Dear Ladies and Gentleman (handwriting)

Financial year 2014/15 was a very important year for METRO GROUP. In an environment that remained challenging in certain countries, we not only continued to move the transformation process forward, but did so at an accelerated pace. Both at METRO Cash & Carry and Media-Saturn, we achieved a positive development in like-for-like sales that is still ongoing and is also reflected in earnings in local currency. At Real, we made important progress in the design of the future concept.

One major event was the sale of Galeria Kaufhof to the Canadian Hudson’s Bay Company (HBC). The possibility of a sale had been a repeated topic of discussion in recent years. However, we sought purposefully but without haste for the best solution for everyone involved. We have now found it, and with €2,825 million also achieved an attractive transaction price.

METRO Cash & Carry is not only responsible for giving METRO GROUP its name, it is also our biggest and most international business. During the reporting year, we turned our attention even more strongly to the needs of our professional customers and, among other things, successfully further expanded our delivery service. With the New Operating Model, METRO Cash & Carry is placing the focus in the future on value creation in the national subsidiaries. The aim of the new management model is to foster an entrepreneurial spirit within our organisation by transferring creative freedom and a greater responsibility to the national subsidiaries while providing for an international coordination of measures for specific groups of customers. This is being accompanied by a new and more flexible form of strategic corporate planning. Each country is tasked with producing an individual Value Creation Plan, in which it lays down its strategic and financial planning for the forthcoming three to five years. A team of ten Operating Partners supports the local management in this process.

A further milestone at METRO Cash & Carry was the takeover of the Classic Fine Foods group (CFF), one of the leading Asian companies in the fast-growing wholesale food delivery business. The Classic Fine Foods group, which is headquartered in Singapore, directly supplies businesses operating in the hotel, restaurant and catering (Horeca) sector with food products. The customers include premium hotels and restaurants in major cities of Asia and in the Middle East.

We also succeeded in making important progress in the field of digitalisation. Our goal in this case is to make our customers even more attractive, efficient and successful with new digital solutions. In this way, we aim to further enhance our value and relevance to our customers and continue to strengthen our problem-solving reputation. The investment in Culinary Agents and the launch of the Techstars METRO Accelerator were milestones in the implementation of this strategy.

In operational terms, the success of the new course is now clearly making itself felt: for nine quarters in succession, like-for-like sales of METRO Cash & Carry increased. This shows that we are on the right track. However, we still have big plans for METRO Cash & Carry, always with the goal in mind of creating value for our customers – independent entrepreneurs – and being the best partner for them.

Media-Saturn has successfully transformed itself from a purely bricks-and-mortar seller of consumer electronics into a successful multichannel retailer, and is on the way to becoming a digital commerce company. With a share of internet-generated sales of more than 8 per cent in financial year 2014/15, we have achieved a new peak and are only a short step away from reaching our first milestone. In the medium term, this share is expected to grow to 20 per cent. Five quarters in a row with rising like-for-like sales demonstrate the success of our multichannel strategy and confirm that we are on the right course. With now more than 1,000 Media Markt and Saturn locations, we are very well placed in the bricks-and-mortar business, and have also responded to trends in traditional retail with new, smaller formats.

We intend to further expand on service at Media-Saturn. To this end, we signed a contract in August 2015 to acquire a majority interest in RTS, a provider of customer and repair services. The company’s range of activities includes the planning, installation, inspection, maintenance and repair of a wide variety of electronic products all the way to the configuration of fully networked homes.

Media-Saturn also managed to increase its margin compared to the previous year, thanks in part to a better sales mix and a greater share accounted for by services, but also to continually efficient cost management.

Real operates almost 300 hypermarkets in Germany. We are concentrating on making these more competitive and fit for the future. One key driver are the stores that have been renovated along the lines of the successful Essen store model and now radiate much more modernity as well as a stronger service orientation and product differentiation. All in all, this generates a more emotional and enjoyable shopping experience and therefore also leads to higher customer traffic and better sales growth compared to the other hypermarkets. Consequently, we converted a further 57 Real stores to the successful new concept in financial year 2014/15. We now have 107 of these modern, future-ready stores in operation. Additional store conversions are in planning.

This means that one of the important factors for future growth has been put in place. However, competitive costs are also needed for this. In this regard, we made progress in many areas during the past financial year – for example, in logistics or the settlement of goods, which is now being handled by the Swiss company Markant AG. Our efforts to achieve fair conditions in relation to staff costs left us with no choice but to leave the system of collective industrial pay settlements in June 2015 as we find ourselves faced with considerable cost disadvantages compared to our competitors. We have offered the trade union negotiations on a company pay agreement aimed at securing the future of the jobs and this part of the business.

Galeria Kaufhof is included in this report as a discontinued operation. Therefore, the sale – which was completed at the end of September 2015 – has already been taken into account in the figures contained in this annual report. The profit generated in the year under review, however, is still included in full in the consolidated result.

The decisive factor for us was that we found a buyer in Hudson’s Bay Company who was willing to pay a very good price, who presented a clear financing concept and who gave binding commitments to take over the roughly 21,000 employees in Germany and Belgium. The preconditions for the success story of the business to continue are therefore in place. We wish the employees of Galeria Kaufhof all the very best for the future.

Altogether, the consolidation of METRO GROUP made further progress in financial year 2014/15. We have now completely divested ourselves of Real’s Eastern European business. We sold the wholesale business in Greece and submitted all the documents for approval of the sale in Vietnam. We expect to see completion of the sale in financial year 2015/16.

We will then have completed all the major measures under our portfolio optimisation programme, though we will still continue to subject our portfolio of stores and countries to constant review. With the acquisitions of CFF and RTS, we have now turned the switch back to growth and are looking out for attractive expansion opportunities.

While the economy in Southern Europe has improved, the situation in Greece, Russia and Ukraine remains tense. The sanctions and exchange rate developments arising from the Russia/Ukraine conflict are also having an impact on our business. However, we took the necessary steps at an early stage to enable us to continue operating successfully even in this difficult environment, and are cautiously optimistic about the future development there.

So how were the figures in financial year 2014/15? Altogether, the development was positive, and we achieved our forecasts for METRO GROUP. Sales amounted to €59.2 billion and therefore fell by 1.2 per cent. Like-for-like sales, however, rose by 1.5 per cent. EBIT before special items amounted to €1,511 million and rose following adjustment for negative currency effects. We succeeded in sharply reducing the net debt from the previous year’s closing date by €2.2 billion to €2.5 billion.

The altogether good development at METRO GROUP in financial year 2014/15 was initially also positively reflected in the share price. However, the turbulence on the stock markets – not least as a result of the situation in China and Greece – also left its mark on your company. The price of METRO’s ordinary shares closed at the end of September at €24.69, a fall of 5.3 per cent in the course of financial year 2014/15.

On the basis of earnings per share before special items of €1.91, the Management Board and the Supervisory Board are recommending that you, our shareholders, receive a dividend of €1.00 per ordinary share. This recommendation is based on the improved economic situation of METRO GROUP and is in line with our new dividend policy, which calls for a dividend amounting to about 45 to 55 per cent of earnings per share before special items (previously about 40 to 50 per cent). With the proposed payment, the actual payout rate will amount to 52.4 per cent. You will have an opportunity to vote on this at our forthcoming Annual General Meeting in Düsseldorf, to which I hereby most cordially invite you. I hope that as many of you as possible will attend.

So what does the current financial year hold in store? We will once again press ahead on our new course in financial year 2015/16 to also create added value for you, our shareholders. Many projects which have already been partially implemented or for which we have laid the foundations may impact positively on sales and earnings. We still have a great deal of work before us. But it lies in the nature of a retail company to continually adjust to market circumstances and to strive with passion to meet the demands of its customers. Leaving aside the political risks and turbulences, we have – with many new ideas and innovations and with great enthusiasm for our customers – laid the foundations for METRO GROUP to continue on its course of growth. The phase of consolidation is largely completed. Our aim now will be to focus even more strongly on the needs of our customers. To achieve this, we will take advantage of promising acquisition opportunities and expand into new countries. With the Techstars METRO Accelerator in Berlin, we foster and develop new ideas. Through programmes like this, we specifically search for innovations which tie in with our strengths and which we can therefore develop better than others. As a result, we are very well equipped for the future.

What does that mean in concrete terms for financial year 2015/16? As far as like-for-like sales and EBIT before special items adjusted for currency effects are concerned, we expect to see a slight increase in comparison to the previous year. The lower level of net debt also provides us with a solid foundation for future development, giving us more scope for investments which in future years will have a positive impact on sales and earnings.

“I wish to thank our employees worldwide …”

I wish to thank our employees worldwide who devote their energy and passion every day to serving the needs of our customers. It is ultimately also thanks to them that METRO GROUP has been able to develop so positively. The commitment of our employees, their ideas and their diverse personalities are what give us a crucial advantage in a competitive environment. With this, they make a key contribution to the overall success of METRO GROUP. Together, we can look forward to a successful future.

Finally, I would like to thank you most sincerely for the confidence you place in us.

Best regards,

Signature Olaf Koch (handwriting)

Olaf Koch
Chairman of the Management Board of METRO AG