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

Overview of the short financial year 2013 and forecast of METRO AG

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

In light of the holding structure, the most important performance metric for METRO AG in terms of GAS 20 is commercial net income – contrary to the case for the group as a whole.

Business development of METRO AG

Business developments of METRO AG are primarily characterised by the development and dividend distributions of its investments. METRO AG’s annual financial statements prepared under German commercial law serve as the basis for dividend distribution. The income statement and balance sheet of METRO AG prepared in accordance with the German Commercial Code (HGB) are outlined below. The results as of the closing date of 30 September 2013 are compared with the previous year’s annual financial statements as of 31 December 2012.

Earnings position of METRO AG and profit appropriation

Income statement for the short financial year from 1 January to 30 September 2013 prepared under the German Commercial Code (HGB)

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€ million

12M 2012

9M 2013

Investment result

783

347

Net financial result

–124

–101

Other operating income

559

389

Personnel expenses

–147

–89

Depreciation/amortisation/impairment losses on intangible and tangible assets

–54

–26

Other operating expenses

–483

–296

Result from ordinary operations

534

224

Income taxes

–34

0

Other taxes

–2

1

Net income

498

225

Profit carried forward from the previous year

21

22

Additions to reserves retained from earnings

–170

–110

Balance sheet profit

349

137

For the short financial year, METRO AG posted investment income of €347 million, compared with €783 million in the previous year. The financial result for the nine-month reporting period is materially impacted by the absence of earnings contributions from the Christmas and end-of-year business.

Income from investments without profit and loss transfer agreements totalling €478 million (12M 2012: €476 million) also indirectly includes losses incurred by the domestic activities of the METRO Cash & Carry and Real sales lines during the short financial year aside from income absorption from foreign cash & carry companies during previous years and during the short financial year. In addition, this position contains profits from the sale of the Real sales line’s Eastern European business. The previous year’s figure included expenditures related to Media Markt’s withdrawal from China.

Income from investments without profit and loss transfer agreements totalling €147 million (12M 2012: €589 million) essentially stems from disbursement from group service organisations as well as METRO AG’s indirect participations in foreign cash & carry companies.

In the short financial year 2013, losses of €138 million (12M 2012: €25 million) were assumed on the basis of profit and loss transfer agreements. These losses stemmed from the business activities of the Galeria Kaufhof sales line as well as from the group real estate service companies during the short financial year.

Of impairments for investments in associates, €75 million can be attributed to international cash & carry activities and €65 million to the international food retail business.

The financial result amounted to €–101 million (12M 2012: €–124 million).

Under the transfer pricing system, METRO AG acts as a franchisor to the METRO Cash & Carry sales line. Services provided essentially include the provision and continued development of business concepts, software applications and holding services. In order to be able to render these services, the company acquires IT services from METRO SYSTEMS GmbH, in particular, which lead to higher other expenses and write-downs. Services are billed at arm’s-length prices. During the short financial year 2013, METRO AG billed the national and international operating companies of the METRO Cash & Carry sales line a franchise fee totalling €222 million (12M 2012: €374 million). The franchise fee itself represents a portion of the sales and earnings of the operating company calculated on the basis of the degree of service utilisation. During the short financial year, these franchise fees billed to subsidiaries declined compared with the previous year’s level as a result of the shorter billing period as well as the absence of the sales and earnings contribution of the Christmas and end-of-year business.

Income from administrative services for subsidiaries rose because a larger volume of costs stemming from central functions and projects incurred by METRO AG were billed to the sales lines during the reporting period.

Other operating income, other operating expenses and depreciation/amortisation on intangible and tangible assets of METRO AG resulted in an increase in earnings from €45 million in the previous year to €67 million as of the closing date.

On average during the three quarters of the short financial year 2013, METRO AG employed 940 people (12M 2012: 970 employees). Part-time employees and temporary workers were converted into full-time equivalents. Personnel expenses amounted to €89 million (12M 2012: €147 million). In addition to the effects from the shorter reporting period of the short financial year, lower severance payments led to a decline in personnel expenses.

Net income amounted to about €225 million (12M 2012: €498 million), slightly above the guidance for the short financial year 2013 provided at the beginning of the reporting period.

With €110 million having been transferred to revenue reserves, the balance sheet profit of the company amounted to €137 million compared with €349 million in 2012.

The Management Board of METRO AG will propose to the Annual General Meeting that the complete reported balance sheet profit of €137 million be added to other reserves retained from earnings.

Financial position of METRO AG

Cash flows

During the reporting year, cash flows resulted primarily from financial transactions with METRO GROUP companies. Short-term monetary investments provided by the sales lines at the end of the financial year amounted to €739 million as of the closing date (12M 2012: €2,088 million). The decrease compared with the previous year primarily resulted from the fact that the previous year’s figure as of 31 December 2012 included earnings from the high-volume Christmas and end-of-year business.

Capital structure

Equity and liabilities

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€ million

31/12/2012

30/9/2013

Equity

 

 

Share capital

835

835

Ordinary shares

828

828

Preference shares

7

7

(Contingent capital)

(128)

(128)

Capital reserve

2,558

2,558

Reserves retained from earnings

2,146

2,256

Balance sheet profit

349

137

 

5,888

5,786

Provisions

375

326

Liabilities

6,918

4,948

Deferred income

7

6

 

13,188

11,066

Liabilities consisted of equity at €5,786 million (12M 2012: €5,888 million) and provisions, liabilities and deferred income at €5,280 million (12M 2012: €7,300 million). As of the closing date, the equity ratio amounted to 52.3 per cent compared with 44.6 per cent in the previous year. Provisions as of the reporting date totalled €326 million (12M 2012: €375 million). Liabilities from bonds decreased by €205 million to €2,881 million. Liabilities to banks increased slightly to €465 million (12M 2012: €425 million). Liabilities to associates declined to €1,491 million (12M 2012: €3,156 million). This decline was primarily due to the fact that the sales lines provided fewer short-term funds. As of the closing date, other liabilities stood at €97 million, that is €146 million below the previous year’s level of €243 million.

Asset position of METRO AG

Assets

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€ million

31/12/2012

30/9/2013

Fixed assets

 

 

Intangible assets

41

18

Tangible assets

3

2

Financial assets

8,552

8,375

 

8,596

8,395

Current assets

 

 

Receivables and other assets

2,488

1,919

Cash on hand, bank deposits and cheques

2,088

739

 

4,576

2,658

Prepaid expenses and deferred charges

16

13

 

13,188

11,066

As of the closing date, assets totalled €11,066 million and were comprised mostly of financial investments in the amount of €8,375 million, receivables from associates at €1,577 million and bank deposits at €739 million. Financial investments declined by €177 million compared with the previous year and now account for 75.7 per cent of total assets. The overall decline resulted from impairment losses for investments in associates totalling €140 million In addition, long-term intra-group loans declined by €90 million. Receivables from associates decreased by €515 million compared with the previous year – this item reflects the group companies’ short-term financing requirements as of the closing date and represents 14.3 per cent of total assets.

The item “cash on hand, bank deposits and cheques” fell by €1,349 million to €739 million compared with the previous year. This decline was primarily due to the fact that the sales lines provided fewer short-term funds. It is also important to note that the previous year’s figure includes a large share of the high-volume sales days from the Christmas and end-of-year-business.

Risk situation of METRO AG

As METRO AG is closely engaged with the companies of METRO GROUP through financing and guarantee commitments as well as direct and indirect investments, among other things, the risk situation of METRO AG is highly dependent on the risk situation of METRO GROUP. As a result, the summary of the risk situation of METRO AG issued by the company’s management also reflects the risk situation of METRO AG.

Forecast of METRO AG

The business development of METRO AG as the holding company essentially depends on the development and dividend distributions of its investments. Assuming a positive development of the participating sales lines, the company expects an increase in franchise fees from its function as franchisor. Assuming an investment result based on a future twelve-month period including the Christmas and end-of-year business, and a stable financial result as well as largely unchanged cost structures, we project to at least return to the earnings level of past financial years for the financial year 2013/14. This will allow us to pay an appropriate dividend.

Planned investments of METRO AG

In the context of METRO GROUP’s investment activities, METRO AG will support group companies with increases in shareholdings or loans, where necessary. In addition, investments in shareholdings in associates may result from intra-group share transfers.

Declaration on corporate management

The declaration on corporate management pursuant to § 289 a of the German Commercial Code (HGB) is available on the company’s website (www.metrogroup.de) in the section Company – Corporate Governance.

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

Pursuant to § 312 of the German Stock Corporation Act (AktG), the Management Board of METRO AG prepared a report about relations with associates for the financial year 2013. At the end of the report, the Management Board made the following statement:

“The Management Board of METRO AG declares that the company, in accordance with all known circumstances at the time at which legal transactions were made or measures taken, received an adequate quid pro quo for each legal transaction and was not put at a disadvantage through the implementation of such measures. No other actions requiring reporting applied during the financial year.”