Application of new accounting methods

Accounting standards applied for the first time in the financial year 2012

The accounting standards and interpretations revised, amended and newly adopted by the IASB that were binding for METRO AG in the financial year 2012 were applied for the first time in these consolidated financial statements:

IFRS 1 (First-time Adoption of International Financial Reporting Standards)

The amendment “Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters” clarifies how first-time adopters of IFRS should present financial statements in accordance with IFRS if their functional currency has been subject to severe hyperinflation before the transition to IFRS. The amendment also removed the fixed date for the first-time adoption of IFRS (1 January 2004).

As IFRS 1 only applies to first-time adopters of IFRS, METRO AG was not affected by this amendment.

IAS 12 (Income Taxes)

For companies measuring investment properties at fair value, the amendment “Deferred Tax – Recovery of Underlying Assets” introduces the rebuttable presumption that recovery of the carrying amount of these properties will be through sale. If this presumption is not rebutted, deferred taxes will be calculated at the tax rate likely to apply at the expected sale date.

This amendment to IAS 12 was not relevant to the consolidated financial statements of METRO AG as METRO AG measures investment properties at amortised cost and not at fair value.

IFRS 7 (Financial Instruments: Disclosures)

According to IAS 39 (Financial Instruments: Recognition and Measurement), a transferred financial asset is derecognised only if the entity surrenders control over all essential risks and opportunities associated with ownership of the financial asset. In the case of transactions where all significant risks and opportunities associated with ownership of the financial asset are neither transferred nor retained, the entity derecognises the transferred asset if control over this asset – i.e. the capacity to sell it – is given up. If control over the asset in question is retained, the entity continues to report the asset in accordance with the scope of the continued involvement.

The IFRS 7 amendment “Disclosures – Transfers of Financial Assets” expands the disclosure requirements for transferred financial assets that do not fully meet the derecognition criteria. In addition, the amendment results in new disclosure requirements for transferred financial assets that have been derecognised despite an entity’s continued involvement.

This amendment, which was mandatory for METRO AG from 1 January 2012, had no effect on these consolidated financial statements.

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Standard/
Interpretation

Title

Effec-
tive date accord-
ing to IFRS1

Application at METRO AG from2

En-
dorsed by EU3

1

Without earlier application

2

Precondition: EU endorsement has been effected

3

As of 31 December 2012

4

Application as of 1 October due to change of financial year

5

Applicable for EU companies from 1 January 2014; application at METRO AG from 1 October due to change of financial year

IFRS 1

First-time Adoption of International Financial Reporting Standards (Amendment: Government Loans)

1/1/2013

1/1/2013

No

IFRS 7

Financial Instruments: Disclosures (Amendment: Disclosures – Offsetting Financial Assets and Financial Liabilities)

1/1/2013

1/1/2013

Yes

IFRS 7

Financial Instruments: Disclosures (Amendment: Mandatory Effective Date and Transition Disclosures)

1/1/2015

1/10/20154

No

IFRS 9

Financial Instruments (Phase 1: Classification and Measurement)

1/1/2015

1/10/20154

No

IFRS 9

Financial Instruments (Amendment: Mandatory Effective Date and Transition Disclosures)

1/1/2015

1/10/20154

No

IFRS 10

Consolidated Financial Statements

1/1/2013

1/10/20145

Yes

IFRS 10

Consolidated Financial Statements (Amendment: Transition Guidance)

1/1/2013

1/10/20145

No

IFRS 10

Consolidated Financial Statements (Amendment: Investment Entities)

1/1/2014

1/10/20145

No

IFRS 11

Joint Arrangements

1/1/2013

1/10/20145

Yes

IFRS 11

Joint Arrangements (Amendment: Transition Guidance)

1/1/2013

1/10/20145

No

IFRS 12

Disclosure of Interests in Other Entities

1/1/2013

1/10/20145

Yes

IFRS 12

Disclosure of Interests in Other Entities (Amendment: Transition Guidance)

1/1/2013

1/10/20145

No

IFRS 12

Disclosure of Interests in Other Entities (Amendment: Investment Entities)

1/1/2014

1/10/20145

No

IFRS 13

Fair Value Measurement

1/1/2013

1/1/2013

Yes

IAS 1

Presentation of Financial Statements (Amendment: Presentation of Items of Other Comprehensive Income)

1/7/2012

1/1/2013

Yes

IAS 19

Employee Benefits (Revision)

1/1/2013

1/1/2013

Yes

IAS 27

Separate Financial Statements (Revision and renaming as part of the introduction of IFRS 10)

1/1/2013

1/10/20145

Yes

IAS 27

Separate Financial Statements (Amendment: Investment Guidance)

1/1/2014

1/10/20145

No

IAS 28

Investments in Associates and Joint Ventures (Revision and renaming as part of the introduction of IFRS 11)

1/1/2013

1/10/20145

Yes

IAS 32

Financial Instruments: Presentation (Amendment: Offsetting Financial Assets and Financial Liabilities)

1/1/2014

1/10/20145

Yes

IFRIC 20

Stripping Costs in the Production Phase of a Surface Mine

1/1/2013

1/1/2013

Yes

Diverse

Improvements to IFRSs (2009–2011)

1/1/2013

1/1/2013

No

Accounting standards that were published but not yet applied in the financial year 2012

A number of other accounting standards and interpretations newly adopted or revised by the IASB were not yet applied by METRO AG during the financial year 2012 because they were either not yet mandatory or have not yet been endorsed by the European Commission.

IAS 19 (Employee Benefits)

Prior to the amendment, IAS 19 (Employee Benefits) provided the option to account for actuarial gains and losses from defined benefit pension plans either directly in the income statement, in equity outside of profit or loss or based on the so-called corridor approach. METRO AG currently uses the corridor method whereby actuarial gains and losses are recognised only to the extent that their cumulative amount which is not recognised in the income statement exceeds the higher of 10 percent of the present value of the defined benefit obligation or 10 percent of plan assets.

In June 2011, the IASB published a revised version of IAS 19. Essentially, the revision eliminates the choices on how to account for actuarial gains and losses (for example, due to changes in interest rates). In future, these must be recognised immediately in equity (other comprehensive income). The amounts collected in equity remain there and are not reclassified to the income statement in subsequent periods. As a result, the income statement will in future remain unaffected by actuarial gains and losses. Another change concerns the fact that, in future, returns on plan assets will be determined using the discount rate used to measure the pension obligations. In addition, past service costs will in future also be recognised fully in the income statement during the period in which the respective plan changes were effected. In addition, disclosure requirements about pension plans are expanded.

The amended IAS 19 applies to financial years from 1 January 2013. An adoption of the amendment in the financial year 2012 would have resulted in €616 million lower earnings reserves (previous year: €–203 million) – not considering the opposite effect from deferred taxes – and a corresponding increase in provisions for pensions and similar commitments, based on total actuarial gains and losses as of 31 December 2012. Other material effects from the first-time adoption of the revised IAS 19 are not expected.

IAS 32 (Financial Instruments: Presentation)

Pursuant to IAS 32 (Financial Instruments: Presentation), financial assets and financial liabilities should be offset if the following 2 preconditions are met: first, the entity must have a legally enforceable right to set off the amounts as of the balance sheet date; second, it must intend to either settle on a net basis or to realise the asset and settle the liability simultaneously. The amendment to IAS 32 “Offsetting of Financial Assets and Financial Liabilities” specifies when these conditions are considered met. In particular, it determines criteria for the existence of an unconditional legal claim.

The amendment to IAS 32 will apply to financial years from 1 January 2014. Given the change of financial year, METRO AG will therefore implement this amendment for the first time in the financial year 2014/15 which starts on 1 October 2014. At present, this amendment is not expected to have any material effect on the asset, financial and earnings position of METRO AG.

IFRS 9 (Financial Instruments – Phase 1: Classification and Measurement of Financial Assets and Financial Liabilities)

The new IFRS 9 standard (Financial Instruments) is to replace IAS 39 (Financial Instruments: Recognition and Measurement) covering the classification and measurement of financial instruments. IFRS 9 is developed in 3 phases of which only the first phase “Classification and Measurement of Financial Assets and Financial Liabilities” has been concluded so far. Additional planned phases are “Amortised Cost and Impairment of Financial Assets” and “Hedge Accounting”.

In its currently released state, IFRS 9 therefore contains only the results from the first phase, “Classification and Measurement of Financial Assets and Financial Liabilities”. As part of this first phase, the 4 IAS 39 measurement categories used in the classification of financial assets have been reduced to 2 – measurement at amortised cost and fair value measurement. Financial assets are classified to 1 of these 2 categories on the basis of the characteristics of contractual cash flow of the respective financial asset and the business model which the entity uses to manage its financial assets. Due to these criteria, equity instruments may in future only be measured at fair value. In addition, under IFRS 9, the fair value option for financial assets included in IAS 39 is permitted only if this eliminates or significantly reduces an accounting mismatch.

In general, financial liabilities are measured at amortised cost. Financial liabilities held for trading, in turn, are measured at fair value. In addition, IFRS 9 also provides for a fair value option for financial liabilities. However, in exercising this option, fair value changes resulting from changes in the entity’s creditworthiness must be recognised in equity outside of profit or loss, while other changes must be recognised in the income statement.

IFRS 9 in its current version is scheduled to apply as of 1 January 2015. Following METRO AG’s change of financial year, IFRS 9 will thus be applied at the Company for the first time in the financial year 2015/16 starting on 1 October 2015. As a result, the potential impact of this new standard cannot be determined at this point.

IFRS 10 (Consolidated Financial Statements), IFRS 11 (Joint Arrangements) and IFRS 12 (Disclosure of Interests in Other Entities)

The new standards IFRS 10, 11 and 12 contain changes in accounting and disclosure requirements for consolidated financial statements. IFRS 10 (Consolidated Financial Statements) includes a new definition of control that determines which entities are consolidated. It replaces previous regulations governing consolidated financial statements included in IAS 27 (Consolidated and Separate Financial Statements – in future only Separate Financial Statements) and SIC‑12 (Consolidation – Special Purpose Entities). The key change resulting from IFRS 10 concerns the introduction of a uniform definition of control. In future, 3 criteria must be met for the existence of control: the investor has power over the investee and resulting exposure or rights to variable returns from its involvement with the investee; and the investor can use its power over the investee to affect the amount of the variable returns.

IFRS 11 (Joint Arrangements) describes the accounting for arrangements in which several parties have joint control over a joint venture or a joint operation. It replaces IAS 31 (Interests in Joint Ventures) and SIC‑13 (Jointly Controlled Entities – Non-Monetary Contributions by Venturers) and amends IAS 28 (Investments in Associates – in future: Investments in Associates and Joint Ventures). IFRS eliminates the option currently granted under IAS 31 to apply proportionate consolidation to joint ventures. In future, joint ventures must be recognised using the equity method in accordance with the stipulations of IAS 28. As METRO AG has not made use of the option to apply proportionate consolidation, this amendment has no effect on the consolidated financial statements of METRO AG. According to IFRS 11, the individual partners in joint arrangements recognise their portion of jointly held assets and jointly incurred liabilities in their own balance sheet. Analogously, they also include their respective portion of sales, income and expenses deriving from the joint arrangement in their income statement.

The new IFRS 12 (Disclosure of Interests in Other Entities) markedly expands the disclosure requirements for investments in other entities. In future, detailed information must be provided on subsidiaries, associates, joint arrangements, joint ventures, consolidated special purpose entities (so-called structured entities) and all special purpose entities that are not consolidated but with which an entity maintains a relationship.

The new standards IFRS 10, 11 and 12 as well as the amendments to IAS 27 and 28 apply from 1 January 2013. However, in its endorsement of the new standards, the EU postponed the date of application for listed companies within the EU to 1 January 2014. As a result of the Company’s change of financial year, METRO AG will therefore apply the new standards for the first time in the financial year 2014/15 starting on 1 October 2014. The first-time application of these standards is not expected to have a material effect on the consolidated financial statements of METRO AG.

At this point, the first-time application of the other standards and interpretations listed in the table is not expected to have a material impact on the Group’s asset, financial and earnings position.

Revised disclosures

Commission sales

Generally, sales revenues are reported as sale prices obtained or the fair value of sold goods and services. This type of reporting requires that a company be exposed to the essential opportunities and risks associated with the sale of the goods or the rendering of the services. Otherwise, sales revenues must be reported only in the amount of the commission a company receives in its role as an agent. IAS 18 (Revenue) includes indicators that could point to reporting sales revenues only in the amount of the commission. Since the first quarter of 2012, METRO GROUP has changed the interpretation of these indicators and adjusted reporting of certain transactions in the income statement to achieve a better comparability with other retail companies, especially with a view to the EBIT margin. In the process, sales revenues from so-called commission transactions are reported only in the amount of the commission the Company receives without reporting the corresponding cost of sales. The gross profit and EBIT, in turn, are not affected by the changed reporting. To ensure comparability, the sales proceeds and the cost of sales for the full year 2011 were adjusted by €–776 million each. In the external sales item in segment reporting, this affects METRO Cash & Carry at €–34 million, Real at €–198 million, Galeria Kaufhof at €–331 million and the “Others” segment at €–213 million.

Composition of net working capital

In the first quarter of 2012, the definition net working capital was expanded to include deferred sales and provisions related to customer loyalty programmes, deferred sales related to the sale of vouchers and provisions for rights of return. In future, the definition will exclude liabilities from the acquisition of other assets that were previously recognised in “trade liabilities”. Analogously to liabilities from the acquisition of real estate assets, liabilities from the acquisition of other assets are recognised in cash flow from investing activities within the cash flow statement.

The changed definition has an impact on cash flow from operating activities and cash flow from investing activities. In the cash flow statement, comparable 2011 amounts were adjusted by €–40 million in the item “changes in provisions for pensions and similar commitments”, by €6 million in the item “changes in net working capital”, by €‑19 million in “others” and by €54 million in “investments in tangible assets (excluding finance leases)”.

In the course of the exclusion of liabilities from the acquisition of other assets from the definition of net working capital, prior-year figures in the balance sheet as of 31 December 2011 were adjusted as well. The reclassification has led to a decline in “trade liabilities” and a corresponding increase in “miscellaneous other liabilities” in the item “other financial and non-financial liabilities (current)” by €53 million as of 31 December 2011.

Put options of non-controlling interests

In the financial year 2012, the balance sheet treatment of put options of non-controlling interests was harmonised. Previously, liabilities from put options were recognised in the balance sheet item “other financial and non-financial liabilities” either under “liabilities to third-party interests“ or “miscellaneous other liabilities”. From the financial year 2012, they are recognised uniformly under “liabilities to third-party interests”. Accordingly, an amount of €315 million was reclassified from “miscellaneous other liabilities” to “liabilities to third-party interests” in the previous year. This also led to a reduction of the previous year’s segment liabilities in the segments Others and METRO Cash & Carry by €246 million and €69 million, respectively, as the “miscellaneous other liabilities” are included in segment liabilities, while “liabilities to third-party interests” are not. In this context, it was clarified that the liabilities from put options of non-controlling interests totalling €347 million (previous year: €389 million) are recognised in “other financial liabilities” not at amortised cost, but at fair value outside of profit or loss. Measurement is based on recognised valuation methods (level 3 in the fair value hierarchy).

Reclassifications

To account for the fact that they are part of the normal business cycle, deferred sales and provisions related to guarantees and customer loyalty programmes were reclassified from non-current to current liabilities. The comparative amounts as of 31 December 2011 were adjusted accordingly. The item “other financial and non-financial liabilities (non-current)” (“deferred income”) was reduced by €154 million while “other financial and non-financial liabilities (current)” were increased by the same amount. A total of €15 million was reclassified from “other provisions (non-current)” to the current “provisions” item. In addition, in the item “other financial and non-financial liabilities (current)”, €172 million was reclassified from “miscellaneous other liabilities” to “deferred income”.

Changed terminology and new items

Changed terminology in the balance sheet

On the asset side of the balance sheet, the item “financial assets” was renamed “financial investments” and the item “other receivables and assets” was renamed “other financial and non-financial assets”. On the liabilities side, the item “financial liabilities“ was renamed “borrowings”. In addition, the item “other liabilities” is referred to as “other financial and non-financial liabilities” as of the financial year 2012. All of these changes apply equally to the respective non-current and current items. The aim of the change in terminology is to underscore the fact that the items previously referred to as “other receivables and assets” as well as “other liabilities” in some cases also include financial assets and financial liabilities.

New balance sheet items

As the amounts of investments accounted for using the equity method became material during the financial year 2012, they were recognised in a separate balance sheet item, “Investments accounted for using the equity method”, for the first time in the consolidated financial statements for 2012. They were previously included in the item “financial investments” (until 2011, “financial assets”).

Revision of prior-year figures

Future lease payments due (nominal)

In the financial year 2011, “future lease payments due (nominal)” in some cases reflected excessive future payments by third parties. This resulted in a revision of prior-year figures in the term range up to 1 year by €–22 million, in the term range 1 to 5 years by €–54 million and over 5 years by €–84 million.

Other financial obligations

An in-depth contract analysis has shown that various events result in financial obligations qualifying as “purchasing/sourcing commitments” within “other financial obligations”. For this reason, the amount for 2011 was adjusted by €141 million.

Change of financial year in 2013

In 2013, METRO AG will close its financial year on 30 September rather than 31 December. For transition purposes, the financial year 2013 will be a short 9-month financial year from 1 January 2013 to 30 September 2013. The following financial year 2013/14 will be a regular, 12-month financial year from 1 October 2013 to 30 September 2014.