Supplementary notes for METRO AG (pursuant to the German Commercial Code)

Overview of financial year 2017/18 and outlook of METRO AG

As the management holding company of METRO group, METRO AG is highly dependent on the development of METRO group 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 2017 to 30 September 2018 in accordance with the german commercial code

€ million

 

2016/17

 

2017/18

Sales revenues

 

427

 

434

Other operating income

 

288

 

315

Cost of services purchased

 

−47

 

−53

Personnel expenses

 

−147

 

−126

Depreciation/amortisation/impairment losses on intangible and tangible assets

 

−49

 

−55

Other operating expenses

 

−532

 

−427

Investment result

 

254

 

202

Net financial result

 

−44

 

−51

Income taxes

 

−18

 

−6

Earnings after taxes

 

132

 

233

Other taxes

 

−2

 

3

Net profit or loss

 

130

 

236

Retained earnings from the previous year

 

 

47

Income from capital reduction

 

172

 

Balance sheet profit

 

302

 

283

Under the transfer pricing system, METRO AG essentially serves as a licensor and service provider for the operational 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 expenses and write-downs. METRO AG acts as a centralised licensor for its subsidiaries with respect to its METRO and MAKRO brands as well as its products.

Services are billed at arm’s-length prices. Under the transfer pricing model, the national and international companies of the METRO Wholesale were billed approximately €575 million in licensing and service fees in financial year 2017/18.

€434 million of settlement amounts received by METRO AG were recognised as sales in the reporting period. These are broken down into €274 million concerning settlement amounts received in the form of license fees for the METRO and MAKRO brands, as well as €160 million relating to IT and business services rendered to the wholesale subsidiaries.

The item other operating income consists mainly of settlement amounts from subsidiaries that are not classified as sales revenues.

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 2017/18, METRO AG employed 879 people. Part-time employees and temporary workers were converted into full-time equivalents. Due to the lower number of employees and lower performance-based remuneration components, the personnel expenses were lower than in the .

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 relate to costs for services subcontracted to companies both within as well as outside of the group.

For financial year 2017/18, METRO AG posted an investment income of €202 million. Profit and loss transfer agreements with other group companies accounted for earnings in the amount of €420 million. This includes the release of reserves received from an indirectly held subsidiary. Losses were absorbed in the amount of €−383 million. These losses predominantly result from impairments recognised for indirectly held subsidiaries. The income from investments without profit and loss transfer agreements amounted to €165 million in financial year 2017/18 and was predominantly attributable to the group’s real estate companies and the foreign subsidiaries.

The net financial result amounted to €−51 million.

The net profit for the year comes in at €236 million.

Including retained earnings from the previous year in the amount of €47 million, the company’s balance sheet profit amounted to €283 million.

Regarding the appropriation of the balance sheet profit for 2017/18, the Management Board of METRO AG will propose to the Annual General Meeting to distribute from the reported balance sheet profit of €283 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 €335 million. This item mainly includes bank deposits through cash pool income from the sales lines towards the end of the reporting period.

Capital structure

EQUITY AND LIABILITIES

€ million

 

30/9/2017

 

30/9/2018

Equity

 

 

 

 

Share capital

 

363

 

363

Capital reserve

 

6,118

 

6,118

Balance sheet profit

 

302

 

283

 

 

6,783

 

6,764

Provisions

 

401

 

371

Liabilities

 

 

 

 

Bonds

 

2,505

 

2,898

Liabilities to banks

 

70

 

259

Liabilities to affiliated companies

 

7,900

 

7,007

Miscellaneous liabilities

 

72

 

71

 

 

10,547

 

10,235

Deferred income

 

6

 

19

 

 

17,737

 

17,389

Liabilities consist of equity in the amount of €6,764 million and provisions, liabilities and deferred income in the amount of €10,625 million. The equity ratio on the closing date was 38.9%. Provisions as of the closing date totalled €371 million. Liabilities consist of €2,898 million in bonds and €259 million in liabilities to banks. The balance sheet also reports liabilities to affiliated companies in the amount of €7,007 million. In addition to short-term financial investments made by METRO companies, these predominantly concerned liabilities from structuring measures under corporate law.

Asset position of METRO AG

ASSETS

€ million

 

30/9/2017

 

30/9/2018

Non-current assets

 

 

 

 

Intangible assets

 

1,018

 

1,001

Tangible assets

 

2

 

2

Financial assets

 

15,270

 

9,157

 

 

16,290

 

10,160

Current assets

 

 

 

 

Receivables and other assets

 

1,129

 

6,882

Cash on hand, bank deposits and cheques

 

305

 

335

 

 

1,434

 

7,217

Prepaid expenses

 

13

 

12

 

 

17,737

 

17,389

As of the closing date, METRO had total assets of €17,389 million which are predominantly comprised of financial assets in the amount of €9,157 million, receivables from affiliated companies at €6,861 million and the usufructuary rights to the METRO and MAKRO brands which were recognised as an intangible asset (€923 million). Cash on hand, bank deposits and cheques amounted to €335 million. The financial assets predominantly consist of shares held in affiliated companies in the amount of €9,113 million which are essentially comprised of shares in the holding for wholesale companies (€6,348 million), in real estate companies (€1,020 million), in service providers (€803 million) and in other companies (€942 million). The financial assets account for 52.7% of the total assets. Receivables from affiliated companies amount to €6,861 million. This corresponds to 39.5% 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.

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.

Forecast 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. Assuming a cost structure at the holding company level without additional expenses, we expect that in financial year 2018/19, the company’s net profit will return to a level comparable with financial year 2017/18 (€236 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 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) in the section Company – Corporate .

Wholesale, METRO Wholesale
The METRO Wholesale segment comprises the METRO Wholesale sales line of METRO AG with more than 769 wholesale stores across 35 countries worldwide. This also includes the delivery business (Food Service Distribution) with companies like METRO delivery service and the delivery specialists Classic Fine Foods, Pro à Pro and Rungis Express.
Glossary
Own brands
Brand-name products that are developed by a retail and trademark-protected with an attractive best price/performance ratio.
Glossary
Sales line
Part of a retail company that operates outlets or stores with a specific merchandising concept.
Glossary
Previous year
Period of 12 months, usually cited as reference for statements in an annual report.
Glossary
Wholesale, METRO Wholesale
The METRO Wholesale segment comprises the METRO Wholesale sales line of METRO AG with more than 769 wholesale stores across 35 countries worldwide. This also includes the delivery business (Food Service Distribution) with companies like METRO delivery service and the delivery specialists Classic Fine Foods, Pro à Pro and Rungis Express.
Glossary
Governance
Statutory and factual regulatory framework for the management and supervision of a company.
Glossary