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

Overview of financial year 2020/21 and outlook by METRO AG

METRO AG, in its function as the management holding company of the METRO group, is highly dependent on the development of METRO in terms of its own business development, position and potential development with its key opportunities and risks.

On account of the holding structure, in deviation from the group-wide view, the annual surplus under commercial law is the most important key performance indicator of METRO AG as outlined in German Accounting Standard No. 20 (GAS 20).

Business development of METRO AG

The business development of METRO AG is significantly characterised by the development of its subsidiaries and the intra-group dividend distribution policy. Financial year 2020/21 continued to be dominated by the Covid-19 pandemic and the associated government measures. They had a negative impact on the business development of the group companies, especially in the first half of the year. In the course of the second half of the year, government measures were eased, resulting in a trend reversal and a significantly improved business performance. The licensing fees that METRO AG receives from its subsidiaries also developed accordingly. Correspondingly, sales revenues and other operating income are slightly below previous year’s level, while cost savings were realised as planned in the personnel area and in the area of other expenses. After the negative impact of the disposal of the hypermarket business in the previous year, the net investment income was again positive, but due to the pandemic-related cautious dividend policy, the projected net income for the year was not quite achieved.

While the dividend proposal is generally based on the earnings per share reported in the consolidated financial statements, the income statement and balance sheet from the annual financial statements of METRO AG are presented below in accordance with the provisions of the German Commercial Code (HGB).

Earnings position of METRO AG and profit appropriation

METRO AG essentially acts as a licensor and as a service provider for the operating METRO national subsidiaries and invoices them within the framework of the transfer pricing system.

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 provide these services, IT services in particular are purchased from intra-group subcontractors and external parties, which are reflected in the cost of purchased services, other operating expenses and depreciation. With regard to the METRO and MAKRO brands as well as own brand products, METRO AG acts as a central licensor for its current and temporarily also for former subsidiaries.

In the reporting year, METRO AG settlement amounts of €334 million are reported as sales revenues. They are broken down into €177 million for settlement amounts received in the form of licensing fees for the METRO and MAKRO brands as well as €157 million relating to IT and business services.

The item other operating income consists mainly of settlement amounts for services sold to current and temporarily also former 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 group companies 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, METRO AG employed 741 people in the 4 quarters of financial year 2020/21. Part-time employees and temporary workers were converted into full-time equivalents. Personnel expenses are €37 million below previous year’s level. The decrease in personnel expenses compared to the previous year results basically from the fact that restructuring expenses were included in the previous year.

Depreciation and amortisation in the amount of €40 million are attributable to scheduled depreciation on the rights of use for the METRO and MAKRO brands and otherwise relate to scheduled depreciation of other fixed assets.

Other operating expenses are characterised by expenses incurred by METRO AG as part of exercising its function as a management holding company through commissioning of services from group companies as well as third-party companies. While these costs increased, currency losses and expenses for risk provisions related to the settlement of licensing fees in various countries were reduced. In the previous year, higher dividends from real estate companies and higher impairment losses on financial assets were incurred in connection with the disposal of the hypermarket business.

METRO AG reported income from investments in the amount of €15 million in financial year 2020/21. Income from profit and loss transfer agreements in the amount of €203 million mainly related to intra-group service providers. Losses of €225 million were absorbed, mainly from the METRO Cash & Carry International and Hospitality Digital divisions.In the reporting period, impairment losses and reversals of impairment losses in the amount of €46 million were made on investments in affiliated companies. In addition to real estate companies, they also concerned an international wholesale company whose corporate planning is more positive again after the pandemic-related restrictions have eased. The expenses from the disposal of financial assets relate to the intra-group disposal of a purchasing company.

The financial result amounted to €−42 million, mainly due to a reduced interest result.

The decrease in income taxes is mainly due to the fact that previous year’s figure included an increased tax expense from the disposal of the hypermarket business.

The net loss for the year was €−4 million. Including retained earnings from the previous year in the amount of €12 million and a transfer to reserves retained from earnings in the amount of €−8 million, the company shows a balance sheet profit of €0 million.

Since the annual financial statements do not show any distributable balance sheet profit earnings, there are no planned dividend distributions in financial year 2020/21 for ordinary shares or preference shares.

Financial position of METRO AG

Cash flows

The cash in hand on the closing date amounts to €1,055 million and consists primarily of bank deposits due to cash pool income from the subsidiaries.

Capital structure

The liabilities side of the balance sheet consists of €5,419 million in equity and €5,153 million in provisions, liabilities and deferred income. The equity ratio as of the closing date is 51%. The provisions amounted to €561 million on the closing date. Liabilities include €1,802 million in bonds and €54 million in liabilities to banks. The reduction compared to the previous year results from scheduled repayments of financial transactions. On the other hand, there are liabilities to affiliated companies in the amount of €2,597 million. They mainly relate to short-term financial investments of subsidiaries.

Asset position of METRO AG

The assets amount to a total of €10,572 million as of the closing date and are mainly characterised by financial assets of €8,143 million, receivables from affiliated companies amounting to €525 million and the right to use the METRO and MAKRO brands (€800 million), which is recognised under intangible assets. €8,138 million in financial assets consist mainly of shares in affiliated companies and essentially include the shares in the holding company for wholesale companies (€6,967 million), in real estate companies (€700 million) and in service providers (€470 million). The decline in receivables and other assets was due to lower receivables from the profit and loss transfer as well as payments received from trade receivables. Financial assets represent 77% of the balance sheet total.

Risk situation of METRO AG

Since METRO AG is largely linked to the companies of the METRO Group, among other things through financing and guarantee commitments as well as through direct and indirect investments in the associate companies, the risk situation of METRO AG is significantly dependent on the risk situation of the METRO Group. Therefore, the statements regarding the overall assessment of the risk situation by management also apply as a summary of the risk situation of METRO AG.

Outlook of METRO AG

In its function as the management holding company, METRO AG is highly dependent on the development and dividend distribution policies of its shareholdings. We assume that the development of licence income from subsidiaries in conjunction with continued strict cost management as well as a positive investment result will lead to a positive net profit being reported again in the coming financial year 2021/22.

Planned investments of METRO AG

Within the setting of the implementation of investments by the METRO Group, METRO AG will support the group companies through increases in shareholdings or loans, if 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 HGB and § 315d HGB, which has been combined with the corporate governance report, is permanently available to the public on the company’s website (www.metroag.de) under the heading ‘Company – Corporate Governance’.

Declaration pursuant to § 312 of the German Stock Corporation Act (AktG)

The Management Board of METRO AG has prepared a report on relationships with affiliated companies for financial year 2020/21 pursuant to § 312 of the German Stock Corporation Act (AktG) and has issued the following statement at the end of the report:

“The Management Board of METRO AG declares that during the reporting period the company and the companies controlled by it – according to the circumstances known to it at the time when the legal transactions were carried out or the measures were taken – received appropriate consideration satisfying an arm’s length comparison for each of the reported legal transactions. There were no other reportable legal transactions in the reporting period from 29 December 2020 to 30 September 2021. No measures were initiated or forborne during the reporting period.’