Balance sheet

Goodwill

In accordance with IFRS 3 (Business Combinations), goodwill is capitalised. Goodwill resulting from business combinations is attributed to the group of so-called cash-generating units (CGUs) that benefits from the synergies of this business combination. In accordance with IAS 36 (Impairment of Assets), a CGU is defined as the smallest identifiable group of assets that generates cash inflows largely independently from the cash inflows of other assets or groups of assets. As a rule, single locations represent CGUs at METRO GROUP. Goodwill within METRO GROUP is monitored at the level of the organisational unit sales line per country for internal management purposes. Goodwill impairment tests are therefore conducted at the level of this respective group of cash-generating units.

Capitalised goodwill is tested for impairment regularly once a year – or more frequently if changes in circumstances indicate a possible impairment – and, if applicable, impairment losses are recognised. To determine a possible impairment, the recoverable amount of a CGU is compared to the respective carrying amount of the CGU. The recoverable amount is the higher of value in use and fair value less costs to sell. An impairment of the goodwill allocated to a CGU applies only if the recoverable amount is lower than the total of carrying amounts. No reversal of an impairment loss is performed if the reasons for the impairment in previous years have ceased to exist.

Other intangible assets

Purchased other intangible assets are recognised at cost of purchase. Internally generated intangible assets are capitalised at cost of manufacture for their development if the capitalisation criteria of IAS 38 (Intangible Assets) are met. Research costs, in turn, are not capitalised but recognised immediately as expenses. The cost of manufacture includes all expenditure directly attributable to the development process. This may include the following costs:

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Direct costs

Direct material costs

Direct production costs

Special direct production costs

Overhead
(directly attributable)

Material overhead

Production overhead

Depreciation of fixed assets

Development-related administrative costs

Borrowing costs are factored into the determination of the cost of production only in the case of so-called qualified assets pursuant to IAS 23 (Borrowing Costs). Qualified assets are defined as non-financial assets that take a substantial period of time to get ready for their intended use or sale.

The subsequent measurement of other intangible assets is effected based on the historical cost principle. No use is made of the revaluation option. All other intangible assets of METRO GROUP have a limited useful life and are therefore subject to straight-line amortisation. Capitalised internally created and purchased software as well as comparable intangible assets are amortised over a period of up to ten years, licences over their useful life. These intangible assets are examined for indications of impairment at each closing date. If the recoverable amount is below the amortised cost, impairment losses are recognised. Impairment losses are reversed if the reasons for the impairment in previous periods have ceased to exist.

Tangible assets

Property, plant and equipment used in operations for a period of more than one year are recognised at amortised cost pursuant to IAS 16 (Property, Plant and Equipment). The manufacturing cost of internally generated assets includes both direct costs and appropriate portions of attributable overhead. Borrowing costs are only capitalised in relation to qualified assets as a component of cost of purchase or production. In line with IAS 20 (Accounting for Government Grants and Disclosure), investment grants received are offset against the purchase or manufacturing cost of the corresponding asset, with no item of deferral formed for the grants on the liabilities side. Reinstatement obligations are included in the cost of purchase or production at the discounted settlement value. Subsequent purchase or production costs of property, plant and equipment are only capitalised if they result in a higher future economic benefit for METRO GROUP.

Property, plant and equipment are depreciated solely on a straight-line basis using the cost model pursuant to IAS 16. The optional revaluation model is not applied. Throughout the Group, scheduled depreciation is based on the following useful lives:

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Buildings

10 to 33 years

Leasehold improvements

8 to 15 years or shorter rental contract duration

Business and office equipment

3 to 13 years

Machinery

3 to 8 years

Capitalised reinstatement costs are depreciated on a pro rata basis over the useful life of the asset.

Pursuant to IAS 36, an impairment test will be carried out if there are any indications of impairment of property, plant and equipment. Impairment losses on the asset will be recognised if the recoverable amount is below the amortised cost. Impairment losses are reversed if the reasons for the impairment have ceased to exist.

In accordance with IAS 17 (Leases), economic ownership of leased assets is attributable to the lessee if all the material risks and rewards incidental to ownership of the asset are transferred to the lessee (finance lease). If economic ownership is attributable to a METRO GROUP company acting as lessee, the leased asset is capitalised at fair value or at the lower present value of the minimum lease payments when the lease is signed. In analogy to the comparable purchased property, plant and equipment, leased assets are subject to scheduled depreciation over their useful lives or the lease term if the latter is shorter. However, if it is sufficiently certain that ownership of the leased asset will be transferred to the lessee at the end of the lease term, the asset is depreciated over its useful life. Payment obligations resulting from future lease payments are carried as liabilities.

An operating lease applies when economic ownership of the leased object is not transferred to the lessee. The lessor does not recognise assets or liabilities for operating leases, but merely includes rental expenses linearised over the term of the lease in its income statement.

In the case of leasing agreements relating to buildings and related land, these two elements are generally treated separately and classified as finance and operating leases.

Investment properties

In accordance with IAS 40 (Investment Property), investment properties comprise real estate assets that are held to earn rentals and/or for capital appreciation. In analogy to property, plant and equipment, they are recognised at cost less scheduled depreciation and potentially required impairment losses based on the cost model. Measurement at fair value through profit or loss based on the “fair value model” does not apply. Scheduled depreciation of investment properties is effected over a useful life of 15 to 33 years. Furthermore, the fair value of these properties is stated in the notes. It is determined either on the basis of recognised valuation methods or independent expert opinions.

Financial assets and investments accounted for using the equity method

Financial assets that do not represent associated companies under IAS 28 (Investments in Associates) or joint ventures under IAS 31 (Interests in Joint Ventures) are recognised in accordance with IAS 39 (Financial Instruments: Recognition and Measurement) and assigned to one of the following categories:

  • — “Loans and receivables”
  • — “Held to maturity”
  • — “At fair value through profit or loss”
  • — “Available for sale”

Financial assets are measured at their fair value including transaction costs for the first reporting period in all categories except “at fair value through profit or loss”. Measurement is effected at the trade date.

Depending on the classification to the categories listed above, financial assets are capitalised either at amortised cost or at fair value:

  • Loans and receivables” are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are recognised at amortised cost using the effective interest method.
  • The measurement category “held to maturity” includes non-derivative financial assets with fixed or determinable payments and fixed maturity, with the Company having both the positive intention and ability to hold them to maturity. They are also recognised at amortised cost using the effective interest method.
  • The category “at fair value through profit or loss” comprises all financial assets “held for trading” as the fair value option of IAS 39 is not applied within METRO GROUP. For clarification purposes, the entire category is referred to as “held for trading” in the notes to the consolidated financial statements. Financial instruments “held for trading” are financial assets that are either acquired or incurred principally for the purpose of selling or repurchasing in the near term or that are part of a portfolio of financial instruments that are managed together and for which there is evidence of recent actual pattern of short-term profit-taking. Furthermore, this category includes derivative financial instruments that are not part of an effective balance sheet hedge. Financial instruments “held for trading” are measured at fair value through profit or loss.
  • The category “available for sale” represents a residual category for primary financial assets that cannot be assigned to any of the other three categories. METRO GROUP does not make use of the optional designation of financial assets to the category “available for sale”. “Available for sale” financial assets are recognised at fair value outside of profit or loss. Fluctuations in the fair value of “available for sale” financial assets are recognised in equity without being reported as a profit or loss. The amounts recognised are not reclassified to profit or loss for the respective period until the financial asset is derecognised or an impairment of the assets has occurred.

Investments are assets to be classified as “available for sale”. Securities are classified as “held to maturity”, “available for sale” or “held for trading”. Loans are classified as “loans and receivables”.

Financial assets designated as hedged items as part of a fair value hedge are recognised at fair value through profit or loss.

Equity instruments for which no quoted price on an active market exists and whose fair value cannot be reliably measured, as well as derivatives on such equity instruments, are recognised at cost. This applies to several investments of METRO GROUP.

At each balance sheet date, financial assets that are not measured at fair value through profit or loss are examined for objective, substantial indications of impairment. If there are any such indications, the respctive financial asset is tested for impairment by comparing the carrying amount to the fair value. If the fair value is lower than the carrying amount, the difference is impaired. Where decreases in fair value of financial assets in the category “held for sale” were previously recognised in equity outside of profit or loss, these are now eliminated in equity to the amount of determined impairment and recognised in profit or loss. The fair value of financial assets measured at amortised cost corresponds to the present value of expected future cash flows, discounted at the original effective interest rate. The fair value of equity instruments measured at cost in the category “available for sale” corresponds to the present value of expected future cash flows discounted at the current market interest rate.

If, at a later date, the fair value increases again, the impairment loss is reversed accordingly. In the case of financial assets recognised at amortised cost, the impairment loss reversal is limited to the amount of amortised cost which would have occurred without the impairment. In the category “available for sale”, debt instruments are written back in profit or loss, while equity instruments are written back outside of profit or loss.

Financial assets are derecognised when the contractual rights to cash flows from the item in question are extinguished or have expired or the financial asset is transferred.

Other financial and non-financial assets

The financial assets included in other financial and non-financial assets that are classified as “loans and receivables” under IAS 39 are measured at amortised cost.

Other assets include investments and derivative financial instruments to be classified as “held for trading” in accordance with IAS 39. All other receivables and assets are recognised at amortised cost.

The prepaid expenses and deferred charges item comprises transitory accruals.

Deferred tax assets and deferred tax liabilities

Deferred tax assets and deferred tax liabilities are determined in accordance with IAS 12 (Income Taxes), which states that likely future tax benefits and liabilities are recognised for temporary differences between the carrying amounts of assets or liabilities in the consolidated financial statements and their tax base. Anticipated tax savings from the use of tax loss carry-forwards expected to be recoverable in future periods are capitalised.

Deferred tax assets in respect of deductible temporary differences and tax loss carry-forwards exceeding the deferred tax liabilities in respect of taxable temporary differences are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

Deferred tax assets and deferred tax liabilities are netted if these income tax assets and liabilities concern the same tax authority and refer to the same tax subject or a group of different tax subjects that are jointly assessed for income tax purposes.

Inventories

In accordance with IAS 2 (Inventories), merchandise carried as inventories is reported at cost of purchase. The cost of purchase is determined either on the basis of a separate valuation of additions from the perspective of the procurement market or by means of the weighted average cost method.

Merchandise is valued as of the closing date at the lower of cost or net realisable value. Merchandise is written down on a case-by-case basis if the anticipated net realisable value declines below the carrying amount of the inventories. Such net realisable value corresponds to the anticipated estimated selling price less the estimated direct costs necessary to make the sale.

When the reasons for a write-down of the merchandise have ceased to exist, the write-down is reversed.

METRO GROUP’s inventories never meet the definition of so-called qualified assets. As a result, borrowing costs relating to inventories are not capitalised pursuant to IAS 23.

Trade receivables

In accordance with IAS 39, trade receivables are classified as “loans and receivables” and recognised at amortised cost. Where their recoverability appears doubtful, the trade receivables are recognised at the lower present[I1]  value of the estimated future cash flows. Aside from the required specific bad debt allowances, a generalised specific allowance is carried out to account for the general credit risk.

Income tax assets and liabilities

The disclosed income tax assets and liabilities concern domestic and foreign income taxes for the reporting year as well as prior years. They are determined in compliance with the tax laws of the respective country.

Cash and cash equivalents

Cash and cash equivalents comprise cheques, cash on hand and bank deposits with a term of up to three months and are recognised at their respective nominal values.

Assets held for sale, liabilities related to assets held for sale and discontinued operations

In accordance with IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations), an asset is classified as an asset held for sale if the respective carrying amount will be recovered principally through a sale transaction rather than through continuing use. A sale must be planned and realisable within the subsequent 12 months. The asset is measured at the lower of carrying amount and fair value less costs to sell and presented separately in the balance sheet. Analogously, liabilities related to assets held for sale are presented separately in the balance sheet.

In accordance with IFRS 5, a component of an entity is recognised as a discontinued operation if it is held for sale or has already been disposed of. The discontinued operation is measured at the lower of carrying amount and fair value less costs to sell. Discontinued operations are presented separately in the income statement, the balance sheet, the cash flow statement and the segment reporting, and explained in the notes. With the exception of the balance sheet, prior-year amounts are restated accordingly.

Provisions for pensions and similar commitments

The actuarial measurement of pension provisions for company pension plans is effected in accordance with the projected unit credit method stipulated by IAS 19 (Employee Benefits). This method takes account of pensions and pension entitlements known at the closing date as well as of future pay and pension increases using biometric data. Where the employee benefit obligations determined or the fair value of the plan assets increase or decrease between the beginning and end of a financial year as a result of experience adjustments (for example the expected return of pension assets) or changes in underlying actuarial assumptions (for example the discount rate), this will result in so called actuarial gains or losses. Based on the exercise of a measurement option, these are recognised using the corridor method at METRO GROUP (instead of the direct recognition through profit or loss in the income statement or the recognition in equity outside of profit or loss). Under the corridor method, actuarial gains and losses are recognised only if their cumulative, non-recognised amount exceeds the greater of 10 percent of the present value of the employee benefit obligations and 10 percent of the fair value of the plan assets. In that case, the actuarial gains or losses exceeding the corridor will be spread over the average remaining working lives of the employees within that pension plan as of the subsequent year and recognised as income or expenses. The corridor method accounts for the fact that actuarial gains and losses may offset each other over the long term. This method prevents a high level of volatility in the income statement and/or equity. The interest element of the addition to the provision contained in the pension expense is shown as interest paid under the financial result. Provisions for commitments similar to pensions (for example, anniversary bonuses and death benefits) are formed on the basis of actuarial expert opinions under IAS 19.

(Other) provisions

In accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets), (other) provisions are formed if legal or constructive obligations to third parties exist that are based on past business transactions or events and will probably result in an outflow of financial resources that can be reliably determined. The provisions are stated at the anticipated settlement amount with due regard to all identifiable risks attached. The settlement amount with the highest possible probability of occurrence is used. Long-term provisions with a term of more than 1 year are discounted to the balance sheet date. Reimbursement claims are not netted with provisions, but recognised separately as an asset if their realisation is considered virtually certain.

Provisions for onerous contracts are formed if the unavoidable costs of meeting the obligations under a contract exceed the expected economic benefits resulting from the contract. Provisions for deficient rental cover related to leased objects are based on a consideration of individual leased properties. Provisions in the amount of the present value of the funding gap are formed for all closed properties or properties with deficient rental cover. In addition, a provision is created for store-related risks related to leased, operational or not yet closed stores insofar as a deficient cover of operational costs or a deficient rental cover despite consideration of a possible subleasing for the respective location arises from current corporate planning over the basic rental term.

Provisions for restructuring measures are recognised if a constructive obligation to restructure was formalised by means of the adoption of a detailed restructuring plan and its communication vis-à-vis those affected as of the closing date. Restructuring provisions comprise only obligatory restructuring expenses that are not related to the Company’s current activities.

Warranty provisions are formed based on past warranty claims and the sales of the current financial year.

Financial liabilities

According to IAS 39, financial liabilities that do not represent liabilities from finance leases are assigned to one of the following categories:

  • “At fair value through profit or loss” (“held for trading”)
  • “Other financial liabilities”

The first-time recognition of financial liabilities and subsequent measurement of financial liabilities “held for trading” is effected based on the same stipulations as for financial assets.

The category “other financial liabilities” comprises all financial liabilities that are not “held for trading”. They are carried at amortised cost using the effective interest method as the fair value option is not applied within METRO GROUP.

Financial liabilities designated as the hedged item in a fair value hedge are carried as liabilities at their fair value. The fair values indicated for the financial liabilities have been determined on the basis of the interest rates prevailing on the closing date for the remaining terms and redemption structures.

In principle, financial liabilities from finance leases are carried at the present value of future minimum lease payments.

A financial liability is derecognised only when it has expired, that is, when the contractual obligations have been redeemed or annulled or have expired.

Other liabilities

Other liabilities are carried at their settlement amounts unless they represent derivative financial instruments or commitments to stock tender rights, which are recognised at fair value under IAS 39.

Deferred income comprises transitory deferrals.

Trade liabilities

Trade liabilities are recognised at amortised cost.