Description of the opportunity and risk situation

Each consolidated risk analysis is based on a 4x4 matrix with regard to loss potential and probability of occurrence. The following risks are presented after taking risk mitigation measures into account (net consideration). Based on the loss potential and the probability of occurrence, a risk classification (low, medium, high) is derived for each consolidated risk:

Risk matrix

The stable portfolio of consolidated risks contains a total of 16 risks for financial year 2023/24. All risks are listed in the following overview:

The changes in risks compared to Annual Report 2022/23 are presented in the net consideration.

As can be seen in the table, 1 of the 16 consolidated risks as of the reporting date was classified as high, 5 risks as medium and 10 risks as low. In the following, we go into detail about the opportunities and risks. We focus on those risks that are classified as high and medium, as well as on the changes during the reporting period.

Environment

Opportunities from a global and diversified business model

METRO’s diversified country portfolio, which excludes excessive individual dependencies on specific countries, offers a competitive edge in the current economic situation compared to other, locally positioned market participants. The global positioning also allows METRO to react flexibly to changes in global supply chains, for example through the use of regional trading offices.

Likewise, the diversified multichannel business model is well positioned in the competitive context to meet customer demand. The increased cost-consciousness of customers is contrasted by the own-brand and price strategy for the store-based business.

Strategic risks (#1)

Strategic risks include risks related to the group’s business model, the planning and implementation of projects, competitiveness and digitalisation. Missing significant trends in new sales formats and channels, as well as in our assortment and own-brand strategy, can represent an additional risk.

Opportunities from the development of business and political conditions

An improvement in the economic and political environment worldwide or in countries where METRO is present, as well as improvements in free trade, could have a positive impact on sales, costs and earnings. METRO operates in a large number of countries where we could potentially benefit from these developments. Opportunities could arise from a sustained positive geopolitical and macroeconomic development.

Macroeconomic and political risks (#2)

As a company with global operations, METRO is significantly exposed to the political and economic situations in the countries in which the group operates. Changes in political leadership or economic imbalances can jeopardise METRO’s business. The war in Ukraine continues to affect the safety of employees and customers as well as the integrity of the business and supply chains. METRO’s continued presence in Russia entails economic, political and reputational risks. With regard to the business in Russia, risks arise from sanctions, counter-sanctions and government intervention in business operations to the point of potential expropriation as a result of the development of the war. Further business risks arise from more difficult access to international financial institutions as banks cut back their business with Russia.

In light of the Europe-wide protests by farmers, the European Commission is now taking more decisive regulatory action. The focus here is also on the relationships between retailers and suppliers in the agricultural food chain. This results in risks from revised directives and new regulations that could lead to restrictions in business operations.

The proposal for a regulation of the European Parliament and the Council on combatting late payments in commercial transactions would, in its current version, negatively affect our liquidity by capping payment terms at 30 days, thereby leading to increased interest expenses and a shift from supplier debt to financial debt. We are in dialogue with political decision-makers at national and EU levels, in particular through associations, in order to raise awareness of the economic impact of regulation.

Continuous monitoring of the economic and political developments and a review of our strategic objectives allow us to respond to these challenges in a timely and appropriate fashion.

• For more information about our assessment of the development of the economic environment, see chapter 3 outlook report.

Interruption of business activities (#3)

Our business may be affected or interrupted by natural disasters or failure of our IT systems. Potential cyberattacks receive particular attention in this regard. Depending on the severity of the attack, important business processes such as purchasing, sales and communication between different METRO units could be impaired. IT systems for online retailing must be continuously available, as these systems are a prerequisite for unlimited access outside normal store opening times.

As part of a cyber resilience programme, measures to prevent, detect and respond to cyberattacks are being continuously developed or enhanced to reflect the threat situation and integrated into business processes. For all IT security measures, the overriding goal is to ensure operational reliability at all times, or to restore it as quickly as possible.

Professional crisis management, for example by means of business continuity management, allows for a rapid crisis response and thereby ensures the protection of our employees and customers. This includes communication and evacuation plans, training measures and specific instructions. We insure ourselves against the loss of tangible assets and any impending loss of sales or profits resultant from business interruptions wherever it is possible and reasonable.

Security and safety risks (#4)

Security risks include criminal activities, terror and unrest, as well as the issue of operational safety or danger to life and limb due to lacking or inadequate safety measures. The impact of the war in Ukraine is discussed under risk #2 ‘Macroeconomic and political risks’.

Corporate responsibility

Opportunities from sustainable business practices

Our society is more exposed than ever to economic, environmental, social and cultural challenges. Similarly, we experience that sustainability is the key to transforming these challenges into opportunities. METRO operates an active sustainability management system in order to enshrine sustainability systematically in its core business. Our greatest leverages lie in reducing CO₂ emissions from our own business operations and food waste, which we are advancing by, among other things, expanding energy-saving infrastructure and logistics, by adapting the assortment and packaging and by taking operational measures to prevent food waste. By ensuring environmental and social standards through the use of responsible supply chain management, we strengthen the resilience of our supply chains and, at the same time, promote local structures. Our sustainability efforts are assessed as part of ratings to create transparency for investors and other interested parties.

Environmental and social risks (#5)

Regulatory and social regulations regarding compliance with human rights and environmental due diligence are becoming more stringent.

Additional legal obligations, such as those relating to sustainability reporting (Corporate Sustainability Reporting Directive), deforestation-free supply chains (European Deforestation Regulation) or the German Supply Chain Due Diligence Act (LkSG), create risks from breaches of national and European requirements due to potential non-compliance with environmental and social aspects. In addition to fines and damage to reputation, falling short of environmental and social targets and obligations can also lead to limited access to financing instruments. This also results in potential risks to the stability of our supply chains.

Further risks result from planned EU directives on reducing the ecological footprint, new packaging regulations, potential plastic taxes, extended manufacturer responsibility and new labelling requirements for own brands.

To mitigate these risks, METRO has taken comprehensive measures, such as continuous monitoring and implementation of legislation already enacted.

• For more information about our social responsibility and environmental protection activities, see chapter 1 principles of the group – 1.3 combined non-financial statement of METRO AG.

Wholesale business

Opportunities from digitalisation and innovation

METRO is focused on identifying and addressing future challenges of its customers at an early stage in a volatile environment. Innovations and digitalisation are areas with excellent potential for realising increases in value. We are convinced that progressing digitalisation will increasingly shape the future of the retail and wholesale industry as well as business processes. This may give rise to new business models, which in turn may present a variety of opportunities.

As part of our sCore strategy, we have defined a clear digitalisation ambition in the form of a 40% digital sales share. In this context, our focus is on digitalisation initiatives that are geared towards our core customer groups HoReCa and Traders. We partner with the DISH Digital Solutions business unit to provide our customers with digital solutions, such as the DISH (Digital Innovations and Solutions Hospitality) platform. With DISH Digital Solutions, we see significant opportunities to benefit from faster digitalisation in the HoReCa and Traders sectors as well as in other business areas. With our METRO DIGITAL business unit, we continue to digitalise our core business. METRO DIGITAL develops, optimises and supports all digital solutions used by our customers and us, such as our apps METRO Companion or M-Shop. These digital solutions provide opportunities for METRO to set itself apart from the competition.

Opportunities from customer focus

METRO has a clear focus on wholesale and B2B customers. By measuring customer satisfaction, for example by means of the established Net Promoter Score and the systematic collection and evaluation of customer suggestions, we are able to identify potential areas to improve the shopping experience and delivery as well as general trends. We are continuing to develop our multichannel approach within the framework of our sCore strategy. To this end, we are expanding the delivery business and bolstering our e-commerce activities with the METRO MARKETS online marketplace. Our goal is to be the partner of choice for our customers by offering METRO solutions that cover all aspects of their business. Our various strategic projects aim at further improving our purchasing and sales processes and at creating additional value for our customers. The goal is to ensure the ongoing value of assets, thereby mastering the challenges faced by our business model.

Store operations and FSD risks (#6)

The markets in which we operate are characterised by rapid changes and fierce competition. Lack of collection, analysis and use of customer data, uncompetitive pricing or an insufficient level of service may cause us to fail to meet customer needs and thus jeopardise our growth and profitability targets.

Inadequate market and FSD processes can lead to inefficiencies which have a particularly negative impact on inventory levels, profit margins and customer satisfaction. To counter these risks, we develop country-specific strategy plans derived from the group sCore strategy that are aligned with the respective local circumstances and customer requirements.

We strive to have a holistic partnership with our customers to address the needs of professional customers. This includes the expansion of our delivery business, the continuous transformation of our stores into multichannel fulfilment centres, further development of our franchise concept in selected markets, the METRO MARKETS online marketplace and digitalisation initiatives for our customers on DISH, as well as financial services of METRO Financial Services.

Real estate

Opportunities from increase in value

We see potential for value increases of our companies in possible development projects for our existing real estate assets as well as in improved facility management.

Real estate risks (#7)

Delayed repair and maintenance work could lead to legal infringements and real estate impairments as well as reputational damage. We mitigate these risks with strategic and operational real estate management. To this end, we regularly perform evaluations of properties in terms of value and income and projected investment planning. The safety and health of customers, suppliers and employees can be endangered by deficiencies in the properties. We take decisive action to prevent potential accidents and damage to health, thus ensuring a safe and healthy environment. In addition, we conduct risk assessments and specify clear sets of rules and procedures. We support implementation through frequent training, internal controls such as regularly scheduled safety and occupational safety inspections as well as external controls such as stability inspections.

Due to the concentration of real estate activities on supporting the wholesale business and the resulting strategic reduction of exposure to retail properties and specialist retail centres, the risk has fallen from ‘major’ (> €100–300 million) to ‘moderate’ (> €50–100 million) in terms of the loss potential.

Even though the energy markets have currently stabilised at a high price level, it cannot be ruled out that energy costs will rise again in the future. Extensive energy efficiency measures were implemented in order to decrease consumption and the associated costs. New photovoltaic installations are being commissioned in addition.

More stringent legislation regarding environmental standards such as the German Buildings Energy Act (GEG) could lead to higher costs in various areas of construction and energy management, for example through the early exchange of cooling systems.

In addition, real estate risks in connection with our Russian national subsidiary are reflected under the general sanctions risks in #2 ‘Macroeconomic and political risks’.

Suppliers and products

Opportunities from sustainable procurement

Alongside quality and safety, the environmental and social sustainability of the products and their production processes are increasingly gaining importance for us and more and more customers. We aim to ensure resource-friendly production as well as socially acceptable working conditions within our procurement channels. METRO pursues a group-wide cross-product purchasing policy that applies to all products and includes additional requirements for critical raw materials to ensure sustainable and responsible supply chain and procurement management.

• For more information about our social responsibility and environmental protection activities, see chapter 1 principles of the group – 1.3 combined non-financial statement of METRO AG.

Opportunities from higher own-brand penetration

Own brands are a central element in METRO’s strategy to increase the success of our customers. With our own brands, we can provide high quality at lower prices, thus simultaneously increasing our customers’ profitability as well as our own. Potential economic constraints and increased price pressure on our customers, for example as a result of inflation, could increase demand for own brands and thus have a positive effect on METRO’s profitability.

Procurement risks (#8)

Production downtimes, disruptions of the supply chains and international price fluctuations for raw materials and energy prices as a result of geopolitical instability can cause unavailability of goods, interruptions of supply chains and unexpected price fluctuations with a destabilising effect on our business and that of our partners.

In order to mitigate these risks, METRO is launching projects to support the purchasing activities of the national subsidiaries via bundling, thereby strengthening partnerships with suppliers and ensuring the availability of goods and their competitiveness. This is facilitated by the optimisation of our assortment and development of our own brands. By selectively adding further suppliers and strategically spreading our procurement volume, we are reducing our dependence on individual suppliers and increasing our security of supply. Thanks to our global coverage, we are in a position to find suitable alternative supply sources for key products. When we renegotiate expiring contracts, we try to compel suppliers to be sufficiently prepared so that supply continuity can be ensured in the event of force majeure. We pay special attention to all specific price components to prepare for negotiations in an effort to obtain better purchasing prices.

The risk in terms of the potential loss has fallen from ‘major’ (> €100–300 million) to ‘moderate’ (> €50–100 million). The adjustment is due to the stabilisation of the economic situation with regard to purchase price developments, as well as a lower dependency on selected suppliers when it comes to product unavailability. The risk has now been classified as ‘low’ due to the change.

Quality risks (#9)

Quality risks include risks related to the quality of the offered products, transport and storage, if they lead to an impairment of the quality of goods or food safety.

Supply chain

Supply chain risks (#10)

Risks in the supply chain include aspects such as the reliability of suppliers, inventory management of our goods, the management of logistics and transport service providers, and cost developments in the logistics market.

Financials

Financial risks (#11)

Without timely countermeasures, unexpected external influences on our business activities or other changes in the business environment could potentially result in us missing our target figures. In addition, delayed recognition of such changes could lead to us making wrong business decisions. We mitigate these risks by interlocking strategic planning and the budgeting process closely, carrying out very close monitoring of budget compliance, defining effective internal controls and intensively involving the supervisory bodies.

Furthermore, potential defaults by commercial partners and customers represent a financial risk. In order to minimise the credit risk of receivables from our customers, we decide on the amount of the granted payment terms based on comprehensive internal scoring – and external information, if available.

We reduce the credit risk for external investments with banks by setting limits based on ratings and credit spreads. By continuously monitoring the entire receivables portfolio, we ensure a risk-adequate adjustment of our customers’ payment terms and the investment limits with banks at all times.

A potential downgrade of our rating from the current investment grade levels would lead to higher borrowing costs. To mitigate this risk, we focus on extensive transparency, initiate supporting measures and maintain close communication with the relevant rating agencies.

Furthermore, METRO is subject to price risks, liquidity risks, credit risks and cash flow risks.

• For more information about financial risks and their management, please see the notes to the consolidated financial statements in no. 39 – management of financial risks.

Transactions

Opportunities from increased efficiency and portfolio simplification

Our focus on wholesale could lead to improved workflows along the value chain faster than expected and could have a positive effect on our business development through an increase in operating efficiency. Collaborations (even if they are purely contractual) can help us reduce operational cost or give our customers access to innovative products.

The country portfolio is regularly assessed with regard to the feasibility of a local market leadership and the attractiveness of the respective markets.

Opportunities from market consolidation and acquisitions

In the future, METRO will continue to focus on investments to strengthen its wholesale business. We want to use this to improve, solidify and expand our market position in numerous markets. We expect that the consolidation of the wholesale stores in many of our portfolio countries will continue. In financial year 2023/24, METRO expanded its delivery business in Scandinavia by acquiring Fisk Idag and Donier Gastronomie. In the United Kingdom, the delivery business grew through the acquisition of Caterite Food and Wineservice. The existing minority interests held by METRO offer the opportunity for additional increases in value if, for example, start-up companies were to develop better than expected.

Transaction risks (#12)

The transaction risks include all risks arising from the acquisition and disposal of companies (or company shares). These include legal and tax risks, guarantees, non-recurring and residual costs, or even reactions of the market to the transaction. Subsequent liability risks may arise for CECONOMY AG in conjunction with the demerger of the METRO GROUP in 2017.

Information technology

Data risks (#13)

Data risks include risks related to data protection and data security as well as risks related to the accuracy, completeness and availability of data necessary to ensure successful use of the group’s own data. Data theft or manipulation by unauthorised parties as part of cyberattacks can also lead to violations of data protection laws and thus to fines and reputational risks.

Human resources

Human resources risks (#14)

Human resources risks include risks related to the organisational structure of human resources, recruitment and retention of staff, appropriate remuneration and the exit process. Beyond that, risks related to corporate culture are also considered.

Tax, legal and compliance

Tax risks (#15)

Tax risks can primarily arise in relation to the assessment of financial matters by the tax authorities (including transfer price issues). Additional risks may result from differing interpretations of sales tax (VAT) regulations.

Legal and compliance risks (#16)

Legal and compliance risks include risks related to antitrust law, corruption, fraud, money laundering and unfair trade practices, as well as general legal risks.