Application of new accounting methods

Accounting standards applied for the first time in financial year 2015/16

The following accounting standards and interpretations revised, amended and newly adopted by the International Accounting Standards Board (IASB) that were binding for METRO AG in financial year 2015/16 were applied for the first time in these consolidated financial statements unless the company opted for voluntary early adoption:

IAS 19 (Employee Benefits)

The amendment “Defined Benefit Plans: Employee Contributions“ to IAS 19 (Employee Benefits) applies to contributions from employees or third parties to defined benefit plans that are linked to service. Employee contributions that are independent of the number of years of employee service may be recognised as a reduction in the service cost in the period in which the service is rendered. In contrast, employee contributions that depend on the number of years of employee service are required to be attributed to periods of service using the plan’s contribution formula.

The application of this amendment in financial year 2015/16 has no impact as METRO AG already follows this approach.

Additional IFRS amendments

Within the scope of the annual improvements to IFRS 2010–2012, slight revisions were made to IFRS 8 (Operating Segments), among others. Aggregation of several operating segments to a single reportable segment requires a description of the aggregated operating segments. Additionally, the criteria used to evaluate the existence of similar economic characteristics must be disclosed. A reconciliation of segment assets to group assets is now necessary only if the segment assets are part of reporting to the responsible corporate decision maker. However, for the time being, METRO AG will continue to report the reconciliations of segment assets to group assets.

In addition, the improvements 2010–2012 clarified definitions used in IFRS 2 (Share-based Payment). A performance condition thus requires the counterparty to complete a specified period of service and to meet specified performance targets while the counterparty is rendering the service. These performance targets are defined by reference to the entity’s activities or the value of the entity’s equity instruments and may relate either to the performance of the entity as a whole or to some part of the entity or individual employees. In contrast, the service condition only requires the counterparty to complete a specified period of service and does not include performance targets. In addition, the improvements clarified that a market condition refers not just to service conditions that depend on the market price or value of the entity’s equity instruments, but also to service conditions that depend on the market price or value of the equity instruments of another entity in the same group.

The annual improvements 2010–2012 also allowed for a clarification in IFRS 3 (Business Combinations), requiring the appropriate standards to be applied to contingent consideration classified as a financial asset or financial liability. Contingent consideration that is not classified as an equity instrument must be measured at fair value through profit or loss.

The clarification regarding IFRS 13 (Fair Value Measurement) as part of the annual improvements to IFRS 2010–2012 specifies that short-term receivables and payables with no stated interest rate may be measured without discounting in the case of immateriality.

In addition, the improvements 2010–2012 broaden the definition of related parties in IAS 24 (Related Party Disclosures). The definition now also includes entities providing key management personnel services to the reporting entity either directly or through one of their group companies, even if they do not otherwise meet the definition of a related party in the meaning of IAS 24. In addition, the reporting entity is required to separately disclose payments made for services rendered by a related party.

With respect to IAS 16 (Property, Plant and Equipment) and IAS 38 (Intangible Assets), the improvements 2010–2012 clarify that the accumulated depreciation must be determined at the valuation date when using the revaluation method.

With the exception of the amendments to IFRS 8 – as described above –, the annual improvements 2010–2012 have no material impact on METRO AG.

The annual improvements to IFRS 2011–2013 include, among others, the clarification in IFRS 1 (First-time Adoption of International Financial Reporting Standards) that an entity, in its first IFRS financial statements, has the choice between applying an existing and currently effective IFRS and early application of a new or revised IFRS that is not yet mandatorily effective, provided that the new or revised IFRS permits early application. An entity is required to apply the same version of the IFRS throughout the periods covered by those first IFRS financial statements unless IFRS 1 provides an exemption or an exception that permits or requires otherwise. This amendment is of no significance to METRO AG.

In IFRS 3 (Business Combinations), the improvements 2011–2013 clarify the existing exception of business combinations from the scope of IFRS 3. The exception applies to all types of joint arrangements as defined in IFRS 11 and only applies to the financial statements of the joint venture or the joint operation itself and not to the accounting by the parties to the joint arrangement.

In addition, with respect to IFRS 13 (Fair Value Measurement), the improvements 2011–2013 clarify that the portfolio exception applies to all contracts within the scope of IAS 39 (Financial Instruments: Recognition and Measurement), regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32 (Financial Instruments: Presentation). The portfolio exception permits an entity that manages a group of financial assets and financial liabilities on the basis of its net exposure to either market risks or credit risks to measure the fair value of that group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position for a particular risk exposure or to transfer a net short position for a particular risk exposure in an orderly transaction between market participants at the measurement date.

The clarification regarding IAS 40 (Investment Property) as part of the annual improvements to IFRS 2011–2013 states that the scopes of IAS 40 and IFRS 3 (Business Combinations) are independent of each other. As a result, any acquisition of investment property must be examined to determine whether it is solely the acquisition of an investment property or whether it is the acquisition of a group of assets or a business combination within the scope of IFRS 3. In addition, the criteria of IAS 40 must be applied to determine whether the property is to be classified as investment property or owner-occupied property.

The described clarifications resulting from the improvements to IFRS 2011–2013 have no material impact on METRO AG.

Accounting standards that were published but not yet applied in financial year 2015/16

A number of other accounting standards and interpretations newly adopted or revised by the IASB were not yet applied by METRO AG in financial year 2015/16 because they were either not yet mandatory or have not yet been endorsed by the European Commission.

Standard/Interpre­tation

Title

Effective date according to IFRS1

Application at METRO AG from2

Endorsed by EU3

1

Without earlier application

2

Application as of 1 October due to deviation of financial year from calendar year; precondition: EU endorsement has been effected

3

As of: 22 November 2016 (the date at which the Management Board of METRO AG signed the consolidated financial statements)

4

Official German title not yet known – therefore own translation

5

Indefinite deferral of effective date by IASB

IFRS 2

Share-based Payment (Classification and Measurement of Share-based Payment Transactions)4

1/1/2018

1/10/2018

No

IFRS 4

Insurance Contracts (Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts)4

1/1/2018

1/10/2018

No

IFRS 9

Financial Instruments4

1/1/2018

1/10/2018

No

IFRS 10/IAS 28

Consolidated Financial Statements/Investments in Associates and Joint Ventures (Amendment: Sales or Contribution of Assets between an Investor and its Associate orJoint Venture)4

Unknown5

Unknown5

No

IFRS 10/IFRS 12/IAS 28

Consolidated Financial Statements/Disclosure of Interests in Other Entities/Investments in Associates and Joint Ventures (Amendment: Investment Entities: Applying the Consolidation Exception)4

1/1/2016

1/10/2016

Yes

IFRS 11

Joint Arrangements (Amendment: Accounting for Acquisitions of Interests in Joint Operations)

1/1/2016

1/10/2016

Yes

IFRS 14

Regulatory Deferral Accounts4

1/1/2016

1/10/2016

Not approved

IFRS 15

Revenue from Contracts with Customers4

1/1/2018

1/10/2018

Yes

IFRS 15

Revenue from Contracts with Customers (Clarifications)4

1/1/2018

1/10/2018

No

IFRS 16

Leases4

1/1/2019

1/10/2019

No

IAS 1

Presentation of Financial Statements (Amendment: Disclosure Initiative)

1/1/2016

1/10/2016

Yes

IAS 7

Statement of Cash Flows (Amendment: Disclosure Initiative)4

1/1/2017

1/10/2017

No

IAS 12

Income Taxes (Amendment: Recognition of Deferred Tax Assets for Unrealised Losses)4

1/1/2017

1/10/2017

No

IAS 16/IAS 41

Property, Plant and Equipment/Agriculture (Amendment: Bearer Plants)

1/1/2016

1/10/2016

Yes

IAS 16/IAS 38

Property, Plant and Equipment/Intangible Assets (Amendment: Clarification of Acceptable Methods of Depreciation and Amortisation)

1/1/2016

1/10/2016

Yes

IAS 27

Separate Financial Statements (Amendment: Equity Method in Separate Financial Statements)

1/1/2016

1/10/2016

Yes

Various

Improvements to IFRS (2012–2014)

1/1/2016

1/10/2016

Yes

IFRS 2 (Share-based Payment)

The amendment “Classification and Measurement of Share-based Payment Transactions” relates to three aspects of IFRS 2.

Until now, IFRS 2 contained no guidance on how vesting conditions affect the fair value of liabilities for cash-settled share-based payments. IASB has now added guidance that introduces accounting requirements for cash-settled share-based payments that follow the same approach as used for equity-settled share-based payments. As a result, market performance conditions and non-service conditions must be considered in fair value, while service conditions and other performance conditions must be considered in the quantity of instruments.

In addition, IASB has introduced an exception so that a share-based payment where the entity settles the share-based payment arrangement net is classified as equity-settled in its entirety, provided the share-based payment would have been classified as equity-settled had it not included the net settlement feature.

Moreover, IASB has clarified that where a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions, the original liability recognised in respect of the cash-settled share-based payment is derecognised and the equity-settled share-based payment is recognised at the modification date’s fair value to the extent services have been rendered up to the modification date. Any difference between the carrying amount of the liability and the amount recognised in equity is to be recognised in profit or loss immediately.

These amendments to IFRS 2 apply to financial years beginning on or after 1 January 2018. Subject to the respective EU endorsement, METRO AG will apply these regulations for the first time on 1 October 2018. These changes will be applied prospectively to any relevant transactions of METRO AG.

IFRS 9 (Financial Instruments)

The new IFRS 9 (Financial Instruments) will replace IAS 39 (Financial Instruments: Recognition and Measurement) covering the classification and measurement of financial instruments.

Financial instruments are recognised when the company preparing the financial statements becomes a contractual partner and thus has acquired the rights of the financial instrument or assumed comparable obligations. As a rule, the initial measurement of financial assets and liabilities is at fair value adjusted for transaction costs, if applicable. Only trade receivables without a significant financing component are recognised at the transaction price.

At the time of recognition, regulations for classification are to be taken into account. According to IAS 39, the subsequent measurement of a financial asset and a financial liability is linked to its classification. Financial assets are classified on the basis of the characteristics of contractual cash flow of the financial asset and the business model which the entity uses to manage the financial asset. The original four measurement categories for financial assets were reduced to two categories: financial assets recognised at amortised cost (category 1) and financial assets measured at fair value (category 2), wherein the latter category has two subcategories.

If the financial asset is held within a business model whose objective is collecting payments such as principal and interest, and if the contract terms stipulate certain payments are exclusively for principal and interest, this financial instrument shall in principle be recognised at amortised cost (category 1). If the objective of the business model is collecting payments and selling financial assets, and if the payment dates are fixed, the changes in its fair value are recognised in other comprehensive income outside of profit or loss (subcategory 2 a). If these criteria are not cumulatively met, the financial asset is measured at fair value through profit or loss (subcategory 2 b). Amortised cost is determined using the effective interest method, while IFRS 13 (Fair Value Measurement) is applied to determine fair value measurement.

As a rule, equity instruments are classified as subcategory 2 b based on the classification criteria stated above. However, for equity instruments that do not meet the cash flow criteria, an irrevocable election can be made upon initial recognition to classify them as subcategory 2 a. Furthermore, all financial instruments not recognised at fair value through profit or loss may be classified as subcategory 2 b when doing so eliminates or significantly reduces a measurement or recognition inconsistency (fair value option).

In general, financial liabilities are measured at amortised cost (category 1). In some cases, however, such as with financial liabilities held for trading, fair value measurement through profit or loss is required (subcategory 2 b). Here, too, an entity may elect to apply the fair value option, that is, the measurement at fair value through profit or loss. In contrast to financial assets, financial liabilities can include embedded derivatives that are required to be separated. If separation is required, the host contract is usually measured according to the rules of category 1 and the derivative according to the rules of subcategory 2 b.

Unlike IAS 39 (which uses the “incurred loss model”), IFRS 9 focuses on expected losses. This expected loss model uses a three-stage approach for recognising impairment. At the first stage, impairment losses are recognised in the amount of the losses resulting from default on the financial instrument expected in the next twelve months. At stage two, the expectedcredit losses that result from all possible default events over the expected life of the financial instrument must be recognised. Calculation at this stage is based on a portfolio of similar instruments. Financial instruments are reclassified from the first to the second stage when the default risk since initial recognition has increased significantly and exceeds a minimum default risk. At the third and final stage, impairment losses are recognised for additional objective indications with respect to the individual financial instrument.

A simplified approach based on the expected loss throughout the lifetime (similar to stage 2) can be applied to trade receivables, certain leasing receivables and contract assets as well as in certain other cases.

In order to reduce the complexity and make hedge accounting more comprehensible on the balance sheet, the following key changes were made. The scope of possible hedged items was expanded. For example, several risk positions can now be more easily combined into a single hedged item and hedged. The net position can be designated as the hedged item if the risks partially offset each other in the combined risk position. In addition, non-derivative financial instruments classified as subcategory 2 b can be designated as hedging instruments. Furthermore, thresholds are no longer stipulated for measuring effectiveness. Effectiveness is assessed in reference to the economic relationship between the hedged item and hedging transaction, taking into account the hedging ratio and default risk.

IFRS 9 applies to financial years beginning on or after 1 January 2018. Subject to the respective EU endorsement, METRO AG will therefore apply these regulations for the first time on 1 October 2018. As part of a project dealing with the introduction of IFRS 9 at METRO AG, the impact of the new standard will be analysed over the course of financial year 2016/17.

IFRS 10 (Consolidated Financial Statements) and IAS 28 (Investments in Associates and Joint Ventures)

A conflict exists between the current requirements of IFRS 10 (Consolidated Financial Statements) and IAS 28 (Investments in Associates and Joint Ventures) regarding the sale or contribution of assets between an investor and its associate or joint venture. IAS 28 requires a partial gain or loss recognition, limited to the unrelated investors’ interests in the investee, for all transactions between an investor and its associate or joint venture. IFRS 10, in contrast, requires that the gain or loss that arises on the loss of control of a subsidiary is recognised in full.

The amendment clarifies how to account for the gain or loss from transactions with associates or joint ventures, with the partial or full recognition requirement depending on whether or not the assets being sold or contributed are a business as defined in IFRS 3 (Business Combinations). IFRS 3 defines a business as an integrated set of activities that is required to have inputs and processes which together are used to create outputs.

If the sold or contributed asset classifies as a business, the gain or loss from the transaction must be recognised in full. In contrast, the gain or loss from the sale of assets that do not classify as a business to associates or joint ventures or their contribution to associates or joint ventures must be recognised only to the extent of the unrelated investors’ interests in the associate or joint venture.

If a group of assets is to be sold or contributed in separate transactions, the investor must assess whether this group of assets constitutes a single business and should be accounted for as a single transaction.

The IASB has indefinitely deferred the original effective date of this amendment for financial years starting on or after 1 January 2016. As a result, the date of first-time application of this amendment at METRO AG is unknown. As METRO AG currently follows the rules of IFRS 10, future transactions will be impacted accordingly.

IFRS 15 (Revenue from Contracts with Customers)

The new IFRS 15 will replace IAS 18 (Revenue) and IAS 11 (Construction Contracts) and related interpretations and stipulates a uniform and comprehensive model for recognising revenue from customers.

The new standard uses a five-step model to determine the amount of revenue and the date of realisation. In the first step, contracts with the customers are identified. According to IFRS 15, a contract is entered into by the contractual partners if the company can identify the rights of the customer to goods and services and the payment terms, and if the agreement has economic substance. In addition, it must be probable that the company will collect the consideration. If a company has more than one contract with a single customer at (virtually) the same time, and if certain criteria are met, the contracts can be combined and treated as a single contract.

As a rule, a contract as defined in IFRS 15 can include several performance obligations. Therefore, possible separate performance obligations are identified within a single contract in the second step. A separate performance obligation is identified when a good or service is distinct. This is the case when the customer can use a good or service on its own or together with other readily available resources and it is separately identifiable from other commitments in the contract.

In the third step, the transaction price corresponding to the expected consideration is determined. The consideration may include fixed and variable components. For variable compensation, the expected amount is to be estimated carefully based on either the expected value or the most probable amount, depending on which amount best reflects the amount of consideration. In addition, the consideration includes the interest rate effect if the contract includes a financing component significant to the contract, the fair value of non-cash considerations and the effects of payments made to the customer such as rebates and coupons.

The allocation of the transaction price to separate performance obligations is carried out in the fourth step. In principle, the transaction price is to be allocated to the separately identified performance obligations in relation to the relative standalone selling price. Observable data must be used to determine the standalone selling price. If this is not possible, estimates are to be made. For this purpose, IFRS 15 suggests various methods for estimating according to which the estimates are based on market prices for similar services or expected costs plus a surcharge. In exceptional cases, the estimate can also be based on the residual value method.

In the fifth and final step, revenue is recognised at the point in time when the performance obligation is satisfied. The performance obligation is satisfied when the control of the good or service is transferred to the customer. The performance obligation can be satisfied at a point in time or over a period of time. If the performance obligation is satisfied over time, the revenue is recognised over the period the performance obligation is satisfied in a manner that best reflects the continuous transfer of control over time.

In addition to the five-step model, IFRS 15 addresses various special topics such as the treatment of costs for obtaining and fulfilling a contract, presentation of contract assets and liabilities, rights of return, commission business, customer retention and customer loyalty programmes. In addition, the disclosures in the notes are significantly expanded. Accordingly, this includes qualitative and quantitative disclosures to be made in the future on contracts with customers, on significant estimates and judgements as well as changes over time.

IFRS 15 is applicable for reporting periods beginning on or after 1 January 2018. METRO AG will thus apply these regulations for the first time on 1 October 2018. As part of a project dealing with the introduction of IFRS 15 at METRO AG, the impact of the new standard will be analysed over the course of the next financial year.

A clarification was released following the adoption of the new IFRS 15. It supplements the IFRS 15 regulations with respect to the identification of performance obligations, principal versus agent considerations and the separation of licences. It also includes provisions for a simplified transition to IFRS 15.

The clarifications to IFRS 15 apply to financial years beginning on or after 1 January 2018. Subject to the respective EU endorsement, METRO AG will therefore apply these regulations for the first time on 1 October 2018. The project dealing with the introduction of IFRS 15 at METRO AG will also consider the impact of the clarifications.

IFRS 16 (Leases)

The new standard IFRS 16 will replace the currently applicable standard IAS 17 (Leases) and IFRIC 4 (Determining Whether an Arrangement Contains a Lease). IFRS 16 generally applies to contracts that convey the right to use an asset, rental contracts and leases, subleases and sale-and-leaseback transactions. A lessee can elect to apply IFRS 16 to leases of certain intangible assets, whereas agreements on service concessions or leasing of natural resources are outside the scope of IFRS 16.

In contrast to IAS 17, the definition of a lease in IFRS 16 focuses on the concept of control. A lease exists when a contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The key change of IFRS 16 compared to IAS 17 concerns the lessee accounting model. Lessees no longer have to classify leases as operating or finance. Instead, the lessee recognises a right-of-use asset and a lease liability upon commencement of the lease when the lessor makes an underlying asset available for use by the lessee.

The lessee measures the lease liability at the present value of the lease payments payable over the lease term. The lease payments include all fixed payments less any lease incentives for the conclusion of the contract. In addition, the lease payments must include any variable lease payments that depend on an index and variable payments that classify as in-substance fixed payments as well as amounts expected to be payable by the lessee under residual value guarantees. The exercise price of a purchase or lease extension option must be included if the lessee is reasonably certain to exercise that option. In addition, the lease payments must include payments of penalties for terminating the lease if the lease term reflects the lessee exercising an option to terminate the lease.

Measurement must be based on the interest rate implicit in the lease. If the lessee is unable to determine this interest rate, the lessee’s incremental borrowing rate may be applied. Over the term of the lease, the lease liability is accounted for under the effective interest method in consideration of lease payments made. Changes in the calculatory parameters, such as changes in the lease term, a reassessment of the likelihood that a purchase option will be exercised or expected lease payments, require a remeasurement of the liability.

The simultaneously recognised right-of-use asset is measured at the amount of the lease liability adjusted for lease payments made and directly attributable costs. Any payments received from the lessor that are related to the lease are deducted. Measurement also considers any reinstatement obligations from leases.

After initial recognition, the right-of-use asset can be measured at amortised cost or using the revaluation method, respectively, under IAS 16 (Property, Plant and Equipment) or IAS 40 (Investment Property). When applying the amortised cost model, the right-of-use asset is depreciated over the shorter period lease term or its useful life. If it is reasonably certain upon commencement of the lease that ownership of the asset will pass to the lessee at the end of the lease, the right-of-use asset is depreciated over the economic life of the underlying asset. IAS 36 (Impairment of Assets) must be considered.

Correspondingly, a remeasurement of the lease liability to reflect changes in lease payments leads to an adjustment of the right-of-use asset outside of profit or loss, whereby any negative adjustments exceeding the carrying amount must be recognised through profit or loss.

Lessees can elect to make use of several policy options. Lessees can elect to apply IFRS 16 accounting to a portfolio of leases with similar characteristics. In addition, they may elect not to apply the right-of-use approach to short-term leases (with a maximum term of twelve months) and so-called low-value assets. Low-value assets are a component of leases that, individually, are not material to the business. If a lessee elects to make use of this policy option, the lease is recognised in accordance with the previously applicable IAS 17 regulations on operating leases.

In the future, comprehensive qualitative and quantitative information must be provided in the notes to the financial statements.

The revised definition of leases also applies to the lessor and can lead to assessments deviating from IAS 17. However, the lessor continues to classify a lease as either an operating lease or a finance lease. Except for sale-and-leaseback transactions, IFRS 16 does not result in any material changes for lessors.

In the case of sale-and-leaseback transactions, the sold entity must first apply the requirements of IFRS 15 to determine whether a sale has actually occurred. If the transfer is classified as a sale in accordance with IFRS 15, the seller/lessee measures a right-of-use asset arising from the leaseback as the proportion of the previous carrying amount of the asset that relates to the right of use retained. The gain (or loss) that the seller/lessee recognises is limited to the proportion of the total gain (or loss) that relates to the rights transferred to the buyer/lessor. If the transfer is not a sale, the transaction is treated like a financing transaction without a disposal of the asset.

IFRS 16 is applicable for reporting periods beginning on or after 1 January 2019. Subject to the respective EU endorsement, METRO AG must apply these regulations for the first time on 1 October 2019. As part of a project dealing with the introduction of IFRS 16 at METRO AG, the impact of the new standard will be analysed over the course of financial year 2016/17.

IAS 1 (Presentation of Financial Statements)

In the context of the Disclosure Initiative, the following amendments to IAS 1 (Presentation of Financial Statements) were made with respect to the materiality principle, the presentation of the asset position, the income statement or other comprehensive income as well as disclosures in the notes to the financial statements.

In accordance with the materiality principle, information should not be obscured by aggregating information; materiality considerations apply to all parts of a financial statement, and the materiality principle must be considered even when a standard requires a specific disclosure.

The amendment clarifies that the list of line items to be presented in the financial statements can be disaggregated and aggregated as relevant and include additional guidance on subtotals in these statements. In addition, an entity’s share of other comprehensive income of equity-accounted associates and joint ventures is presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss.

With respect to the notes to the financial statements, the amendment clarifies that understandability and comparability should be considered when determining the order of the notes.

These amendments to IAS 1 apply to financial years beginning on or after 1 January 2016. METRO AG will thus apply these guidelines for the first time on 1 October 2016. The impact of these amendments on the disclosures in the consolidated financial statements of METRO AG will be minor.

IAS 7 (Statement of Cash Flows)

The amendments to IAS 7 in the context of the Disclosure Initiative will require entities to provide disclosures on the following changes in liabilities arising from financing activities: changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates, changes in fair values and other changes. Financial liabilities are defined as liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities.

In addition, the amendments state that changes in financial liabilities must be disclosed separately from changes in other assets and liabilities.

These amendments to IAS 7 apply to financial years beginning on or after 1 January 2017. Subject to the respective EU endorsement, METRO AG will apply these regulations for the first time on 1 October 2017 and extend its disclosures accordingly.

Additional IFRS amendments

Among other things, the annual improvements to IFRS 2012–2014 comprise a clarification in IAS 34 (Interim Financial Reporting) regarding the disclosure of information “elsewhere in the interim financial report”. Following this change in wording, several disclosures may now be replaced by references to the management report. The option to incorporate cross references will simplify the preparation of the notes to the financial statements at METRO AG.

In addition, as part of the improvements, two clarifications were made in IFRS 5 (Non-current Assets Held for Sale and Discontinued Operations). If an entity reclassifies an asset (or disposal group) from held for sale to held for distribution and with this an entity moves from one method of disposal to the other without interruption, this reclassification is seen as a continuation of the original plan of sale. As a result, the entity can continue to apply the accounting requirements applicable to assets (or disposal groups) that are classified as held for sale. The same applies to reclassifications from the category held for distribution to the category held for sale. The reclassification does not result in an extension of the period in which the sale or distribution must be completed.

Assets (or disposal groups) that no longer satisfy the criteria for recognition as held for distribution must be treated in the same way as an asset that is no longer recognised as held for sale and must no longer be recognised in accordance with IFRS 5.

The changes resulting from the annual improvements to IFRS 2012–2014 apply to financial years beginning on or after 1 July 2016. As a result, METRO AG will apply the amended IAS 34 retrospectively and the amended IFRS 5 prospectively for future transactions for the first time on 1 October 2016.

At this point, the first-time application of the other standards and interpretations listed in the table as well as of other standards revised as part of the annual improvements is not expected to have a material impact on the group’s asset, financial and earnings position.

New Operating Model

In the course of the introduction of the New Operating Model from 1 October 2015, METRO GROUP classified the individual METRO Cash & Carry countries into three clusters: Horeca (focusing on hotels, restaurants and catering firms), traders (focusing on independent resellers such as kiosk operators, bakers and butchers) and multispecialists (focusing on the remaining customer groups as well as service companies and offices). This categorisation was guided by the strategic focus on customer groups and expected market potential. Together with the responsible member of the Management Board, the segment management of METRO Cash & Carry segment is responsible for the three clusters. Three operating partners are mandated with the individual clusters and support the countries with overarching measures geared towards specific customer groups.

The introduction of the New Operating Model entailed a change in the identified operating segments at METRO Cash & Carry in accordance with IFRS 8. The three clusters mentioned above now represent operating segments as the allocation of in-house resources and performance measurement by the so-called Chief Operating Decision Maker (member of the Management Board of METRO AG) are based on the three clusters. Previously, individual countries represented operating segments. Since the three clusters currently display sufficient similarities with respect to their business model, their products and services as well as their customer structure – especially compared with the other reporting segments of METRO AG –, these three operating segments will be bundled into one reporting segment in spite of their divergent strategic focus.

In addition, the new corporate management and/or monitoring structure entails a modified internal reporting structure. As a result, goodwill is no longer monitored at the level of the sales line per country but at the level of the three clusters. Goodwill has been reallocated accordingly. The required impairment test prior to the reallocation did not lead to any impairment losses on goodwill.

Revised disclosures

From financial year 2015/16, the earnings of operating companies recognised at equity are shown in the income statement in the EBIT item earnings share of operating companies recognised at equity. This essentially concerns real estate companies that lease real estate to METRO GROUP. The earnings of non-operating companies recognised at equity will continue to be shown in the net financial result in the item earnings share of non-operating companies recognised at equity. This provides for greater transparency of METRO GROUP’s operations. The previous year’s figures have not been adjusted due to immateriality.

Segment reporting

Segment reporting now also covers EBITDA before special items and EBIT before special items to better reflect internal reporting while EBITDAR, segment liabilities, selling space and locations will no longer be reported.