Report of the Supervisory Board
Jürgen B. Steinemann
Chairman of the Supervisory Board
Jürgen B. Steinemann was born in Damme, Germany, in 1958. Following a degree in business administration at the European Business School in Wiesbaden, London and Paris, which he completed in 1985, he held different management positions at Eridania Béghin-Say, Unilever and Nutreco before being appointed CEO of Barry Callebaut (2009-2016), since 2014, he is a member of the board of directors of this company. From 2015 until the effectiveness of the demerger of METRO GROUP in July 2017, Mr Steinemann was a member of the Supervisory Board of the old METRO AG (now: CECONOMY AG) and from February 2016 its chairman. Since 2017, Mr Steinemann has been member and chairman of the Supervisory Board of the new METRO AG.
An exciting and extraordinarily busy business year lies behind us. The market launch of our new METRO confirmed that METRO also stands for flexibility.
The demerger project of the former METRO GROUP was titled 2MORROW for a good reason. After all, this word signifies our common goal: shaping tomorrow, the future, and making an impact. Better, more focussed and even closer to the customer and his needs! Enjoying the full support of the Supervisory Board, the Management Board has laid the groundwork for this new phase of the development over the course of the past months.
At the same time, we managed to keep focus on the operational business: Like-for-like sales increased by 0.5% in financial year 2016/17, reported sales of €37.1 billion were 1.6% higher than in the previous year and EBIT before special items amounted with €1,106 million is at last year’s level.
In the future, METRO will be able to leverage full concentration on wholesale and food retail, which will enable it to leverage further value creation potential. It is now time to continue on the smooth path with stability, focus and consequence. The strong commitment of the METRO employees and their customer focus are indispensable tools for this. At this point, dear shareholders, I would like to thank you for placing your trust in METRO, as some of you have already done for decades.
Advice and supervision in consultation with the Management Board
In financial year 2016/17, 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 regularly 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 essential developments within METRO at the Supervisory Board meetings in a timely fashion and in accordance with the statutory requirements. Its reporting in particular included information on the demerger project of the former METRO GROUP, the business developments, the position of the company and the group (including the risk position, risk management and compliance) as well as the company’s strategy and planning. The Management Board provided detailed explanations for any deviations from planned business performance. Based on the Management Board’s reports, we discussed all transactions that were of significance to the company at the Supervisory Board meetings and within the committees. The Supervisory Board was involved in all decisions bearing material significance. These decisions included measures and transactions for which the Supervisory Board’s approval was prescribed by law, the Articles of Association or own drawn up regulations. We thoroughly reviewed the relevant matters and discussed their benefits, potential risks and other impacts with the Management Board. Managers from the relevant departments of METRO attended certain meetings to address particular agenda items.
The Supervisory Board approved all matters presented to it for approval by the Management Board. As Chairman of the Supervisory Board, I was regularly involved in discussions about key issues and pending decisions with Mr Koch, the Chairman of the Management Board, including outside of Supervisory Board meetings. We made no 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) because no matters requiring clarification arose.
The Supervisory Board held 10 meetings in financial year 2016/17. 4 resolutions were adopted by the Supervisory Board in a written procedure outside of a meeting. The corporate governance report discloses the meeting attendances of individual members of the Supervisory Board. No conflicts of interest involving members of the Management Board and Supervisory Board arose in financial year 2016/17.
Key issues covered by Supervisory Board meetings
The Supervisory Board’s deliberations focused in particular on the project for the split of the former METRO GROUP, the company’s initial public offering and the strategy to be pursued by the new METRO.
November 2016 – In November 2016, the former METRO Wholesale & Food Specialist GmbH was transformed into a public limited company (Aktiengesellschaft). The Supervisory Board at that time consisted of 3 members. Following the election of the Chairman and Vice Chairman of the Supervisory Board in its first meeting, the Supervisory Board appointed the members of the company’s Management Board. Mr Christian Baier as well as Dr Christoph Kämper and Mr Christian Ziggel, 2 METRO executives, were appointed members of the Management Board; the 2 executives were appointed to the Management Board for the sole purpose of preparing the group’s demerger. In connection with the legal transformation into a stock corporation, the Supervisory Board dealt intensively with the founding audit report to be submitted by the latter together with the Management Board, which was subsequently adopted in a resolution outside of a meeting.
December 2016 – The Supervisory Board held 2 meetings in which it discussed issues relating to the proposed demerger of the group and the finalisation of the corresponding demerger agreement, demerger report and demerger audit report. The demerger documentation was explained in detail and discussed at length. The Supervisory Board then resolved to approve the demerger agreement.
January 2017 – In its January meeting, the Supervisory Board discussed the subsequent establishment report to be prepared by the Supervisory Board in connection with the conclusion of the demerger agreement on account of its audit of the demerger.
In addition, the Supervisory Board approved the resolution of transfer of certain syndicated loans from the former METRO AG to the company as part of a resolution adopted outside of a meeting.
February 2017 – The first of the Supervisory Board meetings held in February 2017 was concerned with resolutions pertaining to the subsequent establishment report. In another meeting, the Supervisory Board adopted its proposed resolutions for the Annual General Meeting of the former METRO Wholesale & Food Specialist AG (now: METRO AG) held on 10 February 2017, among others the proposed resolution to approve the demerger.
March 2017 – Following the augmentation of the Supervisory Board to 20 members, the corporate body held its constituting meeting on 20 March 2017 in its new composition and elected me to the office of the Chairman of the Supervisory Board and Mr Werner Klockhaus to the office of the Vice Chairman of the Supervisory Board. We then adopted the code of procedure of the Supervisory Board, its Audit Committee and the Management Board. The Supervisory Board initially formed 3 committees – the Presidential Committee, the Audit Committee and the Nomination Committee – and determined their respective appointments. The members of the Audit Committee elected their committee’s chairperson and vice chairperson. We further resolved to already appoint the individuals who are supposed to manage the affairs of the company after the demerger effective date to the Management Board. The Supervisory Board therefore resolved to appoint Olaf Koch, Pieter C. Boone and Heiko Hutmacher to serve as members of the Management Board and to reappoint Mr Christian Baier. Mr Koch was appointed Chief Executive Officer. We further adopted the remuneration system for the Management Board and determined the performance targets applicable to the variable remuneration components after the demerger effective date. Subsequently, the Management Board informed us about the target structure and strategic orientation of the “new METRO” and the associated positioning of the remaining sales lines in the wholesale and food retail sector. Moreover, the Management Board informed us about the course of business and the status of the demerger project. In this context, we also discussed the listing prospectus in great detail and subjected the document to a plausibility check with regard to its completeness and accuracy.
May 2017 – In addition to informing the Management Board about the course of business, this meeting focused on the status of the demerger project, in particular with regard to the progress of the approval procedure initiated by the former METRO AG (now: CECONOMY AG) and the planning activities relating to external communications. The Management Board also provided information on the effects of digitisation on the business model. To ensure the Management Board has adequate flexibility in securing the company’s funding, we approved a corresponding funding framework. We also discussed the strategic and individual targets of the members of the Management Board for financial year 2016/17. The Supervisory Board further adopted resolutions concerning the desired composition of the Supervisory Board and its profile of expertise as well as resolutions concerning the insider policy for the Supervisory Board. The Audit Committee prepared the proposed appointment of the auditor of the company’s annual financial statements for financial year 2016/17, which was adopted by the Supervisory Board. In an additional report of the Management Board, we were informed about already established and intended structures in relation to talent management and succession planning at METRO. In addition, the Management Board informed us about the current state of integration of the French delivery company Pro à Pro, which METRO acquired. Finally, we dealt with current changes in the competitive situation and the market environment of METRO.
June 2017 – We approved a proposed form of securitisation of the METRO AG shares in a resolution adopted outside of a meeting.
August 2017 – After the demerger going into effect in July 2017, the new composition of the Supervisory Board is determined by the German Co-determination Act. Accordingly, the Management Board conducted the so-called status proceedings pursuant to § 97 of the German Stock Corporation Act, which resulted in 10 employee representatives being appointed to the Supervisory Board by way of a court order in August 2017. The 10 shareholder representatives had already been re-elected in April 2017.
In order to render the Supervisory Board and its committees capable of acting in the August meetings, the Supervisory Board resolved to reconstitute itself on the basis of a resolution passed outside of a meeting. This also formed the context for the formation of the 4 currently existing committees of the Supervisory Board and the appointment of their respective members.
In its subsequent first actual meeting following the company’s initial public offering, the Management Board offered a retrospective view of the transformation steps taken by the former METRO GROUP since the year 2012. The resolutions adopted in March concerning issues relating to staffing and remuneration of the Management Board were confirmed in light of having progressed to the stage of codetermination. We also appointed Mr Hutmacher to the office of the company’s Labour Director in accordance with § 33 of the German Co-determination Act (MitbestG). The desired proportion of female members of the Management Board was determined in the further course of the meeting. In addition to providing routine information on the company’s business development, the Management Board tabled a detailed report on the start of the new company METRO and investor feedback in particular.
September 2017 – The meeting held in late September spanned over 3 days with particular focus on the strategic direction of METRO. In addition to information about the current business development and the competitive situation, the 1st day focused on the strategy for Real, while the 2nd day was predominantly dedicated to the strategy for METRO Wholesale. On the third day, following a continuation of the strategy discussion, we adopted the budget for financial year 2017/18, considered issues relating to the remuneration of the Management Board, in particular the proposed adoption of the performance targets for short-term incentives for financial year 2017/18, and passed a resolution adopting the annual declaration of conformity pursuant to § 161 of the German Stock Corporation Act.
Work in the committees
For the purpose of effectively performing its duties, the Supervisory Board relies on the work of 4 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). The committees prepare the board-level consultations and resolutions. In addition, decision-making responsibilities were transferred to the committees within the legally allowed parameters. The respective committee chairpersons report to the Supervisory Board regularly and comprehensively with regard to the work in the committees. The work of the committees is described in detail in the annual statement on corporate management pursuant to § 289 a of the German Commercial Code (HGB) and § 315 Section 5 of the German Commercial Code (HGB). It can be found on the website www.metroag.de in the section Company – Corporate Governance.
The following shows the current composition of the Supervisory Board committees:
- Presidential Committee:
Jürgen B. Steinemann (Chairman), Werner Klockhaus (Vice Chairman) Xaver Schiller, Dr Liliana Solomon
- Audit Committee:
Prof. Dr Edgar Ernst (Chairman), Werner Klockhaus (Vice Chairman), Dr Florian Funck, Andreas Herwarth, Dr Fredy Raas, Xaver Schiller
- Nomination Committee:
Jürgen B. Steinemann (Chairman), Gwyn Burr, Prof. Dr Edgar Ernst
- Mediation Committee pursuant to § 27 Section 3 of the German Co-determination Act (MitbestG):
Jürgen B. Steinemann (Chairman), Werner Klockhaus (Vice Chairman) Prof. Dr Edgar Ernst, Xaver Schiller
As of: 7 December 2017
Presidential Committee – The Presidential Committee is mainly concerned with the Management Board’s staffing matters and monitors compliance with legal regulations and the application of the German Corporate Governance Code. In consideration of § 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 2 meetings in financial year 2016/17. The committee focused its work on the remuneration of the Management Board: In preparation of the Supervisory Board meeting, the committee prepared the individual and strategic performance targets for the members of the Management Board for financial year 2016/17, as well as the targets of the short-term incentive for financial year 2017/18. Further issues addressed by the Presidential Committee included corporate governance at METRO, including the corporate governance report for financial year 2016/17, the implementation of the recommendations of the German Corporate Governance Code and the preparation of the declaration of compliance in accordance with § 161 of the German Stock Corporation Act (AktG).
Audit Committee – The Audit Committee is responsible for supervising the company’s accounting, accounting processes, the effectiveness of the internal control system, the risk management system, the internal audit system, compliance and the audit of the annual financial statements (in particular relating to the selection and independence of the auditor and any additional performances rendered by the auditor). 3 committee meetings were held in financial year 2016/17; one resolution was passed in a written procedure outside of a regular meeting. The CFO, the CEO and I as the Chairman of the Supervisory Board attended all meetings. Representatives of the auditor and managers of the relevant departments of METRO attended certain meetings to address particular agenda items. In the reporting period, the Audit Committee examined the combined key financial figures for the first half-year as well as the combined quarterly report for the third quarter of financial year 2016/17 and discussed them with the Management Board prior to publication. The Audit Committee also prepared the audit engagements for financial year 2016/17 and considered the elected auditor’s planning of the audit. The committee further consulted on the concept for approving so-called non-audit performances rendered by the auditor and adopted a corresponding guideline. The committee further prepared resolutions by the Supervisory Board concerning the company’s funding framework and considered the group’s governance functions (internal control system, risk management system, internal audit and compliance), the budget proposed by the Management Board, the strategic tax planning for the group and the planning of internal audit measures. Furthermore, the committee was updated on new developments in international accounting standards and accounting-related changes.
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 2016/17, one committee meeting was held for the purpose of preparing an election proposal to the Annual General Meeting 2018.
Mediation Committee – The Mediation Committee formulates proposals for the appointment and dismissal 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 2016/17.
The Management Board and Supervisory Board report about the corporate governance of METRO in the corporate governance report for financial year 2016/17. Together with the statement on corporate management pursuant to § 289 a of the German Commercial Code (HGB) and § 315 Section 5 of the German Commercial Code (HGB), the report is also published in the section Company – Corporate Governance of the website www.metroag.de.
In September 2017, the Management Board and the Supervisory Board of METRO AG issued their first 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. The full declaration was further reprinted in the corporate governance report 2016/17 and in the declaration on corporate management.
Annual and consolidated financial statements
KPMG AG Wirtschaftsprüfungsgesellschaft has reviewed the consolidated financial statements for financial year 2016/17 submitted by the Management Board in accordance with the International Financial Reporting Standards (IFRS) and has given its unqualified approval. The same applies to the annual financial statements 2016/17 of METRO AG prepared in accordance with the regulations of the German Commercial Code (HGB) and the combined management report for METRO AG and the group. The auditor provided a written report on the findings.
The documents for the annual financial statements and the audit reports were discussed and reviewed in great detail during the meeting of the Audit Committee on 6 December 2017 and in the Supervisory Board’s audit meeting on 7 December 2017 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.
KPMG also provided information on services rendered in addition to auditing services. No disqualification or bias issues arose. Based on our own review of the annual financial statements, the consolidated financial statements and the combined management report for financial year 2016/17, we had no objections and the Supervisory Board approved the result of the audit. We have endorsed the annual financial statements and the consolidated financial statements submitted by the Management Board. The annual financial statements of METRO AG are thus released. Following a careful own review and consideration of the interests involved, we endorsed the Management Board’s proposal for the appropriation of the balance sheet profit.
Report about the relationships with dependent companies
Pursuant to § 312 of the German Stock Corporation Act (AktG), the Management Board of METRO AG has issued a report about the relationships of the company to its dependent companies for financial year 2016/17 (short: “dependent company report”). The auditor audited this report, prepared a written report about the result of the audit and issued the following audit certificate:
“Having duly conducted an audit and appraisal, we confirm that
- the actual statements of the report are correct,
- the consideration paid by the company for the transactions listed in the report was not inappropriately high,
- for the measures mentioned in the report, no circumstances fundamentally suggest an appraisal differing from that made by the Management Board.”
The dependent company report and the audit report by the auditor were also discussed and reviewed in great detail during the meeting of the Audit Committee on 6 December 2017 and in the Supervisory Board’s audit meeting on 7 December 2017 in the presence of the auditor. The required documents were made available in a timely manner, allowing for sufficient time to review them. In both meetings, the auditor reported about the key findings of his audit of the dependent company report and was at the Supervisory Board’s disposal to answer questions and provide additional information also in the absence of the Management Board. We agree with the result of the audit conducted by the auditor. As a result of our own audit, we have made the concluding observation that no objections need to be raised to the declaration of the Management Board at the end of the dependent company report.
Appointments and resignations
From the time the company was effectively transformed into a public limited company (Aktiengesellschaft) and for the purpose of preparing the demerger of the group, the persons initially appointed to the Supervisory Board were Mr Harald Sachs (Chairman), Mr Michael Bouscheljong and Mr Hans-Dieter Hinker, all of them METRO executives. The Supervisory Board was augmented to 20 members by way of a resolution passed on 10 February 2017; the following persons were appointed to the Supervisory Board: Jürgen B. Steinemann, Werner Klockhaus, Gwyn Burr, Thomas Dommel, Prof. Dr Edgar Ernst, Dr Florian Funck, Michael Heider, Andreas Herwarth, Peter Küpfer, Susanne Meister, Dr Angela Pilkmann, Mattheus P. M. (Theo) de Raad, Dr Fredy Raas, Xaver Schiller, Eva-Lotta Sjöstedt, Dr Liliana Solomon, Alexandra Soto, Angelika Will, Manfred Wirsch and Silke Zimmer. Their office term commenced on 21 February 2017. The 3 previous members of the Supervisory Board Mr Bouscheljong, Mr Hinker and Mr Sachs had already resigned their offices with effect on the same day.
Following the effective date of the group’s demerger and completion of the so-called status proceedings, the composition of the Supervisory Board now complies with the requirements of the German Co-determination Act, with the Supervisory Board now consisting of 10 shareholder representatives and 10 employee representatives. With anticipatory effect on the date of the corresponding amendment to the Articles of Association, Jürgen B. Steinemann, Gwyn Burr, Prof. Dr Edgar Ernst, Dr Florian Funck, Peter Küpfer, Mattheus P. M. (Theo) de Raad, Dr Fredy Raas, Eva-Lotta Sjöstedt, Dr Liliana Solomon and Alexandra Soto were appointed to the Supervisory Board as shareholder representatives on 11 April 2017. At the request of the Management Board, the members Werner Klockhaus, Thomas Dommel, Michael Heider, Andreas Herwarth, Susanne Meister, Dr Angela Pilkmann, Xaver Schiller, Angelika Will, Manfred Wirsch and Silke Zimmer were appointed to the Supervisory Board by way of a court order issued by the District Court of Düsseldorf on 24 August 2017.
Düsseldorf, 7 December 2017
The Supervisory Board
JÜRGEN B. STEINEMANN