Bitterfeld KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Bochum Otto Straße KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Braunschweig Hamburger Straße KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Brühl KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Duisburg KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Edingen-Neckarhausen KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Emden KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Espelkamp KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Frankenthal KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Frankenthal-Studernheim KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Gäufelden KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Göttingen KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hamm KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hannover / Davenstedter Straße KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hannover Fössestraße KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hannover-Linden KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Heinsberg KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Herten KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hildesheim-Senking KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Hürth KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Kassel KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Krefeld KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Kulmbach KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Mönchengladbach ZV I KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Mönchengladbach ZV II KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Mönchengladbach-Rheydt KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Nettetal KG Düsseldorf Germany M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 94.90 100.00 94.90 100.00 94.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 94.90 100.00 100.00 94.00 100.00 94.90 N O T E S O T H E R N O T E S 305 GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Oldenburg KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Paderborn ‘Südring Center’ KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Pfarrkirchen KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Rastatt KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Ratingen KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Regensburg KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Saar-Grund KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Stralsund KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekt Wülfrath KG Düsseldorf Germany GKF Vermögensverwaltungsgesellschaft mbH & Co. Objekte Amberg und Landshut KG Düsseldorf Germany Goldhand Lebensmittel- u. Verbrauchsgüter- Vertriebsgesellschaft mit beschränkter Haftung GrandPari Limited Liability Company Heim & Büro Versand GmbH HoReCa Innovation I Carry GmbH & Co. KG HoReCa Innovation I GmbH & Co. KG HoReCa Innovation I Team GmbH & Co. KG HoReCa Investment I Carry GmbH & Co. KG HoReCa Investment I GmbH & Co. KG HoReCa Investment I Team GmbH & Co. KG HoReCa Investment Management GmbH HoReCa Komplementär GmbH HoReCa Strategic I Carry GmbH & Co. KG HoReCa Strategic I GmbH & Co. KG Horten Nürnberg GmbH Hospitality Digital France SAS Hospitality Digital GmbH Hospitality Digital Services Austria GmbH Hospitality Digital Services Germany GmbH hospitality.data GmbH HOSPITALITY.digital, Inc. Hospitality.systems GmbH ICS METRO Cash & Carry Moldova S.R.L. Düsseldorf Moscow Nister Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Paris Düsseldorf Vienna Düsseldorf Düsseldorf Germany Russia Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany Germany France Germany Austria Germany Germany Wilmington USA Düsseldorf Chişinău Germany Moldova Immobilien-Vermietungsgesellschaft von Quistorp GmbH & Co. Objekt Altlandsberg KG Düsseldorf Germany Inpakcentrale ICN B.V. Johannes Berg GmbH, Weinkellerei Kaufhalle GmbH Kaufhalle GmbH & Co. Objekt Lager Apfelstädt KG Klassisk Group (S) Pte. Ltd. Klassisk Investment Limited Duiven Düsseldorf Düsseldorf Düsseldorf Singapore Netherlands Germany Germany Germany Singapore Hong Kong China M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 100.00 100.00 100.00 100.00 100.00 100.00 100.00 94.90 100.00 100.00 100.00 100.00 100.00 3.261 100.00 0.671 3.321 100.00 0.071 100.00 100.00 4.261 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 90.24 100.00 100.00 100.00 100.00 100.00 100.00 N O T E S O T H E R N O T E S 306 KUPINA Grundstücks-Verwaltungsgesellschaft mbH & Co. KG Düsseldorf Liqueur & Wine Trade GmbH LLC Ukrainian Wholesale Trade Company Makro Autoservicio Mayorista S. A. U. Düsseldorf Kiev Madrid Germany Germany Ukraine Spain MAKRO Cash & Carry Belgium NV Wommelgem Belgium MAKRO Cash & Carry CR s.r.o. Makro Cash & Carry Egypt LLC Makro Cash & Carry Portugal S.A. Prague Cairo Lisbon Czech Republic Egypt Portugal Makro Cash & Carry UK Holding Limited Manchester United Kingdom Makro Cash and Carry Polska S.A. Warsaw Poland Makro Ltd. Manchester United Kingdom Makro Pension Trustees Ltd. Manchester United Kingdom Markthalle GmbH Düsseldorf Germany MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Augsburg KG Düsseldorf Germany MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Berlin-Friedrichshain KG Düsseldorf Germany MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Hamburg-Altona KG Düsseldorf Germany MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt München-Pasing KG Düsseldorf Germany MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Porta-Westfalica KG Düsseldorf Germany MCC Grundstücksverwaltungsgesellschaft mbH & Co. Objekt Schwelm KG MCC Trading Deutschland GmbH MCC Trading International GmbH MCC Vermögensverwaltungsgesellschaft mbH & Co. Objekt Ludwigshafen KG MCCAP Holding GmbH MCCI Asia Pte. Ltd. MDH Secundus GmbH & Co. KG Meister feines Fleisch - feine Wurst GmbH Düsseldorf Düsseldorf Düsseldorf Düsseldorf Vienna Singapore Düsseldorf Gäufelden Germany Germany Germany Germany Austria Singapore Germany Germany METRO (Changchun) Property Service Co. Ltd. Changchun China METRO Advertising GmbH Düsseldorf Germany METRO Advertising Spółka z ograniczoną odpowiedzialnością METRO Asset Management Services GmbH METRO Białystok sp. z o.o. METRO Bielsko-Biała sp. z o.o. METRO Bydgoszcz sp. z o.o. METRO Campus Services GmbH METRO Cash & Carry Bulgaria EOOD METRO Cash & Carry Central Asia Holding GmbH METRO Cash & Carry d.o.o. METRO Cash & Carry d.o.o. METRO Cash & Carry Danmark ApS. METRO Cash & Carry France et Cie Warsaw Düsseldorf Warsaw Warsaw Warsaw Düsseldorf Sofia Vienna Zagreb Belgrade Glostrup Monaco Poland Germany Poland Poland Poland Germany Bulgaria Austria Croatia Serbia Denmark Monaco METRO Cash & Carry Grundstücksverwaltungsgesellschaft mbH Düsseldorf Germany M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 94.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 94.90 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 N O T E S O T H E R N O T E S 307 METRO Cash & Carry Import Limited Liability Company Noginsk METRO Cash & Carry India Private Limited METRO Cash & Carry International GmbH Bengaluru Düsseldorf Russia India Germany METRO Cash & Carry International Holding B. V. Amsterdam Netherlands METRO Cash & Carry International Holding GmbH METRO Cash & Carry Japan KK METRO Cash & Carry Myanmar Holding GmbH Vienna Tokyo Vienna Austria Japan Austria METRO Cash & Carry Nederland B.V. Amsterdam Netherlands METRO Cash & Carry OOO METRO Cash & Carry Österreich GmbH METRO CASH & CARRY ROMANIA SRL Moscow Vösendorf Bucharest Russia Austria Romania METRO Cash & Carry Russia N.V. Amsterdam Netherlands METRO Cash & Carry SR s.r.o. METRO Cash & Carry TOO METRO Cash & Carry Ukraine Ltd. METRO Cash & Carry Wines METRO Central East Europe GmbH METRO Częstochowa sp. z o.o. METRO Delivery Service NV METRO Germany GmbH METRO Dienstleistungs-Holding GmbH Ivanka pri Dunaji Slovakia Almaty Kiev Hyderabad Vienna Warsaw Willebroek Düsseldorf Düsseldorf Kazakhstan Ukraine India Austria Poland Belgium Germany Germany METRO Distributie Nederland B. V. Amsterdam Netherlands METRO DOLOMITI S.p.A. METRO Dritte Verwaltungs GmbH METRO Erste Erwerbsgesellschaft mbH San Donato Milanese Düsseldorf Düsseldorf Italy Germany Germany METRO FIM S.p.A. Cinisello Balsamo Italy METRO Finanzdienstleistungs Pensionen GmbH Düsseldorf Germany METRO France Immobiliere S. a. r. l. METRO France S.A.S. METRO FSD France S.A.S. METRO FSD Holding GmbH METRO Fulfillment GmbH METRO Fünfte Verwaltungs GmbH METRO Gdańsk-Przejazdowo sp. z o.o. METRO Gdynia sp. z o.o. METRO Global Business Services Private Limited Nanterre Nanterre Montauban Düsseldorf Düsseldorf Düsseldorf Warsaw Warsaw Pune METRO Grosmarket Bakirköy Alisveris Hizmetleri Ticaret Ltd. Sirketi Istanbul METRO Groß- und Lebensmitteleinzelhandel Holding GmbH Düsseldorf METRO Großhandelsgesellschaft mbH METRO GROUP Accounting Center GmbH Düsseldorf Wörrstadt METRO Group Asset Management Ukraine, Limited Liability Company Kiev METRO Group Commerce (Shanghai) Co., Ltd. METRO GROUP COMMERCE LIMITED Shanghai Hong Kong France France France Germany Germany Germany Poland Poland India Turkey Germany Germany Germany Ukraine China China METRO Group Properties SR s.r.o. Ivanka pri Dunaji Slovakia METRO Group Retail Real Estate Romania S.R.L. Voluntari Romania M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 73.00 100.00 100.00 100.00 100.00 100.00 99.99 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 N O T E S O T H E R N O T E S 308 METRO Group Wholesale Real Estate Bulgaria EOOD Sofia Bulgaria METRO Holding France S. A. Vitry-sur-Seine France Germany Germany Germany Switzerland Germany Germany Italy China Poland Hungary Poland Poland Poland Poland Poland Germany Germany Poland Poland Germany Poland Poland Poland Bulgaria Germany China Poland Poland Pakistan Germany Poland Poland METRO Hospitality Digital Holding GmbH METRO Innovations Holding GmbH METRO Insurance Broker GmbH METRO International AG METRO International Beteiligungs GmbH METRO INTERNATIONAL SUPPLY GmbH METRO Italia Cash and Carry S. p. A. METRO Jinjiang Cash & Carry Co., Ltd. METRO Kalisz sp. z o.o. METRO Kereskedelmi Kft. METRO Kielce sp. z o.o METRO Kobierzyce sp. z o.o. METRO Koszalin sp. z o.o. METRO Kraków Jasnogórska sp. z o.o. METRO Kraków Zakopiańska sp. z o.o. METRO Leasing GmbH METRO Leasing Objekt Schwerin GmbH METRO Legnica sp. z o.o. METRO Łódź sp. z o.o. METRO LOGISTICS Germany GmbH METRO Logistics Polska sp. z o.o. METRO Logistics Polska spółka z ograniczoną odpowiedzialnością i Spółka spółka komandytowa METRO Lublin sp. z o.o. METRO Management EOOD METRO Markets GmbH Düsseldorf Düsseldorf Düsseldorf Baar Düsseldorf Düsseldorf San Donato Milanese Shanghai Warsaw Budaörs Warsaw Warsaw Warsaw Warsaw Warsaw Düsseldorf Düsseldorf Warsaw Warsaw Düsseldorf Warsaw Warsaw Warsaw Sofia Düsseldorf METRO North Warehouse Management (Chongqing) Co. Ltd. Chongqing METRO Olsztyn sp. z o.o. METRO Opole Sp. z o.o. METRO Pakistan (Pvt.) Limited METRO Payment Services GmbH METRO Poznań II sp. z o.o. METRO Poznań sp. z o.o. METRO Properties B.V. METRO Properties CR s.r.o. Warsaw Warsaw Lahore Düsseldorf Warsaw Warsaw Amsterdam Netherlands Prague Czech Republic METRO Properties Enterprise Management Consulting (Shanghai) Co., Ltd. METRO PROPERTIES France SAS METRO Properties Gayrimenkul Yatirim A.Ş. METRO PROPERTIES GmbH & Co. KG METRO PROPERTIES Holding GmbH METRO PROPERTIES Management GmbH METRO Properties Real Estate Management Spółka z ograniczoną odpowiedzialnością METRO PROPERTIES Sp. z o.o. Shanghai Nanterre Istanbul Düsseldorf Düsseldorf Düsseldorf Warsaw Warsaw China France Turkey Germany Germany Germany Poland Poland M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 90.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.83 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 92.90 100.00 66.67 100.00 100.00 N O T E S O T H E R N O T E S 309 METRO Property Management (Changsha) Co., Ltd. METRO Property Management (Changshu) Co. Ltd. Changsha Changshu METRO Property Management (Changzhou) Co. Ltd. Changzhou METRO Property Management (Cixi) Co., Limited Cixi METRO Property Management (Dongguan) Co. Ltd. Dongguan METRO Property Management (Hangzhou) Company Limited METRO Property Management (Harbin) Co. Ltd. METRO Property Management (Huai’an) Co., Ltd. Hangzhou Harbin Huai’an METRO Property Management (Jiangyin) Company Limited Jiangyin METRO Property Management (Jiaxing) Co. Ltd. METRO Property Management (Kunshan) Co. Ltd. METRO Property Management (Nanchang Qingshanhu) Co. Ltd. METRO Property Management (Nantong) Co. Ltd. Jiaxing Suzhou Nanchang Nantong METRO Property Management (Qingdao) Company Limited Qingdao METRO Property Management (Shenyang) Co. Ltd. METRO Property Management (Shenzhen) Co. Ltd. METRO Property Management (Suzhou) Co., Ltd. Shenyang Shenzhen Suzhou METRO Property Management (Tianjin Hongqiao) Co., Ltd. Tianjin METRO Property Management (Weifang) Co. Ltd. METRO Property Management (Wuhu) Co. Ltd. METRO Property Management (Xi’an) Co., Ltd. METRO Property Management (Xiamen) Co., Ltd. Weifang Wuhu Xi’an Xiamen METRO Property Management (Xiangyang) Co. Ltd. Xiangyang METRO Property Management (Zhangjiagang) Co. Ltd. Zhangjiagang METRO Property Management (Zhengzhou) Co., Ltd. Zhengzhou METRO Property Management (Zhongshan) Co. Limited Zhongshan METRO Property Management Wuxi Co. Ltd. METRO Re AG METRO Real Estate Ltd. METRO Retail Real Estate GmbH METRO Rybnik sp. z o.o. METRO Rzeszów sp. z o.o. METRO Rzgów sp. z o.o. METRO SB-Großmärkte GmbH & Co. Kommanditgesellschaft Wuxi Düsseldorf Zagreb Düsseldorf Warsaw Warsaw Warsaw Esslingen am Neckar METRO SB-Großmärkte GmbH & Co. Kommanditgesellschaft Linden METRO Sechste Verwaltungs GmbH METRO Services PL spółka z ograniczoną odpowiedzialnością Düsseldorf Szczecin METRO Siebte Gesellschaft für Vermögensverwaltung mbH Düsseldorf METRO Siebte Verwaltungs GmbH METRO Sosnowiec sp. z o.o. METRO Sourcing (Shanghai) Co., Ltd. METRO Sourcing International Limited METRO South East Asia Holding GmbH METRO Systems Romania S.R.L. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Düsseldorf Warsaw Shanghai Hong Kong Vienna Bucharest China China China China China China China China China China China China China China China China China China China China China China China China China China China Germany Croatia Germany Poland Poland Poland Germany Germany Germany Poland Germany Germany Poland China China Austria Romania 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 N O T E S O T H E R N O T E S 310 METRO Systems Ukraine LLC METRO Szczecin sp. z o.o. METRO Toruń sp. z o.o. METRO Travel Services GmbH METRO Vierte Verwaltungs GmbH Kiev Warsaw Warsaw Düsseldorf Düsseldorf METRO Warehouse Management (Chongqing) Co. Ltd. Chongqing METRO Warehouse Management (Hangzhou) Co. Ltd. Hangzhou METRO Warehouse Management (Suzhou) Co. Ltd. METRO Warehouse Management (Taizhou) Co. Ltd METRO Warehouse Management (Wuhan) Co. Ltd. METRO Warehouse Management (Yantai) Co., Limited METRO Warehouse Management (Zibo) Co., Ltd. Suzhou Taizhou Wuhan Yantai Zibo METRO Warehouse Noginsk Limited Liability Company Noginsk METRO Warszawa Jerozolimskie sp. z o.o. METRO Warszawa Kolumbijska sp. z o.o. Warsaw Warsaw Ukraine Poland Poland Germany Germany China China China China China China China Russia Poland Poland METRO Wholesale & Food Services Vermögensverwaltung GmbH & Co. KG Düsseldorf Germany METRO Wholesale & Food Services Vermögensverwaltung Management GmbH METRO Wholesale Myanmar Ltd. METRO Wholesale Real Estate GmbH METRO Zabki sp. z o.o. METRO Zabrze sp. z o.o. METRO Zielona Góra sp. z o.o. METRO-nom GmbH MGB METRO Group Buying RUS OOO MGC METRO Group Clearing GmbH MGE Warenhandelsgesellschaft mbH MGL METRO Group Logistics Bulgaria LTD MGL METRO Group Logistics GmbH Düsseldorf Rangoon Düsseldorf Warsaw Warsaw Warsaw Düsseldorf Moscow Düsseldorf Düsseldorf Sofia Düsseldorf MGL METRO Group Logistics Limited Liability Company Noginsk MGL METRO GROUP LOGISTICS UKRAINE LLC Kiev MGL METRO Group Logistics Warehousing Beteiligungs GmbH Düsseldorf MIP METRO Group Intellectual Property GmbH & Co. KG Düsseldorf MIP METRO Group Intellectual Property Management GmbH Düsseldorf MIP METRO Holding Management GmbH Düsseldorf MP Gayrimenkul Yönetim Hizmetleri Anonim Şirketi Istanbul MTE Grundstücksverwaltung GmbH & Co. Objekt Duisburg oHG Multi-Center Warenvertriebs GmbH My Mart (China) Trading Co., Ltd. My Mart (Shanghai) Trading Co. Ltd. N & NF Trading GmbH NIGRA Verwaltung GmbH & Co. Objekt Detmold KG Düsseldorf Düsseldorf Guangzhou Shanghai Düsseldorf Düsseldorf NIGRA Verwaltung GmbH & Co. Objekt Eschweiler KG Düsseldorf NIGRA Verwaltung GmbH & Co. Objekt Germersheim KG Düsseldorf NIGRA Verwaltung GmbH & Co. Objekt Langendreer KG Düsseldorf M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 Germany Myanmar Germany Poland Poland Poland Germany Russia Germany Germany Bulgaria Germany Russia Ukraine Germany Germany Germany Germany Turkey Germany Germany China China Germany Germany Germany Germany Germany 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 85.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 N O T E S O T H E R N O T E S 311 NIGRA Verwaltung GmbH & Co. Objekt Moers KG Düsseldorf NIGRA Verwaltung GmbH & Co. Objekt Neunkirchen KG Düsseldorf NIGRA Verwaltung GmbH & Co. Objekt Rendsburg KG Düsseldorf NordRhein Trading GmbH Petit RUNGIS express GmbH PIL Grundstücksverwaltung GmbH Pro à Pro Distribution Export SAS Pro à Pro Distribution Nord SAS Pro à Pro Distribution Sud SAS Germany Germany Germany Germany Germany Germany France Düsseldorf Meckenheim Düsseldorf Montauban Châlette-sur-Loing France Montauban France PT Classic Fine Foods Indonesia North Jakarta Indonesia Qingdao METRO Warehouse Management Co. Ltd. Qingdao China real Digital Agency GmbH Düsseldorf Germany real Digital Fulfillment CZ s.r.o. Mariánské Lázně Czech Republic Real Estate Management Misr Limited Liability Company Cairo real GmbH real,- Digital Fulfillment GmbH real,- Digital Services GmbH real,- Handels GmbH real,- Holding GmbH real,- SB-Warenhaus GmbH Remo Zaandam B.V. Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Düsseldorf Zaandam Egypt Germany Germany Germany Germany Germany Germany Netherlands Renate Grundstücksverwaltungsgesellschaft mbH Düsseldorf Germany Restu s.r.o. Retail Property 5 Limited Liability Company Retail Property 6 Limited Liability Company R’express Alimentos, Unipessoal LDA Prague Moscow Moscow Lisbon Czech Republic Russia Russia Portugal ROSARIA Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Gerlingen KG Düsseldorf Germany Rotterdam Trading Office B.V. Amsterdam Netherlands RUDU Verwaltungsgesellschaft mbH RUNGIS express GmbH RUNGIS express SPAIN SL Düsseldorf Meckenheim Germany Germany Palma de Mallorca Spain RUNGIS express Suisse Holding AG Courgevaux Switzerland RUTIL Verwaltung GmbH & Co. SB-Warenhaus Bielefeld KG Düsseldorf Schaper Beteiligungsverwaltung GmbH Schaper Grundbesitz-Verwaltungsgesellschaft mbH Sentinel GCC Holdings Limited Servicios de Distribución a Horeca Organizada, S.L. Sezam XVI Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych Shanghai Xinqing Property Management Co., Ltd. Shenzhen Hemaijia Trading Co. Ltd. SIL Verwaltung GmbH & Co. Objekt Haidach KG Sinco Großhandelsgesellschaft m. b. H. Düsseldorf Düsseldorf Tortola Madrid Warsaw Shanghai Shenzhen Düsseldorf Vösendorf Germany Germany Germany British Virgin Islands Spain Poland China China Germany Austria Sodeger SAS Château-Gontier France Star Farm (Shanghai) Agriculture Information Consulting Company Limited Shanghai China M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 94.001 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 90.00 100.00 100.00 73.00 100.00 100.00 N O T E S O T H E R N O T E S 312 Star Farm Pakistan Pvt. Ltd. STW Grundstücksverwaltung GmbH TIMUG GmbH & Co. Objekt Homburg KG TIMUG Verwaltung GmbH Transpro France SARL Transpro SAS VALENCIA TRADING OFFICE, S.L. Lahore Düsseldorf Düsseldorf Düsseldorf Montauban La Possession Madrid Pakistan Germany Germany Germany France France Spain Weinkellerei Thomas Rath GmbH Düsseldorf Germany Western United Finance Company Limited London United Kingdom Wholesale Real Estate Belgium N.V. Wommelgem Belgium Wholesale Real Estate Poland Sp. z o.o. Wirichs Immobilien GmbH Wolfgang Wirichs GmbH WRE Real Estate Limited Liability Partnership Warsaw Düsseldorf Düsseldorf Almaty Xi’an METRO Commercial and Trading Company Limited Xi’an Xinyan Property Management (Shanghai) Co., Ltd. Shanghai ZARUS Verwaltung GmbH & Co. Objekt Mutterstadt KG Düsseldorf ZARUS Verwaltung GmbH & Co. Objekte Niedersachsen KG Düsseldorf Joint ventures CABI-SFPK JV Intercompra LDA MAXXAM B.V. MAXXAM C.V. Lahore Lisbon Ede Ede MEC METRO-ECE Centermanagement GmbH & Co. KG Düsseldorf MEC METRO-ECE Centermanagement Verwaltungs GmbH Düsseldorf METSPA Beszerzési és Kereskedelmi Kft. METSPA d.o.o. za trgovinu Investments accounted for using the equity method EKS Handelsgesellschaft mbH EKS Handelsgesellschaft mbH & Co. KG European EPC Competence Center GmbH Budaörs Zagreb Salzburg Salzburg Cologne Poland Germany Germany Kazakhstan China China Germany Germany Pakistan Portugal Netherlands Netherlands Germany Germany Hungary Croatia Austria Austria Germany Fachmarktzentrum Essen GmbH & Co. KG Pullach im Isartal Germany Gourmet F&B Korea Ltd. Habib METRO Pakistan (Pvt) Ltd Helm Wohnpark Lahnblick GmbH Seoul Karachi Aßlar South Korea Pakistan Germany Horizon International Services Sàrl Le Grand-Saconnex Switzerland Iniziative Methab s.r.l. Kato Property GmbH Mayfair GP S.à r.l. Bolzano Berlin Italy Germany Luxembourg Luxembourg Mayfair Holding Company S.C.S. Luxembourg Luxembourg Napier Property GmbH OPCI FRENCH WHOLESALE PROPERTIES - FWP OPCI FRENCH WHOLESALE STORES - FWS Berlin Paris Paris Germany France France Peter Glinicke Grundstücks-GmbH & Co. KG Pullach im Isartal Germany M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 100.00 100.00 94.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 90.00 100.00 100.00 48.00 50.00 16.67 16.67 50.00 50.00 33.33 50.00 15.00 15.00 30.00 94.002 28.00 40.00 25.00 25.00 50.00 5.10 40.00 39.99 5.10 5.00 25.00 50.00 N O T E S O T H E R N O T E S 313 Quadrant Property GmbH Sabra Property GmbH Tatra Property GmbH Upton Property GmbH Wilcox Property GmbH Xiali Property GmbH Zagato Property GmbH Zender Property GmbH Investments BINARY SUBJECT, S.A. Culinary Agents Inc. Berlin Berlin Berlin Berlin Berlin Berlin Berlin Berlin Germany Germany Germany Germany Germany Germany Germany Germany Torres Vedras Portugal Wilmington USA Diehl & Brüser Handelskonzepte GmbH Düsseldorf Germany eVentures Growth, L.P. GREEN GRIZZLY GMBH Horizon Achats SARL Horizon Appels d’Offres SARL Wilmington USA Berlin Paris Paris Germany France France International Marketplace Network B.V. Amsterdam Netherlands MATSMART IN SCANDINAVIA AB Stockholm METRO plus Grundstücks-Vermietungsgesellschaft mbH Düsseldorf orderbird AG Patagona GmbH Planday A/S QUANTIS Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Darmstadt KG real,- Digital Payment & Technology Services GmbH RTG Retail Trade Group GmbH Shore GmbH Verwaltungsgesellschaft Lebensmittelgesellschaft ‘GLAWA’ mbH & Co. KG Yoyo Wallet Ltd. Berlin Darmstadt Copenhagen Schönefeld Düsseldorf Hamburg Munich Hamburg London Sweden Germany Germany Germany Denmark Germany Germany Germany Germany Germany United Kingdom 1 Inclusion according to IFRS 10. 2 No full consolidation due to minor materiality for the assets, financial and earnings position. 3 No full consolidation and not accounted for using the equity method due to minor materiality for the asset, financial and earnings position. 4 Not accounted for using the equity method due to minor materiality for the asset, financial and earnings position 3 December 2019 The Management Board 5.10 5.10 5.10 5.10 5.10 5.10 5.10 5.10 16.03 18.33 100.003 5.00 15.21 8.00 8.00 25.004 13.98 20.004 14.18 16.17 11.74 6.00 100.003 14.29 12.41 18.75 12.44 Olaf Koch Christian Baier Andrea Euenheim Heiko Hutmacher Philippe Palazzi M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 R E S P O N S I B I L I T Y S T A T E M E N T O F T H E L E G A L R E P R E S E N T A T I V E S 314 RESPONSIBILITY STATEMENT OF THE LEGAL REPRESENTATIVES To the best of our knowledge, and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the asset, financial and earnings position of the group, and the combined management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the significant opportunities and risks associated with the expected development of the group. 3 December 2019 The Management Board Olaf Koch Christian Baier Andrea Euenheim Heiko Hutmacher Philippe Palazzi M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 315 INDEPENDENT AUDITOR’S REPORT To METRO AG REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS AND OF THE COMBINED MANAGEMENT REPORT Opinions We have audited the consolidated financial statements of METRO AG and its subsidiaries (‘the Group’ or ‘METRO’), which comprise the income statement, the reconciliation of profit or loss for the period to total comprehensive income, the balance sheet as at 30 September 2019, the statement of changes in equity and the cash flow statement for the financial year from 1 October 2018 to 30 September 2019, and notes to the financial statements, including a summary of significant accounting policies. In addition, we have audited the combined management report of METRO for the financial year from 1 October 2018 to 30 September 2019. In accordance with the German legal requirements we have not audited the content of the non-financial statement, which is included in the ‘combined non-financial statement of METRO AG’ section of the combined management report. In our opinion, on the basis of the knowledge obtained in the audit, the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e (1) HGB [Handelsgesetzbuch: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at 30 September 2019, and of its financial performance for the financial year from 1 October 2018 to 30 September 2019, and the accompanying combined management report as a whole provides an appropriate view of the Group’s position. In all material respects, this combined management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our opinion on the combined management report does not cover the content of the non-financial statement mentioned above. Pursuant to Section 322 (3) sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the combined management report. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T Basis for the Opinions 316 We conducted our audit of the consolidated financial statements and of the combined management report in accordance with Section 317 HGB and the EU Audit Regulation No 537/2014 (referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Combined Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2)(f) of the EU Audit Regulation, we declare that we have not provided non- audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the combined management report. Key Audit Matters in the Audit of the Consolidated Financial Statements Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the financial year from 1 October 2018 to 30 September 2019. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion there on, we do not provide a separate opinion on these matters. The measurement and recognition of the hypermarket operations pursuant to IFRS 5 For the accounting policies applied, we refer to the disclosures in the notes in the section “Notes to the group accounting principles and methods”. Disclosures on the discontinued operation of the hypermarket operations and the corresponding disposal group can be found in the notes to the consolidated financial statements under Note 43 page 266 . The financial statement risk In an ad hoc announcement pursuant to Article 17 (1) of the EU Market Abuse Regulation [MAR] on 13 September 2018 the Management Board of METRO AG announced that it was starting the process of selling the Real retail business including the associated business activities. METRO assumed at that point in time that the sale could most likely be executed in the 2018/2019 financial year and thus classified the hypermarket operations as a discontinued operation pursuant to IFRS 5. The sale process was still ongoing as at 30 September 2019. The assets held for sale amount to EUR 2,206 million as at the reporting date. The liabilities associated with the assets held for sale amount to EUR 1,746 million as at the reporting date. The carrying amount of the disposal group has been reduced by impairment losses of EUR 401 million. METRO reports an after-tax loss from discontinued operations of EUR ‑649 million for the 2018/2019 financial year. To be classified as a discontinued operation, the operations must be available for sale in their current state, the sale must be highly probable and be expected within one year of classification. If these three conditions are met, the special presentation and measurement M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 317 rules of IFRS 5 apply. The particularity of the matter at hand is that the sale has been delayed beyond the one-year period. METRO attributes the delay to various events and circumstances beyond METRO’s control and assumes it is highly probable that the sale of the hypermarket operations will be concluded within a reasonable timeframe. The classification as a discontinued operation has thus been retained. The decision to retain the classification of the hypermarket operations as a discontinued operation and the measurement of the corresponding disposal group pursuant to IFRS 5 are complex and require judgement. There is the risk for the consolidated financial statements that the conclusion of the sale of the discontinued operation is not highly probable in the 2019/2020 financial year or that the other criteria for retaining the classification and presentation as a discontinued operation and the corresponding disposal group pursuant to IFRS 5 are not fulfilled. Furthermore, there is also the risk that the fair value less costs to sell is lower than the carrying amount of the assets held for sale less the liabilities associated with the assets held for sale. There is the risk that the disclosures in the notes to the consolidated financial statements regarding the discontinued operation are not appropriate. Our audit approach The main focus of our audit was the analysis of whether the classification and presentation of the hypermarket operations as a discontinued operation and of the corresponding disposal group can be maintained. One condition for this is that the delays in the sale process relate to events and circumstances beyond the entity’s control. Another condition is that there is sufficient evidence that the entity remains committed to its plan to sell the disposal group concerned. An indication of this includes regular adjustment of price expectations taking into account the current status of negotiations. In this regard, we intensively and regularly questioned the Management Board and the specialist departments with project responsibility regarding the status of the sale process, inspected available documents on the status of negotiations and assessed internal and external reporting. Furthermore, we assessed whether the allocation of income and expenses to the discontinued operation was correct. We assessed the appropriateness and the key assumptions made to determine the fair value less costs to sell of the assets and liabilities held for sale. To this end, we analysed the purchase price offer and determined a potential and probable range of agreement. In addition, we discussed the selling price expected by METRO AG with the Management Board and the responsible employees in the specialist departments. Furthermore, we also evaluated whether the explanations in the notes to the consolidated financial statements on the discontinued operation are appropriate. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 318 Our observations The decision to retain the classification and presentation of the hypermarket operations as discontinued operation and of the corresponding disposal group pursuant to IFRS 5 is appropriate. The judgements exercised in relation to the measurement are within an acceptable range and are balanced on the whole. The explanations in the notes to the consolidated financial statements on the discontinued operation are appropriate. Impairment testing of goodwill For the accounting policies applied, we refer to the disclosures in the notes in the section “Notes to the group accounting principles and methods”. Disclosures on the development of goodwill as well as impairment testing can be found in Note 19 page 212 to the consolidated financial statements. The financial statement risk Goodwill in the amount of EUR 785 million was reported in the consolidated financial statements of METRO AG as at 30 September 2019. Goodwill is allocated pursuant to IAS 36 to groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. These units are the organisational units ‘sales line per country’ for METRO. Goodwill is tested for impairment annually and as required. The starting point for identifying any impairment loss is the recoverable amount, which at METRO generally corresponds to fair value less the costs to sell and is compared with the respective carrying amount of the group of cash-generating units. In doing so, fair value is measured according to the discounted cash flow method. The reporting date for impairment testing is 30 June 2019. Impairment testing is based on cash flow planning, the starting point of which is the multi-year plan prepared by METRO. Future cash flows are discounted using the weighted average cost of capital of the groups of respective cash-generating units. The result of this impairment testing is highly dependent upon estimates of future cash flows as well as the cost of capital used and therefore subject to considerable uncertainty. There is a risk for the financial statements that impairment losses are recognised too late or not at all. In addition, IAS 36 requires extensive disclosures in the notes to the financial statements, particularly also in terms of METRO’s consideration of the potential sensitivity of material measurement assumptions and parameters. There is the risk that the disclosures in the notes are not complete and adequate. Our audit approach Our audit, which we carried out with the involvement of our own valuation experts, included, among others, assessing the appropriateness of the valuation model underlying impairment testing, particularly in terms of the accounting policies used as well as formal and computational accuracy. We confirmed the appropriateness of the future cash flows used in the calculation, among others, by comparing this information to the current budget figures in the multi- year plan prepared by METRO as well as through comparison with general and industry- specific market expectations. In this regard, we also confirmed the appropriateness of METRO’s budget process. Furthermore, we assessed the appropriateness of the long-term growth rates assumed and the sustainable write-down and reinvestment amounts. In addition, we critically analysed previous adherence to the budget on the basis of past target/actual deviations prepared by METRO. We also discussed the multi-year plan with M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 319 those responsible for the budget, paying particular regard to improvements in operating profitability in the detailed planning period. In view of the very high sensitivity of the calculated fair values to changes in the cost of capital, we rigorously examined – by taking into account country-specific particulars – the underlying assumptions and parameters for the cost of capital, especially the risk-free rate, market risk premium and beta coefficient, and assessed the calculation formula for computational and formal accuracy. Based on the sensitivity analyses carried out by METRO, we examined to what extent a reasonably possible change to the assumptions underlying the calculation could require recognising an impairment loss. We also audited the completeness and adequacy of the disclosures in the notes to the consolidated financial statements pursuant to IAS 36. Our observations The valuation model used for impairment testing is appropriate and in line with applicable IFRS accounting policies. Moreover, the measurement assumptions and parameters used by METRO are within an appropriate range and are reasonable. The disclosures in the notes are accurate. Impairment testing of land and buildings For the accounting policies applied, we refer to the disclosures in the notes in the section “Notes to the group accounting principles and methods”. Disclosures on movements in property, plant and equipment are page 218 in the notes. We also refer to Note 15 provided under Note 21 depreciation of property, plant and equipment. page 209 in the notes on The financial statement risk Land and buildings with a carrying amount of EUR 3,432 million were reported in the consolidated financial statements of METRO AG as at 30 September 2019. In the year under review, impairment losses of EUR 7 million were recognised. In accordance with IAS 36, real estate must be tested for impairment if there are any indications of potential impairment. Operating performance and the real estate market are relevant indicators of potential impairment. Pursuant to IAS 36, the carrying amount of the affected cash-generating unit must be compared with its recoverable amount for impairment testing purposes. The recoverable amount of a cash-generating unit is the higher of its fair value less costs to sell and its value in use. METRO regularly carries out impairment tests based on fair value less costs to sell. The basis for measurement is the present value of the future cash flows of the cash-generating unit, which is determined using the discounted cash flow method. Impairment testing is based on the cash flow planning of the cash-generating unit. This measurement is highly dependent upon the estimates of future cash flows as well as the interest rates used and therefore subject to considerable uncertainty. There is the risk that necessary impairment losses are recognised too late or not at all. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 320 Our audit approach The starting point for our audit were the indications of impairment of land and buildings identified by METRO We initially assessed which land and buildings indicated impairment using information obtained in the course of our audit. Our audit, which we carried out with the involvement of our own valuation experts, included, among others, assessing the appropriateness of the valuation models underlying impairment testing, particularly in terms of the accounting policies used as well as formal and computational accuracy. We confirmed the appropriateness of the future cash flows and market rents used in the calculation, among others, by comparing this information with the current budget figures as well as through comparison with general and use-specific market data. In addition, we addressed the cost of capital as well as real-estate-specific discount and capitalisation rates. In addition, we critically analysed previous adherence to the budget on the basis of past target/actual deviations prepared by METRO. Our observations Indications of impairment of land and buildings were appropriately identified. The valuation models used for impairment testing are appropriate and in line with the applicable accounting policies. Moreover, the measurement assumptions and parameters used are appropriate and reasonable. Impairment testing of deferred tax assets For the accounting policies applied, we refer to the disclosures in the notes in the section “Notes to the group accounting principles and methods”. Please see Note 25 page 227 in the notes for disclosures on deferred tax assets and liabilities. The financial statement risk EUR 191 million in deferred tax assets after netting is recognised in METRO’s consolidated financial statements as at 30 September 2019; EUR 65 million is attributable to loss carryforwards before netting. For the measurement of deferred tax assets, METRO has to assess to what extent it is probable that current deferred tax assets can be utilised in subsequent reporting periods. Utilising these deferred tax assets requires that sufficient taxable income is generated in future periods. If, on the other hand, there is reasonable doubt about the future usability of the deferred tax assets determined, these are not recognised, or if deferred tax assets have already been recognised, they are written down. The recognition of deferred tax assets and liabilities depends heavily on estimates and assumptions about the operating performance of country units and the Group’s tax planning and, thus, is subject to significant uncertainty. Moreover, utilising deferred tax assets also depends on the respective tax environment. The risk for the consolidated financial statements is that deferred tax assets are recognised that then cannot be realised in the future due to insufficient taxable income. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 321 Our audit approach We involved our own tax specialists in the audit to assess tax matters. We initially critically examined the temporary differences between the IFRS carrying amounts and the respective tax base. We also reconciled the tax losses carried forward for the German reporting entity with the tax assessment notices and the tax calculations for the current financial year and assessed off-balance sheet corrections. In the process, we tested the deferred tax assets for impairment on the basis of internal forecasts prepared by METRO on the future tax income situation, and critically assessed the underlying assumptions. Furthermore, we compared the planned future taxable income with the multi-year plan prepared by the METRO and checked it for consistency. In addition, we incorporated our findings from the critical analysis of previous adherence to the budget on the basis of past target/actual deviations prepared by METRO as well as our assessment of further substantial supporting documents to achieve the budgeted taxable income. Our observations The assumptions for the measurement of deferred tax assets are appropriate. Recognising compensation from suppliers For the accounting policies applied, we refer to the disclosures in the notes in the section “Notes to the group accounting principles and methods” under “Other page 226 in the notes on other financial assets. page 196 ”. In addition, we refer to Note 24 The financial statement risk The Group’s balance sheet as at 30 September 2019 presents receivables from suppliers in the amount of EUR 316 million under Other financial assets. The companies of METRO conclude agreements with suppliers on purchasing terms and conditions. These include, among others, agreements on subsequent discounts, rebates and other compensation from suppliers to METRO. Presentation of these agreements in the balance sheet and the income statement requires some judgements and assumptions, such as on achieving calendar year targets, which have a direct influence on the recognition of receivables from suppliers under the aforementioned agreements. There is the risk for the consolidated financial statements that the level of compensation realised from suppliers was estimated inaccurately so that the amount recognised for receivables from suppliers is too high. Our audit approach We examined the process for recognising and documenting supplier agreements and the establishment and design of the identified internal controls and assessed the effectiveness of the relevant internal controls in terms of the amount and accuracy of supplier compensation. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 322 We confirmed the underlying supplier agreements for a deliberate selection of receivables from suppliers based on size and risk, and assessed the recognition of supplier compensation in the balance sheet and income statement by evaluating the contractual arrangements. To that end, we scrutinised factors such as the underlying assumptions and data used to recognise the receivables from suppliers for realised but not yet invoiced compensation taking into account past experience. Our observations The recognition of the realised compensation from suppliers is consistent with the underlying supplier terms and conditions/agreements with the suppliers. On the whole, the assumptions used to assess the level of realisation of suppliers’ compensation not yet invoiced are appropriate. Other Information The Management Board is responsible for the other information. The other information comprises: the non-financial statement and the remaining parts of the annual report, with the exception of the audited consolidated financial statements and combined management report and our auditor’s report. Our opinions on the consolidated financial statements and on the combined management report do not cover the other information, and consequently we do not express an opinion or any other form of assurance conclusion thereon. In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information is materially inconsistent with the consolidated financial statements, with the combined management report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Responsibilities of the Management Board and the Supervisory Board for the Consolidated Financial Statements and the Combined Management Report The Management Board is responsible for the preparation of consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e (1) HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, the Management Board is responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 323 In preparing the consolidated financial statements, the Management Board is responsible for assessing the Group’s ability to continue as a going concern. Furthermore, the Management Board is responsible for disclosing, as applicable, matters related to going concern. In addition, the Management Board is responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so. Furthermore, the Management Board is responsible for the preparation of a combined management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the Management Board is responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a combined management report that is in accordance with the applicable requirements of German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the combined management report. The Supervisory Board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the combined management report. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Combined Management Report Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the combined management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the combined management report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this combined management report. We exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements and of the combined management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 324 Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the combined management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems. Evaluate the appropriateness of accounting policies used by the Management Board and the reasonableness of estimates made by the Management Board and related disclosures. Conclude on the appropriateness of the Management Board’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the combined management report or, if such disclosures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express opinions on the consolidated financial statements and on the combined management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions. Evaluate the consistency of the combined management report with the consolidated financial statements, its conformity with [German] law, and the view of the Group’s position it provides. Perform audit procedures on the prospective information presented by the Management Board in the combined management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the Management Board as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Supervisory Board with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 I N D E P E N D E N T A U D I T O R ’ S R E P O R T 325 From the matters communicated with the Supervisory Board, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. OTHER LEGAL AND REGULATORY REQUIREMENTS Further Information pursuant to Article 10 of the EU Audit Regulation We were elected as group auditor at the annual general meeting on 15 February 2019 and engaged by the Supervisory Board on the same date. We have been the group auditor of METRO AG without interruption since the 2016/2017 financial year. We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the audit committee referred to Article 11 of the EU Audit Regulation (long-form audit report). German Public Auditor responsible for the Engagement The German Public Auditor responsible for the engagement is Dr Thorsten Hain. Düsseldorf, 3 December 2019 KPMG AG Wirtschaftsprüfungsgesellschaft Dr Hain Auditor Klaaßen Auditor M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 329 GLOSSARY 338 FINANCIAL CALENDAR 2019/20 339 INFORMATION BACKSIDE CHAPTER SERVICES E R V I C E G L O S S A R Y 329 GLOSSARY C A Accelerator Initiative that supports start-ups, for example with coaching, thus accelerating the development and implementation of their business ideas. METRO has launched the METRO Accelerator powered by Techstars to support start-ups with innovative technologies for use in the food service, hospitality, catering and retail sectors. Amfori Business Social Compliance Initiative (Amfori BSCI) Founded in 2003, this global business association for open and sustainable trade works to ensure that production in all supplier countries complies with minimum social standards. The initiative aligns its standards with the UN’s Universal Declaration of Human Rights and the conventions of the International Labour Organization (ILO). Auditing Also audit. A procedure that assesses an organisation’s processes and structures according to previously formulated standards and guidelines. Audits shed light on the effectiveness of process optimisation measures. If an audit is conducted by an external auditor, the certificate issued after the review can be used as evidence of adherence to standards. Carbon Disclosure Project (CDP) The unaffiliated organisation was founded in London in 2000 by companies. It aims to disclose companies’ CO2 emissions as well as their climate and reduction risks, thereby contributing to the transparency of their corporate financial reporting on climate- relevant data. Each year, the CDP conducts standardised company surveys on a voluntary basis. Commercial Paper Programme Ongoing capital market programme typical of money markets that covers short-term financing needs. It facilitates the issuance of commercial papers (CP) as discounted, unsecured bearer bonds without standardised terms of maturity. Committee of Sponsoring Organizations of the Treadway Commission (COSO) US-based private-sector organisation that developed and published a standard for internal controls in 1992 that is recognised by the U.S. Securities and Exchange Commission. In 2004, this standard was updated and the COSO ERM (Enterprise Risk Management – Integrated Framework), also known as COSO II, was published. Compliance All measures specifying a company’s and its employees’ behaviour in accordance with legislation, established social guidelines and values. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E G L O S S A R Y 330 Cost of capital See Weighted Average Cost of Capital (WACC). Currency effects Currency effects result from situations where the same amount of currency units is translated into another currency at differing exchange rates. D Delivery indices, the DJSI family carries a particular cachet in terms of quality. E Earn-out Conditional purchase price (part) payment in the context of an acquisition of subsidiaries, usually tied to a performance target. EBIT (Earnings Before Interest and Taxes) Profit or loss before financial result and The delivery segment includes sales from (income) taxes. Due to its independence transactions without customer contact with from different forms of financing and tax a METRO store. This definition also forms systems, this key figure can also be used for the basis for the operational management international comparison with other of the delivery business. The previous companies. annual reports included additional revenues from transactions with delivery-related services of the METRO stores. It includes EBITaC (Earnings Before Interest and Taxes after Cost of Capital) EBIT after the costs of the employed capital. This indicator shows whether a company successfully uses its business assets and achieves value added that exceeds the cost of capital. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) Profit or loss before interest result, income taxes, depreciation/amortisation/impairment losses/reversals of impairment losses on property, plant and equipment, intangible assets and investment properties. This key figure serves the purpose of comparing companies with accounting systems that follow different accounting rules. commissioning products for later pick-up or delivery of the commissioned products to the customer’s location. Diversity management A central element of HR policy that harnesses the diversity of employees for corporate success in terms of gender, age, ethnicity, beliefs, sexual identities and potential disabilities. Dow Jones Sustainability Index (DJSI) An index family that measures the sustainability of the company. The measurement is comprised of economic, environmental and social criteria. The measured criteria for listed companies include, among others, corporate management, workforce policy, transparency, human rights and risk management. Among all sustainability M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E G L O S S A R Y 331 EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortisation and Rent) F Fair value EBITDAR is defined as the EBITDA before expenses or income from rent. EBT (Earnings Before Taxes) Profit or loss before (income) taxes. This indicator is used to compare companies, although different taxation systems may exist. Earnings per share (basic/diluted) The earnings per share (basic) are calculated by dividing the profit or loss attributable to the shareholders of METRO AG by the weighted average of shares in circulation. The earnings per share (diluted) give additional consideration to the effect of so-called potential shares, such as those issued in the context of stock options. EVA (Economic Value Added) Value-oriented key figure that depicts the absolute value contribution of a company created in a single period under consideration of a risk-adjusted interest rate. It is derived from the difference between the company profit after tax and the cost of capital on the average capital employed. Recognised fair value. Amount that would have been received in return for the disposal of an asset or paid for the assignment of a debt in an ordinary transaction conducted between market participants on the assessment date. Food, non-food Under the global term food, METRO summarises the following categories of goods: fresh foods, durable foods, nutrients, frozen foods and drinks of all kinds, as well as luxury foods, dietary supplements and pet food, but also detergents, cleansers and cleaning agents, which are sometimes also labelled as near-food. All other goods are considered non-food items. Free cash flow Free cash flow = reported EBITDA – investments excluding finance lease extensions and mergers and acquisitions +/- changes in net working capital Free cash flow conversion Free cash flow conversion = (reported EBITDA – investments excluding finance lease extensions and mergers and acquisitions +/- changes in net working capital) / reported EBITDA Franchising Also licence sales or franchising system. Contractually regulated form of organisation: the franchisor grants independent franchisees the right to offer certain goods or services using a franchisor’s name or trademark. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E G L O S S A R Y 332 G H Global Food Safety Initiative (GFSI) HoReCa The initiative was established in 2000 by Short for hotel, restaurant and catering retail companies. It is the world’s largest businesses. The HoReCa segment is an organisation for the improvement of food important customer group for safety. The initiative promotes the METRO Wholesale. establishment of international audits that reduce food-related risks and evaluate food Hospitality industry sector suppliers within that context. GLOBALGAP Summary term for hotels, restaurants and catering companies, often referred to as HoReCa industry sector. A private sector organisation that certifies agricultural and aquacultural products. The standard for ‘good agricultural practice’ (GAP) resulted from an initiative of I European retail companies. Governance IASB (International Accounting Standards Board) Statutory and factual regulatory framework registered office in London, UK, that for the management and supervision of a develops and continually revises the company. International Financial Reporting Standards An independent international body with its Governance management system System for controlling all management and (IFRS). IFRIC monitoring processes of a company. The Interpretation on IFRS prepared by the IFRS METRO governance management system Interpretations Committee (or its comprises the risk management system, the predecessor) and approved by the IASB. internal control system, the compliance management system and the internal auditing system. IFRS (International Financial Reporting Standards) Internationally applicable rules for financial reporting developed by the IASB. Contrary to the accounting rules under the German Commercial Code, the IFRS emphasise the informational function. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E G L O S S A R Y 333 IFRS Interpretations Committee M Committee appointed by the IFRS Foundation and tasked with the development of guidelines for the interpretation questions concerning the practical implementation of the IFRS. Until 2010, the committee traded under the name IFRIC (International Financial Reporting Interpretations Committee). ISAE 3402 (International Standard on Assurance Engagements) A globally applicable standard for the preparation of assurance reports for control systems in service companies. L Mark-to-market valuation Calculation of the fair value of financial instruments on the basis of market prices at a particular assessment date. METRO Wholesale Operating Model Organisational and management model introduced at METRO Wholesale in 2015. It is supposed to foster an entrepreneurial spirit within the organisation by transferring greater responsibility and creative freedom to the national subsidiaries. At the same time, measures geared towards specific customer groups (for example for hotels, restaurants and catering firms) are cross- nationally coordinated. Like-for-like sales growth, like-for- like sales development Mobile commerce Like-for-like sales growth, reflecting sales growth in local currency on a comparable area or with respect to a comparable group of locations or merchandising concepts such as online retail and delivery. The figure only includes sales of locations with a comparable history of at least 1 year. This means that locations affected by openings, closures or material refurbishments during the reporting period or comparison year are excluded. A specific type of e-commerce. In this case, the electronic marketing and retail of merchandise and services are conducted on a mobile device, such as a smartphone. N Net Promoter Score (NPS) Key figure that is used to provide information regarding the performance and customer satisfaction of a company. A standardised customer survey provides rating and feedback from customers that can be used to calculate a comparable cross-company measured value. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E G L O S S A R Y 334 Net working capital Own brands The net working capital includes Trademark-protected brand-name products inventories, trade receivables and developed by a retail company with an receivables due from suppliers included in attractive best price/performance ratio. the item other financial and non-financial assets. Trade liabilities are deducted from the total amount of these items. P Net debt Performance share The net debt results from the balance of the financial liabilities (including liabilities from finance leases), cash and cash equivalents Performance-based investment. A performance share entitles its owner to a cash payment matching the share price. less financial investments. Financial investments include short-term bank deposits and short-term liquid debt instruments. Non-financial declaration Includes statements concerning environmental, social and employee affairs, as well as statements concerning respect for human rights and the combat against Portfolio effect Adjustments to group structures are referred to as portfolio measures or portfolio effects. Previous year Period of 12 months, usually cited as reference for statements in an annual corruption and bribery and is prepared for report. the parent company as well as for the group. O Process chain Different processes that contribute to the added value of a company. At METRO, these include logistics, marketing and sales. Omnichannel retail, omnichannel distribution A development in multichannel marketing. Combination of traditional store-based retail with e-commerce, social media and R Rating applications for smartphones and tablets. In the financial sector, ratings represent the Integrating all channels offers consumers a systematic, qualitative measurement of flexible and seamless shopping experience creditworthiness. Ratings are expressed in as the channels are holistically linked in all various grades of creditworthiness. purchasing phases. Renowned agencies that issue ratings are Standard & Poor’s, Moody’s and Fitch. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E G L O S S A R Y 335 Retail brand Share unit Companies with a completely independent Unit for performance shares. market presence. SME services Return on Capital Employed (RoCE) RoCE is a key figure that indicates the rate Enterprise Services: Services for small and at which the employed capital (less liquid medium-sized enterprises. SME services funds and short-term debt capital) is stands for METRO’s strategic approach of bearing interest at METRO. offering customers customised solutions for Abbreviation for Small and Medium-Sized S Sales line the challenges of their business. In addition to food and non-food items, it includes professional services and digital solutions. By intertwining services and product ranges, METRO will be able to offer its customers a more comprehensive Part of a retail company that operates assortment in the future and respond more outlets or stores with a specific merchandising concept. SCO (Service Companies and Offices) specifically to their needs. Social compliance The adherence to laws, guidelines, standards, codes and/or social conventions SCO customers are one of METRO’s 3 core by which an organisation ensures socially customer groups. Service Companies and responsible operations within its value and Offices (SCO) are professional service supply chains. The aim is to protect the companies and organisations, such as safety, health and basic rights of employees offices and institutions. in their own company as well as among its suppliers. Sedex audit according to SMETA Sedex, a data platform for transparency in the sustainability commitment of companies, provides SMETA (Sedex Members Ethical Trade Audit), one of the world’s most frequently used concepts for social audits. The audit is focused on working conditions, occupational safety, environmental management and business ethics as well as respect for human rights and temporary employment. M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E G L O S S A R Y 336 Special items Business transactions or a number of intended to help companies customise their climate-related risk reporting to the needs of investors. Information is published on a uniform business transactions that do not voluntary basis. recur regularly, that are reflected in the income statement and that have a Total shareholder return (TSR) significant impact on business activities are classified as special items. As a result, the TSR is a key figure that indicates the presentation of special items better reflects performance of an investment in shares ordinary business performance and under inclusion of capital gains and contributes to a better understanding of the dividends. earnings position. Start-up company Traders Newly founded company characterised by refers to the customer group of an outstanding business idea and a high independent resellers such as operators of degree of innovation. small grocery stores and kiosks, street food The term ‘Traders’ at METRO Wholesale vendors, gas stations and wholesalers. Sustainable Development Goals (SDGs) Under the title ‘Transforming our world: the 2030 Agenda for Sustainable Development’, the United Nations established political goals that are aimed at the entire international community, companies and private individuals. The agenda has formulated 17 main objectives that take into account all 3 dimensions of sustainability: economic, social and environmental. METRO is aware of its responsibility and contributes W Weighted average cost of capital (WACC) Weighted average (total) cost of capital. The WACC results from the weighted average of the cost rate for equity and debt capital on the capital markets. The weighting is based on the equity and debt capital components of METRO measured at to the achievement of the goals. market prices. T Task Force on Climate-related Financial Disclosures (TCFD) Wholesale, METRO Wholesale The METRO Wholesale segment comprises the METRO Wholesale sales line of METRO AG with 678 wholesale stores across 34 countries worldwide. This also Task force set up by the Financial Stability includes the delivery business (Food Board (FSB) in 2015 with the objective of Service Distribution) with the METRO consistently disclosing climate-related delivery service and companies like the financial risks in order to provide different delivery specialists Classic Fine Foods, Pro stakeholders with consistent information. à Pro and Rungis Express. The task force’s recommendations are M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 S E R V I C E F I N A N C I A L C A L E N D A R 2 0 1 9 / 2 0 338 FINANCIAL CALENDAR 2019/20 15 January 2020 Sales report for the Christmas quarter 2019 13 February 2020 Quarterly statement Q1 2019/20 14 February 2020 Annual General Meeting 2020 7 May 2020 Half-year financial report H1/Q2 2019/20 7 August 2020 Quarterly statement 9M/Q3 2019/20 M E T R O A N N U A L R E P O R T 2 0 1 8 / 1 9 INFORMATION Publisher METRO AG Metro-Straße 1 Graphic design Certifications nexxar GmbH, Vienna, Austria 40235 Düsseldorf, Germany PO Box 23 03 61 40089 Düsseldorf, Germany HTML design, concept and realization nexxar GmbH, Vienna, Austria Editorial support Ketchum Pleon GmbH, Düsseldorf, Germany Photography Henning Ross: pp. 7, 14-16, 19 Photo credits METRO AG METRO on the Internet www.metroag.de Investor Relations T +49 211 6886-1280 F +49 211 6886-490-3759 investorrelations@metro.de Corporate Communications T +49 211 6886-4252 F +49 211 6886-2001 presse@metro.de Project lead, concept and editorial Katharina Meisel Project management Carola Klose Annette von Leoprechting Kim Franziska Lübke Katrin Mingels Disclaimer This annual report contains forward-looking statements that are based on certain assumptions and expectations at the time of its publication. These statements are therefore subject to risks and uncertainties, which means that actual results may differ substantially from the future-oriented statements made here. Many of these risks and uncertainties relate to factors that are beyond METRO’s ability to control or estimate precisely. This includes future market conditions and economic developments, the behaviour of other market participants, the achievement of expected synergy effects as well as legal and political decisions. METRO does not undertake any obligation to publicly correct or update these forward-looking statements to reflect events or circumstances that have occurred after the publication date of this material. The trade names and trademarks used in the annual report, which may be protected by third parties, are subject without restriction to the regulations associated with the applicable trademark laws and ownership rights of their respective registered owners. The copyright for any published objects created by METRO AG remains the property of METRO AG. Any duplication or use of such graphics, video sequences and texts in other electronic or printed publications is prohibited without the explicit permission of METRO AG. Published on 11 December 2019 You can find the Annual Report 2018/19 online at WWW.METROAG.DE/ANNUAL-REPORT-2018-19/ 

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