Report of the Supervisory Board
Jürgen B. Steinemann
Chairman of the Supervisory Board
Jürgen B. 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 2016 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 B. 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.
The financial year 2017/18 was challenging. However, METRO managed to achieve solid results in a demanding market environment.
The situation in Russia was particularly challenging due to difficult economic and political circumstances. METRO responded to the exacerbated competitive environment by adapting its business model. HoReCa sales increased particularly markedly in Germany, enabling the company to strengthen its profile as a wholesaler and marketplace for the hospitality industry. Overall, considering the circumstances, METRO can be ‘cautiously’ satisfied with financial year 2017/18.
By deciding to search for a new owner for Real who is able to provide better support for the business, the company set the course for becoming a pure wholesaler. Aided by the consistent optimisation of the portfolio and strategic acquisitions, METRO will be able to concentrate on future targets.
Philippe Palazzi, who was appointed to the Management Board in May 2018, started his new role as Chief Operating Officer with a great deal of dynamism and experience. He has been at METRO for many years and is constantly helping to drive the transformation with his expertise, especially in the HoReCa sector. The Supervisory Board is convinced that with Philippe Palazzi and his passion for both our business and our customers’ businesses, METRO will achieve its target of further increasing customer focus.
Let me take this opportunity to give special thank to all employees for contributing to METRO’s success again this year with their commitment. Sometimes, it may appear to our employees that their work is not particularly important for the company as a whole. This could not be further from the truth! Only if everyone masters his or her task with love and perfection will all of the gears mesh perfectly, allowing our METRO to gain further traction.
Advice and supervision in consultation with the Management Board
In financial year 2017/18, the Supervisory Board diligently and prudently 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 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 intended business policies and other fundamental questions relating to corporate planning, as well as the ongoing business development and the situation of the company and the group (including the risk position, risk management and compliance). 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 intercompany regulations. We thoroughly reviewed the 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.
The Supervisory Board approved all matters presented to it by the Management Board for approval. I as the Chairman of the Supervisory Board and Prof. Dr Edgar Ernst as the Chairman of the Audit Committee continuously, closely and regularly exchanged information and ideas with regard to key issues and pending decisions with the Chief Executive Officer and/or the Chief Financial Officer also outside of meetings. Additionally, the Chairman of the Audit Committee, Prof. Dr Edgar Ernst, and myself as the Chairman of the Presidential Committee and the Nomination Committee reported in detail on the work and recommendations of the committees at the occasion of the next meeting of the Supervisory Board. No matters requiring clarification arose and we thus 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 9 meetings in financial year 2017/18, with one meeting convened as an extraordinary meeting. One resolution was adopted by the Supervisory Board in a written procedure outside of a meeting. The corporate governance report includes the meeting attendances of individual members of the Supervisory Board. No conflicts of interest involving members of the Management Board and the Supervisory Board arose in financial year 2017/18.
Key issues covered by Supervisory Board meetings
November 2017 – In its first meeting in financial year 2017/18, we adopted a resolution concerning the individual performance factors of the members of the Management Board for the purpose of determining the amount of the short-term incentive (STI) for financial year 2016/17 as of the demerger effective date. We also dealt with the remuneration for the members of the Management Board for 2017/18, particularly including a discussion about the individual performance targets. Following recommendation by the Presidential Committee, a resolution for the adjustment of the remuneration system for the Management Board with regard to the short-term incentive was adopted: the previous STI component ‘EBIT’ was replaced by the component ‘EBITDA’ and the weighting of all 3 STI components was also adjusted. This adjustment necessitated an update of the declaration of conformity with the German Corporate Governance Code adopted by the Management Board and the Supervisory Board in September 2017, for which we have also adopted a resolution Other agenda items at the meeting of the Supervisory Board concerned information about the status of the investigations conducted by the public prosecutor’s office in relation to alleged insider trading and market manipulation, information about METRO’s sustainability initiatives, as well as information about relevant changes in the law. We further received information about the group’s governance functions. The Management Board provided information about the new segment reporting as of financial year 2017/18, which requires income from real estate to be reported separately, divided into the segments METRO Wholesale Germany, METRO Wholesale Western Europe (excluding Germany), METRO Wholesale Russia, METRO Wholesale Eastern Europe (excluding Russia), METRO Wholesale Asia and Real. This structure was in part already implemented in December 2017 for the reporting for financial year 2016/17 and implemented fully with the quarterly reporting for financial year 2017/18.
December 2017 – Our Supervisory Board meeting held on 7 December 2017 focused on the annual and consolidated financial statements for financial year 2016/17, the combined management reports for METRO AG and for the group for 2016/17, the Management Board’s proposal for the appropriation of the balance sheet profit to the Annual General Meeting 2018 as well as the Management Board’s report on relations with affiliated companies in financial year 2016/17. The auditor attended this meeting. and reported on the key findings of his audits. Another focus area of the meeting was – against the background of the continuing development of METRO’s governance structure – a discussion about an amendment to the Code of Procedure for the Management Board. We also discussed the new segment reporting. Other important subjects discussed at the Supervisory Board meeting in December 2017 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 2016/17, as well as the preparation of the Annual General Meeting 2018. We were also provided with information about changes on top management level by the Chief Human Resources Officer and Labour Director.
A resolution concerning the amendment of the Code of Procedure for the Management Board as well as the resolutions to be proposed to the Annual General Meeting of METRO AG on 16 February 2018 were adopted outside of a meeting, as was already discussed in the meeting on 7 December 2017.
February 2018 – In a meeting held immediately before the Annual General Meeting on 16 February 2018, the Management Board provided information about the current business development and changes on top management level. As a precautionary measure, the Supervisory Board adopted a resolution granting power of attorney to a law firm, in particular in relation to potential actions for rescission and/or annulment against resolutions adopted by the Annual General Meeting 2018. Subject to the election of the auditor by the Annual General Meeting 2018, we approved the audit assignments for the annual financial statements and the consolidated financial statements of METRO AG as to 30 September 2018, the combined management report for METRO AG and the group for financial year 2017/18. Subject to the election of the auditors, we also approved the assignment for an audit review of the abridged interim consolidated financial statements as of 31 March 2018 and the interim consolidated management report for the period from 1 October 2017 to 31 March 2018. We were also provided with an update about the investigations conducted by the public prosecutor’s office and information about the completed audit of OTC derivatives contracts pursuant to § 20 of the German Securities Trading Act (WpHG, old version).
A further meeting was held immediately after the Annual General Meeting, at the end of which the office terms of Mattheus P. M. (Theo) de Raad and all employee representatives on the Supervisory Board of METRO AG expired. For this reason, the succeeding and/or re-elected members of the Supervisory Board elected Mr Werner Klockhaus to the office of the Vice Chairman of the Supervisory Board. The Supervisory Board also agreed on the members to be appointed to the committees. The members of the Audit Committee elected their Chairman and Vice Chairman.
May 2018 – The extraordinary meeting of the Supervisory Board on 7 May 2018 discussed the implications of the ad hoc press release published by the company on 20 April 2018. Following intense discussions, we have – following the recommendation by the Presidential Committee – resolved to terminate the appointment of Pieter C. Boone to the Management Board with effect as to the end of 7 May 2018. The Supervisory Board also resolved to appoint Philippe Palazzi to the Management Board of METRO AG for the period from 7 May 2018 to 30 September 2021. In relation to this matter, we also approved the employment agreement for Philippe Palazzi and adopted the corresponding adjustment of the assignment of responsibilities for the Management Board.
The ordinary meeting held on 14 May 2018 concerned routine issues, such as information about the current business development. We further received a progress report concerning investments made. Against the background of the changes to the benchmarking index that is relevant to METRO (MDAX), we were provided with information about the implications of the ‘total shareholder return’ component that is part of the long-term incentive of the Management Board’s remuneration. We also examined the effects of the CSR Directive Implementation Act on METRO. Another agenda item was leadership at METRO, in which we discussed talent management and management succession planning.
In a Supervisory Board strategy meeting spanning over 3 days from 28 to 30 May 2018, the Management Board and Supervisory Board discussed the corporate strategy of METRO together with internal executives and external guests. In particular, the vision and mission of the company, its sales lines, strategy, growth drivers, competitors and market shares and the main challenges facing the METRO group were discussed.
The participants of the meeting also talked about staff concerns of the Management Board. Firstly, this involved the resolution concerning the termination agreement with Pieter C. Boone; the Supervisory Board approved the presented agreement. Another subject discussed by the Supervisory Board were the individual performance targets to be determined for Philippe Palazzi for the remainder of financial year 2017/18.
July 2018 – The Management Board opened the meeting by offering a report about the current business development. In light of the CSR Directive Implementation Act and the non-financial reporting prescribed in it, we resolved to instruct KPMG with an external evaluation pursuant to § 111 Section 2 Sentence 4 of the German Stock Corporation Act (AktG), which is to take the form of a limited assurance engagement. We were further informed about the current state of affairs concerning the variable remuneration components for the Management Board and discussed the interim results for the degree of target attainment achieved in financial year 2017/18 by the individual members of the Management Board.
September 2018 – Following information of the Management Board about the latest changes in the share ownership structure of METRO AG and the progress made in the sale of Real, we approved the draft budget from financial year 2018/19 presented by the Management Board at our last meeting in financial year 2017/18 as well as the mid-term planning. Resolutions were also adopted with regard to the performance targets for the short-term incentives in financial year 2018/19 for the members of the Management Board and the declaration of conformity pursuant to § 161 of the German Stock Corporation Act (AktG). We were also given a progress report about investments made. We further adopted a resolution about the diversity concept for the composition of the Management Board and the Supervisory Board. We concluded the meeting by reviewing the efficiency of our work as a corporate body. This efficiency assessment was based on a questionnaire prepared in-house.
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, 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. The work of the committees is described in detail in the annual declaration on corporate management pursuant to § 289f and § 315d of the German Commercial Code (HGB). This declaration as well as information about the current members of the Supervisory Board 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), Thomas Dommel, Dr Florian Funck, 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
Date: 7 December 2018
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 to § 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 5 meetings in financial year 2017/18, one meeting was convened as an extraordinary meeting. One of the key areas of the work in the committee was the preparation of the resolutions to be adopted by the Supervisory Board with regard to the appointment of Philippe Palazzi to the Management Board of METRO AG and with regard to the consensual departure of Pieter C. Boone from the Management Board with effect as to the end of 7 May 2018. 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 2017/18, as well as the targets of the short-term incentive for financial year 2018/19. Further issues addressed by the Presidential Committee included corporate governance at METRO, including the corporate governance report for financial year 2017/18 and the preparation of the declaration of conformity in accordance with § 161 of the German Stock Corporation Act (AktG). In discussing the issue of leadership at METRO, the Presidential Committee learned about the development of the talent management system used by METRO for the promotion of selected executives. The Presidential Committee was also informed about the system for internal succession planning on various levels.
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, 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) as well as compliance. 6 committee meetings were held in financial year 2017/18. The CFO, the CEO and I as the Chairman of the Supervisory Board attended all meetings. The auditor and managers of the relevant departments of METRO were consulted on selected issues.
The Audit Committee prepared the meeting of the Supervisory Board in December 2017 and conducted an in-depth review of the annual and consolidated financial statements for financial year 2016/17, the combined management report of METRO AG and the METRO AG group for financial year 2016/17 as well as the report of the Management Board on relations with affiliated companies. The results of the audit were discussed by the Supervisory Board in the presence of the auditor. This formed the basis for the Audit Committee informing the Supervisory Board about the concrete resolutions proposed by the committee; these included, in particular, the recommendation to approve the annual and consolidated financial statements for financial year 2016/17 and to approve the Management Board’s proposal to the Annual General Meeting 2018 on the appropriation of the balance sheet profit. The members of the Audit Committee discussed the quarterly statement and the half-year financial report for financial year 2017/18 prior to their respective publication.
The Audit Committee also prepared the audit engagements for financial year 2017/18 and considered the auditor’s planning of the audit and the key audit areas. In all meetings, the committee obtained information about so-called non-audit performances of the auditor and approved instruction of the auditor with a non-audit performance in one case. The committee intensively examined the governance functions within the group (internal control systems, risk management system, internal audit and compliance), the draft budget presented by the Management Board, the group controlling plan and the audit plan prepared by the internal audit unit. The Audit Committee further requested information about significant projects and legal issues; these 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. The Audit Committee further discussed issues relating to the General Data Protection Regulation and was informed about the progress made with regard to the corresponding implementation measures at METRO. The Audit Committee further prepared the non-financial reporting by the Supervisory Board and requested information about the progress made with regard to the implementation and the content of the publication.
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 2017/18, 2 committee meetings were held for the purpose of preparing an election proposal to the Annual General Meeting 2018, with one meeting conducted over the telephone.
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 2017/18.
The Management Board and the Supervisory Board report about the corporate governance of METRO in the corporate governance report for financial year 2017/18. Together with the declaration on corporate management pursuant to § 289f of the German Commercial Code (HGB) and § 315d 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 2018, 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. The full declaration is further reprinted in the corporate governance report 2017/18 and in the declaration on corporate management.
Annual and consolidated financial statements
KPMG AG Wirtschaftsprüfungsgesellschaft has reviewed the consolidated financial statements for financial year 2017/18 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 2017/18 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 METRO AG 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 2018 and in the Supervisory Board meeting on 7 December 2018 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 issues resulting in a disqualification due to bias arose. Based on our own review of the annual financial statements, the consolidated financial statements and the combined management report for financial year 2017/18, 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 Statement of METRO AG is thus released. Following a careful own review and consideration of the interests involved, we endorsed the Management Board’s proposal to the Annual General Meeting 2019 for the appropriation of the balance sheet profit.
Appointments and resignations
The office terms of Mattheus P. M. (Theo) de Raad and all employee representatives on the Supervisory Board of METRO AG expired at the end of the Annual General Meeting of METRO AG held on 16 February 2018. The succeeding employee representatives had already been elected by the assembly of delegates on 6 February 2018; the representative of the shareholders was elected by the Annual General Meeting on 16 February 2018.
Susanne Meister, Dr Angela Pilkmann, Angelika Will, Silke Zimmer, Werner Klockhaus, Thomas Dommel, Michael Heider, Xaver Schiller and Manfred Wirsch were re-elected to the Supervisory Board as members representing the employees. Stefanie Blaser is a new member elected to the Board. She takes the place of Andreas Herwarth, who resigned from the Supervisory Board of METRO AG at the end of the Annual General Meeting of METRO AG on 16 February 2018. Mr Herbert Bollinger was elected by the Annual General Meeting 2018 to the Supervisory Board of METRO AG as a member of the Board representing the shareholders.
Düsseldorf, 7 December 2018
The Supervisory Board
Jürgen B. Steinemann