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ANNUAL REPORT 2003 I Consolidated Financial Statements of the METRO Group In fiscal 2003, METRO Group consi- stently raised its profile as a performing international trading and retailing group. The brand message “METRO Group – The Spirit of Commerce“ is the guide- line: METRO Group is decisively shaping the international world of retail- ing and focusing on future-oriented concepts. These concepts are widely acknowledged on the international level and advance the technological progress of the entire consumer goods industry. METRO Group consolidated the strength of its retail brands with a sustained internationalization and diffe- rentiation strategy. METRO Group will continue to pursue this path also in 2004. Three sales divisions will cele- brate their anniversary this year: Media Markt and Saturn will turn 25, Metro Cash & Carry 40, and Kaufhof is looking back to as many as 125 years of corpo- rate history. METRO/MAKRO C&C METRO Group is active at 2,370 locations in 28 countries and ranks among the world’s leading international retailing groups. METRO Group is managed by METRO AG as the strategic management holding company. The respon- sibility for the operating business lies with six sales divisions each acting inde- pendently on the market with its own distinct merchandizing concept. Cross- divisional service companies bundle services for the sales divisions like pro- curement, logistics, information technology, advertising or financing. REAL METRO GROUP AT A GLANCE EXTRA METRO AG MEDIA MARKT · SATURN Metro/ Real Extra Media Markt Praktiker Galeria Makro C&C Saturn Kaufhof Cross-divisional service companies PRAKTIKER GALERIA KAUFHOF AT A GLANCE – METRO GROUP IN FIGURES 2003 2002 2001 2000 1999 € million € million € million € million € million Net Sales 53,595 51,526 49,522 46,930 43,833 EBITDA 2,615 2,416 2,383 2,183 2,038 EBITA 1,590 1,427 1,378 1,273 1,219 EBIT 1,318 1,166 1,130 1,025 1,000 Earnings before tax 817 830 673 754 681 Consolidated net income 571 502 449 423 305 Consolidated net profit 1) 496 443 401 359 234 Capital expenditure 2) 1,824 1,836 1,933 1,885 2,063 Total assets 26,580 22,923 22,320 22,333 22,402 Equity capital 3) 4,161 4,141 4,170 4,064 3,832 Return on equity after taxes 13.7% 12.1% 10.8% 10.4% 8.0% Per share €€€€€ EBITDA 8.00 7.39 7.29 6.68 6.24 EBITA 4.87 4.37 4.22 3.90 3.73 Earnings per share 1.52 1.36 1.23 1.10 0.72 Cash dividend • common stock 1.020 4) 1.020 1.020 1.020 1.020 • preferred stock 1.122 4) 1.122 1.122 1.122 1.122 1) After minority interests 2) Additions to fixed assets (prior-year figures adjusted) 3) Equity excluding minority interests 4) Subject to resolution of annual general meeting METRO GROUP EARNINGS BY SALES DIVISIONS 2003 2002 Changes € million € million € million % Metro Cash & Carry 799.6 709.1 90.5 12.8 Real 160.5 147.0 13.5 9.2 Extra (75.7) (47.2) -28.5 -60.4 Media Markt and Saturn 345.2 280.2 65.0 23.2 Praktiker (13.8) (41.6) 27.8 66.8 Kaufhof 94.1 131.4 -37.3 -28.4 EBIT Metro sales divisions 1,309.9 1,178.9 131.0 11.1 Others 8.2 (13.4) 21.6 161.2 EBIT METRO Group 1,318.1 1,165.5 152.6 13.1 Financial result (500.6) (335.8) -164.8 -49.1 Earnings before tax 817.5 829.7 -12.2 -1.5 Income taxes (246.1) (327.8) 81.7 24.9 Group net income 571.4 501.9 69.5 13.8 Earnings per share € 1.52 € 1.36 € 0.16 12.0 CONTENT Letter to our stockholders 2 Metro Stock 6 Joint corporate governance report of the Management Board and the Supervisory Board 12 Management Report 16 Macroeconomic environment and development of the retail industry 16 Group sales 20 Portfolio of locations 28 Capital expenditure/divestments 29 Consolidated cash flow statement 30 Asset and capital structure 31 EBIT/EBITDA 32 Financial result 34 Group net profit and earnings per share 34 Balance sheet profit of METRO AG and dividend proposal 35 Statement of value added 35 EVA – Corporate management 37 Risk report 40 Financial management 45 Employees 49 Advanced retailing 60 Environmental protection 65 Social commitment 66 Important post-year-end developments 70 Outlook 70 Metro Brands 72 Metro Cash & Carry 72 Real 80 Extra 86 Media Markt and Saturn 92 Praktiker 100 Kaufhof 106 Cross-divisional service companies of the METRO Group 112 Topics in focus 120 METRO Group future store initiative 120 Consolidated financial statements 133 Consolidated income statement 134 Consolidated balance sheet 135 Consolidated cash flow statement 136 Statement of changes in equity 137 Notes 138 Corporate Boards of METRO AG 198 Major group companies 205 Auditor’s opinion 206 Report of the Supervisory Board 208 Supplementary information 212 Imprint 218 2 LETTER TO OUR STOCKHOLDERS DR. HANS-JOACHIM KÖRBER, CHIEF EXECUTIVE OFFICER Ladies and gentlemen, The METRO Group strategy of profitable growth and consistent internationalization was again crowned by success in 2003. Whilst 2002 was already a challenging year for the retailing industry, the general climate became even more inclement in the course of 2003. World economy faced a downturn and even more so the German economy whose weakness was also reflected in a stock price low. In our specific industry, the situation was heightened by the persistent buying restraint of consumers. All in all, the scenario was not very propitious to a positive course of business. However, this environment did not keep us from reaching our self-imposed targets which we achieved thanks to the consistent pursuit of our strategy of internation- alization and optimization of our merchandizing concepts. 3 So, 2003 again proved to be a good year for the METRO Group. We further consolidated our strong position in the domestic and international markets. We conquered additional market shares and, on balance, our operations are even more profitable and our merchandizing concepts even more attractive and customer- friendly. With activities in 28 countries, we are now one of the most international companies in worldwide retailing. The progress achieved in bringing METRO Group forward is clearly reflected in its key business figures. In the past fiscal year, group sales amounted to € 53.6 billion. They exceeded the prior-year mark by 4.0 percent and, net of currency effects, even by 5.7 percent. At the same time, the foreign share in total sales rose from 46.3 percent in the previous year to 47.2 percent. This positive sales trend is first and foremost the result of our selectively continued international expansion which is rendering the company less dependent on individual national markets. Our capital investment activities outside Germany were concentrated on Asia and Eastern Europe. In those regions, we distinctly expanded the network of locations. We accomplished the market entry into the Ukraine and India with Metro Cash & Carry. In 2003 we were active in a total of 28 countries. In the conversion states of the former Eastern Bloc, our area-wide presence now enables us to participate in those growth markets. We have become firmly positioned in several EU accession countries. In 2003 the East European business once again contributed above average to the positive sales trend of our company at a growth of 7.0 percent. In Russia we achieved an outstanding increase in sales. In Asia sales were boosted by 7.2 percent. In Western Europe the general course of business was gratifying for our group. In Germany the METRO Group demonstrated that it is able to stand its ground in a challenging environment. We gained further market shares although individual sales divisions did not quite manage to evade the negative overall trend. In a rather unfavorable general macroeconomic climate and a negative trend of its industry, the group attained sales of € 28.3 billion in Germany. This corresponds to an increment in sales of 2.2 percent from the prior-year level. The high operating performance of METRO Group is not only reflected in its sales volume. In terms of the business result, we also achieved our target to increase earnings per share by 6 to 10 percent. 4 LETTER TO OUR STOCKHOLDERS At the same time, we further improved the quality of the group result by raising our operating profit before interest and taxes (EBIT) by more than 13 percent. It should be highlighted that our international activities made an above-average contribution to the growth in earnings. Moreover, METRO Group further improved the Economic Value Added (EVA), the central control variable of the group geared to the increase in compa- ny value, by € 88.3 million. This means that the group incremented the company value and accomplished full cover of its capital cost for the first time in 2003. The sales divisions of the METRO Group outperformed the competition. This holds especially true for the two growth drivers, METRO Group’s most internationalized sales divisions Metro Cash & Carry as well as Media Markt and Saturn. In the 2003 fiscal year, these two sales divisions again raised both sales and earn- ings above average, contributing around 70 percent to the group’s sales. Even in international comparison, they achieved outstanding returns on the capital employed. The focus of the METRO Group’s capital expen- diture was thus concentrated on the further expansion of these two sales divisions.