Presentation of the risk situation

We have classified METRO GROUP’s overall risk portfolio into risk groups. In addition to general risks, the Management Board of METRO AG identified and assessed twelve risks that were especially relevant (gross risks) to METRO GROUP during the reporting period. These are listed in the following overview:

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Risk group

No.

 

Particularly relevant risks 2013

Environmental risks

 

 

 

Macroeconomic and social risks

 

 

 

Ecological risks

 

 

 

Sector risks

 

 

 

Risks related to the retail business

1

 

Challenge of the business model/change in consumer habits

 

2

 

Loss of customers with relatively low sales volumes (C customers) at METRO Cash & Carry

 

3

 

Inadequate customer-focused non-food strategy at METRO Cash & Carry

 

8

 

Inadequate implementation of strategic projects

Real estate risks

4

 

Unprofitable use of selling space

Risks related to business performance

 

 

 

Supplier and product risks

 

 

 

Logistics risks

 

 

 

Risks related to finances

 

 

 

 

7

 

Unexpected deviations from the budget or guidance

 

11

 

Impairment of goodwill and other assets

 

12

 

Downgrading of the ratings with a negative impact on liquidity and group financing

Other risks

 

 

 

Risks from portfolio changes

 

 

 

Information technology risks

5

 

Business interruptions caused by IT system failures

Human resources risks

6

 

Inadequate development and support of talented employees

Legal and tax risks

10.1

 

Violations of antitrust or competition law

Compliance risks

10.2

 

Corruption

 

9

 

Inadequate or ineffective internal control systems in store, purchasing, expansion and construction processes

These twelve particularly relevant risks are classified as follows on the basis of the extent of loss potential (before risk limitation steps) as well as on the basis of probability of occurrence:

Twelve risks that were especially relevant (gross risks) (graphic)

The following sections outline the individual risk groups as well as key management measures and the twelve especially relevant risks. In principle, all group segments are affected. For specific issues, the respective business segments are indicated.

Environmental risks

Macroeconomic and social risks

As an international company, METRO GROUP is dependent on the political and economic situation in the countries in which it operates. In the countries of Europe, in particular, the sovereign debt crisis continued to dominate developments during the short financial year 2013. Following the longest recession in the history of the European Monetary Union, a gradual recovery started only over the course of the year. Nonetheless, the retail sector remained under pressure from governments’ austerity programmes and high unemployment levels, which continued to have a negative impact on disposable household income. These negative pressures will subside over time although repeated setbacks in fiscal consolidation are likely. Eastern European economies also suffered an economic slowdown as a result of the recession in Western Europe. Nonetheless, we expect the European economies to return to stronger growth rates in the coming years. All the while, the region continues to boast strong growth potential. Despite a loss of momentum compared with previous years, we expect the growth markets of Asia to profit from a continued strengthening of domestic demand and the emergence of an affluent middle class. Compared with the previous year, the risk and opportunities profile for the short-to medium-term development of the retail sector and thus for METRO GROUP has improved slightly once again. We are systematically expanding in the growth regions of Asia and Eastern Europe to reduce potential risks posed by the regional differences in economic performance.

Our international position requires us to address possible economic, legal and political risks. The situation in individual countries can change rapidly. Unrest, changes in political leadership, terrorist attacks or natural disasters can endanger METRO GROUP’s business in the affected country. We insure ourselves as far as possible and to the appropriate extent against business interruptions that, for example, are the result of political unrest. Professional crisis management allows for a fast response and crisis management. In the short financial year 2013, for example, we responded quickly and effectively to renewed unrest in Egypt by temporarily closing our two local stores and head office. Our international presence provides us with the opportunity to offset economic, legal and political risks as well as fluctuations in demand between individual countries.

To limit the risks of expansion as far as possible, we plan each investment and each market entry based on a structured process and proven methods. We identify risks and opportunities by conducting feasibility studies. We only enter new markets when risks and opportunities are deemed to be manageable. Risks can also be reduced by forging partnerships with local companies. These businesses know the legal, political and economic environment of the respective country. Even though we base our expansion decisions on the best available information, we cannot rule out the possibility that the growth momentum in individual countries will fall short of our expectations in the coming years. Difficulties in dealings with local authorities represent another risk, particularly in emerging markets. Occurrence of these risks would result in lower-than-forecast sales and earnings.

Details about the development of the economic environment can be found in chapter 13 Supplementary and forecast report.

Ecological risks

METRO GROUP is aware of its responsibility for our environment and has firmly embedded the principle of sustainable business in its corporate strategy. Environmentally harmful practices along the supply chain can seriously damage our image over the long term and endanger our business. This is why we implement numerous measures to ensure environmentally responsible business practices. For example, we intend to reduce our emissions of specific greenhouse gases significantly by the year 2020, compared with 2011 figures. We are taking various measures to achieve this objective, including, for example, an optimisation of our energy management. Energy-saving measures will also enable us to reduce our energy costs or at least cap them in the face of rising prices.

As part of its membership in the Consumer Goods Forum, METRO GROUP has made a commitment to only use such natural cooling agents as carbon dioxide in new cooling equipment starting in 2015. The use of natural cooling agents is also a key component in adjusting to new regulatory requirements regarding the use of cooling agents. The European Union is currently preparing a revised version of the regulation on fluorinated greenhouse gases.

Over the medium term, the effects of climate change can limit the availability of commodities, for example as a result of weather-related harvest shortfalls. This can result in higher prices for agricultural products. METRO GROUP is already addressing this issue today by training suppliers in emerging markets to reduce post-harvest losses in these countries. METRO GROUP comprehensively reports about the risks and opportunities resulting from climate change as part of its membership in the Carbon Disclosure Project (CDP).

Details about environmental protection can be found in chapter 8 Sustainability management.

Sector risks

Risks related to the retail business

The saturated markets of Western Europe, in particular, are characterised by rapid change and intense competition. The resulting conditions can influence business developments and represent natural business risks. A fundamental business risk is consumers’ fluctuating propensity to consume.

Changes in consumer behaviour and customer expectations pose high risks – including in the face of demographic change, rising competition and increasing digitalisation. Failing to adequately consider customer trends and price developments or missing trends in our assortments and with respect to appropriate sales formats and new sales channels can have a negative impact on group sales and jeopardise our growth objectives (number 1). To counter these risks, we have expanded our sales channels based on a multichannel strategy tailored to our different sales lines. In the process, we have strengthened our online activities, expanded our delivery service and introduced a drive-in concept. In addition, we are setting up new stores for our sales line METRO Cash & Carry on the basis of a franchise concept while intensifying our competitor analyses at the same time. The sales line METRO Cash & Carry faces the risk of losing customers with relatively low sales volumes, also known as C customers (number 2). We have started to implement the necessary assortment, price, communication and marketing measures to counter this risk and are leveraging social media in the process. In addition, we have begun to launch targeted campaigns to strengthen our market share in the C customer segment (for example, the campaign for the 50th anniversary of METRO Cash & Carry). In principle, METRO Cash & Carry faces the potential risk of not meeting customers’ needs in the non-food business (number 3). To address this risk and to provide targeted product ranges, we continuously optimise our sales concepts and refine them to meet the needs and shopping behaviour of our customers. In one reflection of this, we are expanding our range of regionally traded products and increasingly gearing our assortments to meet our customers’ increasing demands with regard to ecological, social and health considerations. In this regard, we systematically modified the non-food assortment during the reporting period and removed products that were not particularly popular with customers. We pursue transformation programmes aimed at boosting long-term sales and earnings and protecting the intrinsic value of our assets. In addition, the company faces strategic project risks that could prevent a project from succeeding (number 8). To limit these risks we have implemented comprehensive monitoring of project implementation in the national subsidiaries. We also systematically offer financial incentives designed to ensure the successful implementation of our projects. To recognise market trends and changing consumer expectations early on, we regularly analyse internal and external information. In the process, the group’s own market research draws on qualitative market and trend analyses as well as quantitative methods such as time series analyses or forecasts of market developments derived from analyses of sales data and the results of panel market research. Time series analyses also include the observation of product segments on the market over a certain period of time.

Real estate risks

Various factors pose a risk to the intrinsic value of METRO GROUP’s portfolio of locations. These include

  • selling space that can no longer be profitably used (number 4).
  • intense competition over suitable properties,
  • the risk of poor decisions on the choice of location which can be reflected in new store openings failing to attract the expected customer response as well as
  • a deterioration in the profitability of a location, for example due to declining sales or rent increases.

To prevent maintenance and repair backlogs in stores, a constant monitoring process is carried out to ensure that maintenance needs are being met. In addition, some locations may suffer loss of rental income as a result of a tenant’s bankruptcy, as was the case with the insolvency of Praktiker during the reporting period, or possible deficient rental cover. In some regions, our real estate portfolio is exposed to natural disasters such as earthquakes, flooding and storms. We seek protection against their potential effects by undertaking structural measures and by taking out insurance.

We counter these risks through active property management, professional strategic and operational investment controlling, and technical risk management. Active real estate management includes the development of usage concepts for excess space. In all countries, we select our locations on the basis of an intense examination. By continually monitoring the profitability of our network of locations, we can identify adverse developments at individual stores or retail outlets early on and respond quickly. Should the measures we have taken not produce any successful results and should we think that a long-range improvement of the situation at the particular store or outlet is unlikely to occur, we will close the location, ensuring the continuous optimisation of the store network in the process. We address the risks emanating from external property rentals through continuous monitoring of lease payments and timely searches for financially strong external tenants.

Risks related to business performance

Supplier and product risks

As a retail and wholesale company, METRO GROUP depends on external producers and providers for the supply of goods and services. We choose our suppliers very carefully, particularly in the own-brand area. We place a particularly high priority on the reliability of our own-brand suppliers in terms of product quality and compliance with safety and social standards as well as suppliers’ own efforts with regard to compliance. Defective or unsafe products, an exploitation of our environment or inhumane working conditions as well as failure to adhere to the compliance standards of METRO GROUP would cause extensive damage to the image of METRO GROUP and pose a long-range threat to the company’s success. For this reason we continuously monitor our own-brand suppliers to check whether they adhere to METRO GROUP’s high procurement and compliance policy standards. In particular, these include the quality standards tested by the Global Food Safety Initiative (GFSI), such as the International Food Safety Standard and the GLOBALGAP certification for agricultural products. They help to ensure the safety of foods on all cultivation, production and sales levels. In addition, METRO GROUP has been committed to promoting humane working conditions at its suppliers for many years and conducts a broad range of measures in support of this goal. For example, our own-brand suppliers are required to protect fundamental human rights and to guarantee fair working conditions. In proof of this, our supplier contracts demand an audit based on the BSCI (Business Social Compliance Initiative) standard or an equivalent standard. This requirement applies to own-brand suppliers of non-food articles who manufacture end products in high-risk countries and import these into the European Union. With targeted training programmes, we support suppliers, particularly in emerging markets, in their efforts to fulfil set requirements in the areas of product quality, safety and environmental standards as well as to ensure fair and humane working conditions. This year, we also began to support the international accord on fire and building safety in the textile industry in Bangladesh by providing both expertise and financial support. Above all, our requirements of our suppliers are regulated in special contracts which are regularly reviewed for compliance. Violations of conditions can lead to exclusion from our supplier network or, in case of unacceptable production methods such as sandblasting of jeans, which is harmful to health, to a procurement ban on a product. In this way, we further minimise our supplier risk. Should, however, an incident related to quality occur, the process steps described in our manual on incidents and crises take effect. Our top priority is to correctly manage the incident in the customers’ best interest. In addition, we examine possible improvements to our quality assurance systems.

To prevent disruptions in the supply of goods and to avoid becoming dependent on individual companies, we work with a variety of suppliers and ensure that we do not become dependent on individual companies. By taking this approach, we ensure that the desired product is practically always in stock in the desired quality and quantity and, in the process, achieve high levels of customer satisfaction.

Our success also depends heavily on the procurement prices of the products offered for sale. In many cases, our large purchasing volumes in numerous countries have a positive effect. Product prices are based on the availability of the required raw materials that may temporarily or continually become scarce. This can drive up procurement prices or lead to a certain level of volatility. For example, increased energy prices can lead to higher procurement prices for a variety of products. We address procurement risks by optimising the purchasing process. Such steps include joint procurement and the negotiation of terms with our suppliers. Prompt implementation of these measures is a key success factor.

We contribute to the sustained availability of resources through our own activities and by actively supporting initiatives aimed at sustainable resource utilisation. One example of this is our group-wide fish procurement policy which contributes to the conservation of fish stocks. In addition, we play an active role in the Marine Stewardship Council (MSC) and Aquaculture Stewardship Council (ASC). Both organisations award product seals for sustainable fishery aimed at the conservation of fish stocks and for aquacultures operating in an environmentally sustainable and socially responsible manner. As early as 2011, METRO GROUP joined the Roundtable on Sustainable Palm Oil (RSPO). The organisation, which includes companies and non-governmental organisations, promotes the sustainable cultivation of palm oil plants, a raw material used in cosmetics and sweets, in particular.

Other examples of product risks include supply bottlenecks after natural disasters, longer delivery times and price increases. METRO GROUP’s procurement management creates the necessary structures to ensure a sufficient supply of goods at all times.

Our activities to foster a sustainable supply chain are described in chapter 8 Sustainability management.

Logistics risks

The responsibility of logistics is to ensure a high security of goods supplies at optimised cost structures while considering sustainability-related aspects such as energy and fuel consumption. The wide variety of goods and articles and the high merchandise turnover, however, result in organisational, IT, logistics and inventory risks. The company’s international positioning and focus on national, regional and local product assortments increase these risks. Additional challenges arise from the expansion of our online activities and our multichannel business, delivery options and other innovative sales formats. Any disruptions in the supply chain, for example in the supply of goods, could lead to inadequate availability of products. We reduce our dependency on individual suppliers and service providers by expanding our circle of business partners and internally employing the principle of efficient labour division.

Another logistics risk arises from the generally complex and at the same time underdeveloped supply structures that prevail in emerging and developing markets, in particular. In many cases, these go hand in hand with particularly challenging climatic conditions that can result in food spoilage on the way from the producer to the store. METRO GROUP creates the necessary structures to ensure consistently high quality along the supply chain at all times. We conduct qualification programmes to prepare our suppliers and logistics providers in emerging markets for these logistics requirements. In this way, we also make a lasting contribution to local food supplies and counter the problem of food waste.

In case of product incidents, our logistics systems must be prepared to trace the good’s itinerary and origin within a very short time. This is done with the help of modern technologies and product identification standards. We are actively involved in various international organisations to foster the developments of these standards and promote the introduction of innovative technologies for improved product identification.

Risks related to finances

The treasury of METRO AG manages the financial risks of METRO GROUP. The risk of price changes (interest risks, currency risks, share price risks), liquidity risks, creditworthiness risks in dealings with counterparties in the context of financial transactions and risks arising from cash flow fluctuations may have a significant negative impact on our financial result.

Ensuring METRO GROUP’s unlimited access to the capital markets is integral to the management of financial risks. A rating downgrade would have a significant negative impact on our liquidity and group financing (number 12). To prevent this, our current strategy focuses on debt reduction. Among other things, this is achieved by continuously optimising our net working capital and focusing our investment funds on measures that add value for the company. In this way, we gain additional flexibility to finance the transformation of our business models in response to the continuously changing needs and demands of our customers while allowing for a stabilisation and medium-term improvement of our rating. Another identified risk concerns unexpected deviations from our budget or guidance (number 7). This could mean that we would not hit our target figures and would have to revalue our assets, including our goodwill. In turn, this would have a negative impact on our asset and earnings position (number 11). For this reason, we attach a high priority to measures designed to limit these risks. The steps we take to offset this risk include careful monitoring of opportunities and risks as well as the effective internal control of the budget and forecast process. The internal audit department regularly reviews the effectiveness of internal controls as part of its audit schedule. In addition, we implement strategic earnings improvement initiatives, particularly in countries that are subject to impairment risk.

These risks and their management are described in more detail in the notes to the consolidated financial statements in no. 43 “Management of financial risks”.

Other risks

Risks from portfolio changes

METRO GROUP aims to continuously optimise its portfolio. All portfolio changes and the related strategic and investment or divestment decisions are guided by their contribution to the company’s success in terms of value-based management. We can reduce risks related to the intrinsic value of our assets – both in terms of individual groups of assets and our overall portfolio – through value-based management.

We expect to conclude the sale of the Eastern European business (excluding Turkey) of our Real sales line within the first six months of the financial year 2013/14. Real Ukraine, Real Russia and Real Romania have no longer been included in the consolidated financial statements of METRO GROUP since 1 March 2013, 1 April 2013 and 1 September 2013 respectively. The transfer of Real in Poland is scheduled to be completed in the first half of the financial year 2013/14 following the antitrust approval. Risks resulting from this portfolio change are reflected in the financial statements to the extent that this can be done in the balance sheet.

Information technology risks

The demands of our information technology (IT) have markedly increased as a result of new formats and sales channels, such as online retail and deliveries. Other tasks include real-time analyses of business processes and timely monitoring and management of merchandise flows. Regulations, for example on data protection or credit card processing, the associated increased public debate about misconduct and the increasing complexity of IT generate additional risks for our company.

As a result, we have reinforced the organisational measures that ensure our compliance with internal and external IT regulations. We regularly check systems connected to the Internet for weak spots. We counter the increasing complexity of modern IT landscapes through tightened management regulations and a centralised corporate architecture, known as enterprise architecture management.

Important business processes such as product ordering, marketing and sales have used IT systems for many years. As a result, the continuous availability of the infrastructure is a critical factor in the development and implementation of our IT solutions. Systems that are essential business operations in the stores, above all checkouts, are largely self-contained and can continue to be used for some time even during events such as network failures or the failure of central systems. In case of partial network failures, they can automatically reroute shipments or switch to redundant routes.

Modern technologies such as remote server management and cloud computing allow us to use our hardware efficiently. In addition, in the event of one or several server failures, centralised IT systems can quickly be restored. We operate several central computer centres, which enable us to compensate even for business interruptions and to limit them to a minimum. We have introduced a contingency plan to restore computer centres in Germany following longer-term outages (for example as a result of fires, natural disasters or criminal actions) (number 5).

Information is a key resource for all companies of METRO GROUP. This means that it must enjoy the same protection as all other assets. For this reason, METRO AG developed a documented IT security management system (ISMS), which was launched at the start of 2013. The aim of this system’s framework is to ensure confidentiality (access only for authorised users) and integrity (accuracy and completeness) of this information. Among other things, the management principles for IT security describe our operational and organisational structures. We have implemented IT security controls in accordance with the ISO 27000 industry standard. For example, the IT security guideline sets out requirements for the assignment of passwords. In this way, we ensure that the data we process are correct and complete and can only be viewed by authorised staff. The necessary user accounts and access authorisations are administered centrally according to predefined, partially automated processes. We regularly review whether group specifications are followed in terms of critical user rights and provide centralised reports on the results of our examinations. Affected employees are made aware of IT security issues, prepared for these and kept up to date through regular, standardised training courses in accordance with ISO 27000. In addition, the key processes and IT systems of our central IT company METRO SYSTEMS are reviewed by internal audit and by external inspectors who examine and certify them in accordance with the international standard for audit reports of service organisations ISAE 3402 (International Standard on Assurance Engagement).

Awareness of the importance of data protection was further raised at all levels of our group. The commitment to adhere to the data protection standards of the German Federal Data Protection Act (BDSG) is part of all employment contracts. In particular, employees of company units that have access to and handle sensitive data undergo on-site training on data protection. Employees with privileged access rights (for example, administrators) must sign an additional formal obligation.

Human resources risks

The expertise, dedication and motivation of our employees are key success factors that have a decisive impact on METRO GROUP’s competitive position. One prerequisite to achieving strategic goals are highly qualified experts and managers. It is an ongoing challenge to recruit and retain such valuable employees for the group, in particular in the face of demographic change and intense competition for the best people. Intra-company programmes for the continued qualification of employees and the strengthening of corporate culture are also indispensable. To ensure that our employees have the requisite expertise and leadership skills, we optimise training and professional development programmes at all levels. Training courses and effective human resources development measures promote entrepreneurial thinking and actions; variable pay components based on the attainment of corporate and individual objectives serve as an incentive. Direct participation in business success increases employees’ identification with METRO GROUP and enhances their awareness of opportunities and risks in all entrepreneurial decisions.

Our group-wide human resources policy pursues the principle of “develop and challenge”. This is reflected in annual performance reviews in which past achievements are assessed and future development measures are agreed with individual employees. With targeted training programmes, which we implement in cooperation with various partners, we manage to attract young people to METRO GROUP and to optimally develop their particular strengths. In Germany, in particular, the METRO GROUP companies therefore place great value in their own training programmes for employees. With a share of 7.7 per cent, we continue to be one of Germany’s largest providers of occupational training. This also includes the integration of professionally and socially disadvantaged or disabled young people into our day-to-day work environment. The principle of diversity and equal opportunity among our employees helps us retain the best experts and managers over the long term. Succession planning at METRO GROUP, in particular in senior management positions, is guaranteed through customised career paths and development plans. All these measures serve to counter the key risks of insufficient talent development and promotion (number 6).

Health promotion concepts, such offers as computer/desktop glasses, back therapy training, fitness classes, company sports activities, dietary tips, ergonomic advice, stress prevention training courses and employee counselling programmes provide for a safe, hazard-free work environment. We counter risks of non-compliance with applicable labour regulations by treating our employees with respect. This effort is supported by guidelines on fair working conditions and social partnership. These guidelines aim to create a work environment characterised by respect, fairness and partnership.

Additional information on METRO GROUP’s human resources policy can be found in chapter 6 Employees.

Legal and tax risks

Legal risks arise primarily from labour and civil law cases as well as from changes in trade laws. In addition, risks for METRO GROUP may arise from preliminary investigations, for example possible infringements of cartel or competition law (number 10.1). Antitrust law risks may arise in the context of business dealings with METRO GROUP suppliers, for example, when it has not been assured that agreed terms and conditions comply with applicable laws and regulations.

Tax risks mainly emanate from external audits which take a differing view of certain circumstances and transactions. In addition, risks may result from interpretations of sales tax regulations. The tax department of METRO AG has established appropriate guidelines to ensure an early detection and minimisation of tax risks. These risks are regularly and systematically examined. The resulting risk minimisation measures are coordinated by the tax department of METRO AG and the national subsidiaries.

Control of Media-Saturn-Holding GmbH

Based on the arbitral award of 8 August 2012 and the decision of the Higher Regional Court of Munich of 9 August 2012, the Management Board feels confirmed in its opinion that the consolidation of the Media-Saturn group of companies was rightfully effected according to the relevant IFRS regulations, both in the past and in the consolidated financial statements as of 31 December 2012. In the context of the proceeding before the Higher Regional Court of Munich regarding the order of enforcement for the arbitral verdict of 8 August 2012, which was initiated by METRO, a non-controlling shareholder of Media-Saturn-Holding GmbH (MSH) filed an application to reject METRO’s petition by invalidating the arbitral verdict. In addition, the member of the advisory board appointed by the non-controlling shareholder has filled several legal challenges against MSH and raised questions about decisions taken by the advisory board of MSH. In addition, a METRO AG shareholder filed a nullity plea regarding the approved annual financial statements of METRO AG as of 31 December 2012 citing an alleged infringement of the regulations governing the structure of the annual financial statements due to allegedly flawed consolidation of the Media-Saturn group of companies in the consolidated financial statements of METRO AG. If, contrary to the expectations of the Management Board, the Higher Regional Court of Munich were to invalidate the arbitral verdict and, in another procedural step, another arbitral court were to decide this matter to the disadvantage of METRO AG, or a court were to assume the flawed consolidation of the Media-Saturn group of companies in the context of the lawsuit filed by the METRO AG shareholder, the Management Board’s opinion on the full consolidation of the Media-Saturn group of companies would have to be reviewed. In that case, a deconsolidation of the Media-Saturn group of companies might become necessary if the sustained power to exercise control cannot still be assumed. A deconsolidation of the Media-Saturn group of companies based on current values would lead to one-time non-cash deconsolidation income. Following the deconsolidation, the interest in the Media-Saturn group of companies would have to be recognised at equity. This change regarding the consolidation of the Media-Saturn group of companies could impact the company’s key financials.

Additional information on legal issues is included in the notes to the consolidated financial statements in no. 46 “Other legal issues”.

Compliance risks

The activities of METRO GROUP are subject to various legal stipulations and self-imposed standards of conduct. Legal requirements in the various jurisdictions as well as the expectations of our customers and the public regarding corporate compliance have generally increased and become more complex. In response to these requirements, METRO GROUP has established a group-wide compliance system which it continuously refines. The aim of this system is to systematically and sustainably prevent regulatory infringements within the company. METRO GROUP regularly identifies behavioural corporate risks.

During the short financial year 2013, METRO GROUP continued to develop its procedures for dealing with compliance incidents. Newly structured processes for dealing with compliance incidents and for compliance training courses provide for consistent procedures within the compliance management system. Our compliance management is primarily focused on preventing corruption and antitrust law risks. On the one hand, corruption risks arise in dealings with public authorities and public officials, for example in the context of the company’s international expansion or authorisation processes. On the other hand, they can arise in business dealings with suppliers and other business partners (number 10.2). In addition, the group-wide compliance management system covers other relevant criminal and penal risks, data protection and labour law-related risks such as discrimination.

As part of the compliance management system, the necessary organisational structures are established in consideration of all identified and assessed compliance risks. The responsible departments consistently manage and control the risks within the existing structures.

METRO AG has introduced group-wide standards of conduct to manage the identified compliance risks, including a handbook on antitrust law that provides guidelines on supplier negotiations, among other areas. This handbook also contains templates for antitrust law-compliant communications with suppliers. In addition, METRO AG has introduced group-wide anti-corruption policies outlining standards of conduct for dealings with both authorities and public officials and with business partners. The anti-corruption guidelines also stipulate that a compliance check must be carried out before entering into a business relationship with business partners in high-risk areas.

Compliance guidelines are updated continuously and adjusted in a risk-based manner. These efforts are complemented by compulsory training courses, systematic and target group-orientated communications and the consistent, disciplined handling of compliance incidents and relevant follow-up measures. In addition, METRO GROUP employees, their business partners and customers have access to a professional reporting system which enables them to notify the company of compliance violations and potential violations in all group languages. Where necessary, incidents may be reported anonymously. The compliance organisation ensures that all reported cases are investigated in an appropriate fashion.

By strengthening its internal control system, the company ensures that compliance and governance requirements are being increasingly integrated into its operational business and financial processes and reviewed. In this way we have identified weak controls in expansion, construction and market processes. In response, we are expanding operational controls of our core processes (development of business models, location decisions, procurement and sale of merchandise and services, market processes, expansion, construction) (number 9). We also train our staff, set tolerance limits for excess costs and monitor minimum requirements for specific processes. In addition, we are adjusting our operational monitoring structures, for example by introducing self-assessments and cross-divisional internal controls.