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 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 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 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.

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:

Assets

€ 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

Liabilities

€ 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 , 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:

Assets

€ 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

Liabilities

€ 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).

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 includes the delivery business (Food Service Distribution) with the METRO delivery service and companies like the delivery specialists Classic Fine Foods, Pro à Pro and Rungis Express.
Glossary
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.
Glossary
Fair value
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.
Glossary
Previous year
Period of 12 months, usually cited as reference for statements in an annual report.
Glossary