43. Discontinued operations
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.
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.
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 |
2017/18 |
2018/19 |
|---|---|---|
Sales |
6,803 |
6,704 |
Expenses |
−6,918 |
−6,889 |
Current earnings from discontinued operations before taxes |
−115 |
−185 |
Income taxes on gains/losses on the current result |
5 |
−63 |
Current earnings from discontinued operations after taxes |
−110 |
−248 |
Gains/losses from the remeasurement or disposal of discontinued operations before taxes |
0 |
−401 |
Gains/losses from the remeasurement or disposal of discontinued operations after taxes |
0 |
−401 |
Profit or loss for the period from discontinued operations after taxes |
−110 |
−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:
€ million |
30/9/2018 |
30/9/2019 |
|---|---|---|
Non-current assets |
1,381 |
1,091 |
Other intangible assets |
19 |
27 |
Property, plant and equipment |
1,253 |
1,028 |
Investment properties |
11 |
8 |
Financial assets |
23 |
21 |
Other financial assets |
2 |
0 |
Other non-financial assets |
4 |
3 |
Deferred tax assets |
70 |
4 |
Current assets |
1,198 |
1,115 |
Inventories |
747 |
749 |
Trade receivables |
30 |
17 |
Financial assets |
1 |
0 |
Other financial assets |
280 |
242 |
Other non-financial assets |
43 |
40 |
Cash and cash equivalents |
97 |
68 |
€ million |
30/9/2018 |
30/9/2019 |
|---|---|---|
Non-current liabilities |
623 |
646 |
Provisions for post-employment benefits plans and similar obligations |
42 |
47 |
Other provisions |
34 |
60 |
Financial liabilities |
498 |
499 |
Other financial liabilities |
1 |
1 |
Other non-financial liabilities |
47 |
40 |
Deferred tax liabilities |
0 |
0 |
Current liabilities |
1,068 |
1,100 |
Trade liabilities |
741 |
688 |
Provisions |
93 |
207 |
Financial liabilities |
60 |
51 |
Other financial liabilities |
146 |
123 |
Other non-financial liabilities |
28 |
30 |
Income tax liabilities |
0 |
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).
Cash flow
The cash flows of the hypermarket business are as follows:
€ million |
2017/18 |
2018/19 |
|---|---|---|
Cash flow from operating activities of discontinued operations |
31 |
−22 |
Cash flow from investing activities of discontinued operations |
−86 |
−136 |
Cash flow from financing activities of discontinued operations |
−79 |
−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 |
Up to 1 year |
1 to 5 years |
Over 5 years |
|---|---|---|---|
Finance leases 30/9/2018 |
|
|
|
Future lease payments due (nominal) |
66 |
249 |
318 |
Discount |
2 |
34 |
104 |
Present value |
64 |
214 |
215 |
Operating leases 30/9/2018 |
|
|
|
Future lease payments due (nominal) |
209 |
670 |
621 |
€ million |
Up to 1 year |
1 to 5 years |
Over 5 years |
|---|---|---|---|
Finance leases 30/9/2019 |
|
|
|
Future lease payments due (nominal) |
68 |
259 |
312 |
Discount |
3 |
35 |
98 |
Present value |
66 |
224 |
214 |
Operating leases 30/9/2019 |
|
|
|
Future lease payments due (nominal) |
210 |
689 |
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 |
€ 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).
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 |
2017/18 |
2018/19 |
|---|---|---|
Sales |
2,680 |
2,901 |
Expenses |
−2,563 |
−2,736 |
Current earnings from discontinued operations before taxes |
117 |
165 |
Income taxes on gains/losses on the current result |
−29 |
−43 |
Current earnings from discontinued operations after taxes |
88 |
122 |
Gains/losses from the remeasurement or disposal of discontinued operations before taxes |
0 |
0 |
Gains/losses from the remeasurement or disposal of discontinued operations after taxes |
0 |
0 |
Profit or loss for the period from discontinued operations after taxes |
88 |
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:
€ million |
30/9/2019 |
|---|---|
Non-current assets |
619 |
Goodwill |
19 |
Other intangible assets |
5 |
Property, plant and equipment |
409 |
Other non-financial assets |
114 |
Deferred tax assets |
73 |
Current assets |
932 |
Inventories |
220 |
Trade receivables |
89 |
Other financial assets |
64 |
Other non-financial assets |
83 |
Entitlements to income tax refunds |
0 |
Cash and cash equivalents |
476 |
€ million |
30/9/2019 |
|---|---|
Non-current liabilities |
1 |
Deferred tax liabilities |
1 |
Current liabilities |
855 |
Trade liabilities |
546 |
Provisions |
80 |
Financial liabilities |
0 |
Other financial liabilities |
62 |
Other non-financial liabilities |
137 |
Income tax liabilities |
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).
Cash flow
The cash flows of METRO China from discontinued operations are as follows:
€ million |
2017/18 |
2018/19 |
|---|---|---|
Cash flow from operating activities of discontinued operations |
108 |
179 |
Cash flow from investing activities of discontinued operations |
−3 |
0 |
Cash flow from financing activities of discontinued operations |
6 |
−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 |
Up to 1 year |
1 to 5 years |
Over 5 years |
|---|---|---|---|
Operating leases 30/9/2019 |
|
|
|
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).