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

Overview of financial year 2014/15 and outlook 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 development, position and potential development with its key opportunities and risks.

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

Business development of METRO AG

The business development of METRO AG is 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.

Earnings position of METRO AG and profit appropriation

Income statement for the financial year from 1 October 2014 to 30 September 2015 in accordance with the German Commercial Code (HGB)

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€ million

2013/14

2014/15

Investment result

811

592

Net financial result

−95

−21

Other operating income

475

469

Personnel expenses

−148

−194

Depreciation/amortisation/impairment losses on intangible and tangible assets

−15

−3

Other operating expenses

−433

−481

Result from ordinary operations

595

362

Income taxes

−7

0

Other taxes

−2

−2

Net income

586

360

Profit carried forward from the previous year

0

24

Additions to reserves retained from earnings

−267

0

Balance sheet profit

319

384

For financial year 2014/15, METRO AG posted investment income of €592 million, compared with €811 million in the previous year.

Income from investments with profit and loss transfer agreements totalling €301 million (2013/14: €410 million) primarily relates to income of the Media-Saturn sales line (indirectly) and the Galeria Kaufhof group.

Income from investments without profit and loss transfer agreements totalling €611 million (2013/14: €485 million) primarily results from a dividend payout in connection with the sale of the Galeria Kaufhof group.

In financial year 2014/15, losses of €230 million were assumed on the basis of profit and loss transfer agreements (2013/14: €16 million). These losses (indirectly) relate to the sales lines METRO Cash & Carry Germany and Real including impairment losses on the carrying amounts of the investments. This item also includes income of METRO Cash & Carry’s foreign subsidiaries that was generated in previous years and collected during the reporting year.

Expenses from the disposal of financial assets were primarily related to the sale of the Galeria Kaufhof group.

The net financial result amounted to €–21 million (2013/14: €–95 million). The improvement is primarily due to the lower interest rate level as well as the reduced debt.

Under the transfer pricing system, METRO AG acts as a franchisor to the sales line METRO Cash & Carry. 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 and software in particular from METRO SYSTEMS GmbH, which leads to higher other expenses and write-downs. Services are billed at arm’s-length prices. In financial year 2014/15, METRO AG billed the national and international operating companies of the sales line METRO Cash & Carry a franchise fee totalling €255 million (2013/14: €289 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.

As of the closing date, other operating income, other operating expenses and depreciation/amortisation/impairment losses on intangible and tangible assets of METRO AG resulted in expenses of €15 million including the transaction costs related to the sale of the Galeria Kaufhof group after income of €27 million in the previous year.

On average during the four quarters of financial year 2014/15, METRO AG employed 1,133 people (2013/14: 1,072). Part-time employees and temporary workers were converted into full-time equivalents. Personnel expenses amounted to €194 million (2013/14: €148 million). The increase in personnel expenses was due to the effects of the increase in the company’s headcount, higher performance-based remuneration components and the creation of restructuring provisions.

Net profit amounted to €360 million (2013/14: €586 million) and thus fell short of the forecast for financial year 2014/15 provided at the beginning of the reporting period. This was essentially due to the lower investment result.

Including retained earnings from the previous year, the company’s balance sheet profit amounted to €384 million, compared with €319 million in financial year 2013/14.

Regarding the appropriation of the balance sheet profit for 2014/15, the Management Board of METRO AG will propose to the Annual General Meeting to distribute dividends in the amount of €1.00 per ordinary share and €1.06 per preference share from the reported balance sheet profit of €384 million – that is, a total of €327 million – and to carry forward the remaining amount to the new account.

Financial position of METRO AG

Cash flows

During the reporting year, cash flows primarily resulted from financial transactions with METRO GROUP companies. Short-term financial investments provided by the sales lines at the end of the financial year amounted to €35 million as of the closing date (30/9/2014: €381 million). The decline in comparison with the previous year primarily results from the disposal of the Galeria Kaufhof group.

Capital structure

Equity and liabilities

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€ million

30/9/2014

30/9/2015

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

2,660

2,660

Balance sheet profit

319

384

 

6,372

6,437

Provisions

384

393

Liabilities

4,352

5,328

Deferred income

5

5

 

11,113

12,163

Liabilities consisted of equity of €6,437 million (30/9/2014: €6,372 million) and provisions, liabilities and deferred income of €5,726 million (30/9/2014: €4,741 million). As of the closing date, the equity ratio amounted to 52.9 per cent compared with 57.3 per cent in the previous year. Provisions as of the reporting date totalled €393 million (30/9/2014: €384 million). Liabilities from bonds increased slightly by €105 million to €2,939 million. Liabilities to banks increased to €982 million due to short-term interim financing transactions in connection with the sale of the Galeria Kaufhof group as of the closing date (30/9/2014: €470 million). Liabilities to affiliated companies increased to €1,317 million (30/9/2014: €956 million). This increase was primarily due to increased short-term funds provided by the sales lines as of the closing date. As of the closing date, other liabilities stood at €65 million, which is €16 million below the previous year’s level of €81 million.

Asset position of METRO AG

Assets

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€ million

30/9/2014

30/9/2015

Non-current assets

 

 

Intangible assets

8

14

Tangible assets

2

2

Financial assets

7,886

7,782

 

7,896

7,798

Current assets

 

 

Receivables and other assets

2,819

4,312

Cash on hand, bank deposits and cheques

381

35

 

3,200

4,347

Prepaid expenses and deferred charges

17

18

 

11,113

12,163

As of the closing date, assets totalled €12,163 million and were mostly comprised of financial assets in the amount of €7,798 million, other assets at €2,840 million and receivables from affiliated companies at €1,472 million. Financial assets declined by €105 million compared with the previous year and now account for 64.0 per cent of total assets. This decline was primarily due to a reduction in long-term intra-group loans. At €2,840 million, other assets substantially increased compared with €267 million in the previous year. At €2,353 million, this item includes the purchase price receivable from the sale of the Galeria Kaufhof group and corresponds to 23.4 per cent of total assets as of the closing date. Receivables from affiliated companies declined by €1,080 million compared with the previous year – this item reflects the group companies’ short-term financing requirements as of the closing date under consideration of the effects from the sale of the Galeria Kaufhof group and represents 12.1 per cent of total assets.

Cash on hand, bank deposits and cheques fell by €346 million to €35 million compared with the previous year. This decline in comparison with the previous year’s closing date of 30 September 2014 primarily results from the disposal of the Galeria Kaufhof group.

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 overall risk situation 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 management holding company essentially depends on the development and dividend distributions of its investments. Assuming a stable cost structure, we expect the modification of the transfer pricing system to result in higher income and expect the net profit to more or less match the level of the past financial year.

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 affiliated companies 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 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 on relations with affiliated companies for financial year 2014/15. 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.”