COMBINED FINANCIAL STATEMENTS

Transkript

1 REWE- ZENTRALFINANZ EG, COLOGNE, AND REWE - ZENTRAL- AKTIENGESELLSCHAFT, COLOGNE COMBINED FINANCIAL STATEMENTS FOR THE 2016 FINANCIAL YEAR Page 34 of 177

2 CONTENTS INCOME STATEMENT 36 STATEMENT OF COMPREHENSIVE INCOME 37 BALANCE SHEET 38 CASH FLOW STATEMENT 39 STATEMENT OF CHANGES IN EQUITY 40 NOTES 42 AUDITORS REPORT 176 Page 35 of 177

3 Income Statement FOR THE FINANCIAL YEAR FROM 1 JANUARY TO 31 DECEMBER 2016 in million Note no * Revenue 9 45, ,514.0 Change in inventory Other operating income 10 3, ,854.7 Cost of materials 11-33, ,402.9 Personnel expenses 12-6, ,737.7 Depreciation, amortisation and impairments 13-1, Other operating expenses 14-7, ,753.6 Operating result Results from companies accounted for using the equity method Results from the measurement of derivative financial instruments Interest and similar income Interest and similar expenses Interest result Other financial income Financial result Earnings before taxes Taxes on income Results from continuing operations Results from discontinued operations Net income for the year Net income for the year attributable to shareholders of the parent companies Net income for the year attributable to non- controlling interests * Prior- year amounts adjusted in accordance with the provisions relating to reporting discontinued operations (IFRS 5). Page 36 of 177

4 Statement of Comprehensive Income FOR THE FINANCIAL YEAR FROM 1 JANUARY TO 31 DECEMBER 2016 in million 1 Jan Jan Net income for the year Gains and losses from the translation of the financial statements of foreign subsidiaries of which recognised directly to equity of which recognised in profit or loss Gains and losses from the remeasurement of available- for- sale financial assets of which recognised directly to equity of which recognised in profit or loss Gains and losses from cash flow hedges of which recognised directly to equity of which recognised in profit or loss Other comprehensive income of associates and joint ventures of which recognised directly to equity of which recognised in profit or loss Deferred taxes on aforementioned gains or losses reported under other comprehensive income of which: recognised directly to equity of which: recognised in profit or loss Other comprehensive income attributable to items to be recycled to the income statement at a later date if certain conditions are met Gains and losses from the remeasurement of defined- benefit pension commitments Deferred taxes on aforementioned gains or losses reported under other comprehensive income Other comprehensive income of associates and joint ventures Other comprehensive income attributable to items which will never be recycled to the income statement Other comprehensive income Comprehensive income Comprehensive income attributable to shareholders of the parent companies Comprehensive income attributable to non- controlling interests (For disclosures, see note 32 "Equity") Page 37 of 177

5 Balance Sheet AS AT 31 DECEMBER 2016 Assets in million Note no Intangible assets 21 1, ,623.4 Property, plant and equipment 22 8, ,665.7 Investment properties Companies accounted for using the equity method Other financial assets Other assets Current income tax assets Deferred tax assets Non- current assets 11, ,442.2 Inventories 29 3, ,475.1 Other financial assets Trade receivables 27 1, ,076.4 Other assets Current income tax assets Cash and cash equivalents Sub- total of current assets 6, ,336.7 Non- current assets held for sale and disposal groups Current assets 6, ,494.8 Total assets 17, ,937.0 Equity and Liabilities in million Note no Subscribed capital Capital reserves Retained earnings 32 5, ,305.1 Other reserves Treasury shares Equity attributable to shareholders of the parent companies 5, ,262.3 Non- controlling interests Equity 5, ,303.5 Employee benefits Other provisions Other financial liabilities ,052.4 Trade payables Other liabilities Deferred tax liabilities Non- current liabilities 2, ,699.2 Employee benefits Other provisions Other financial liabilities Trade payables 36 5, ,616.5 Other liabilities 37 1, ,483.9 Current income tax liabilities Sub- total current liabilities 9, ,888.6 Liabilities from non- current assets held for sale and disposal groups Current liabilities 9, ,934.3 Total equity and liabilities 17, ,937.0 Page 38 of 177

6 Cash Flow Statement FOR THE FINANCIAL YEAR FROM 1 JANUARY TO 31 DECEMBER 2016 in million * Results from continuing operations Financial result Income tax expense Depreciation/amortisation and retroactive capitalisations on intangible assets, property, plant and equipment and financial assets 1, Increase/decrease in provisions Gains on the disposal of intangible assets, property, plant and equipment and financial assets Other non- cash expenses Increase in inventories, trade receivables and other assets not attributable to investing or financing activities Increase / Decrease in trade payables and other liabilities not attributable to investing or financing activities Income taxes paid Dividends received Sub- total 1, ,122.2 Interest received Interest paid Cash flows from operating activities, continuing operations 1, ,089.3 Cash flows from operating activities, discontinued operations Proceeds from disposals of intangible assets, property, plant and equipment and investment properties Proceeds from disposals of financial assets and companies accounted for using the equity method Proceeds from the disposal of shares in consolidated companies Purchase of intangible assets, property, plant and equipment and investment properties - 1, ,298.6 Purchase of financial assets and companies accounted for using the equity method Excess proceeds from business combinations and the acquisition of shares in consolidated companies Payments for business combinations and the acquisition of shares in consolidated companies Cash flows from investing activities, continuing operations - 1, ,003.6 Cash flows from investing activities, discontinued operations Paid dividends and other interests Payments from changes in non- controlling interests Cash proceeds from borrowings Cash repayments of borrowings Cash payments of finance lease liabilities Cash flows from financing activities, continuing operations Cash flows from financing activities, discontinued operations Net change in cash funds Currency translation differences Net change in cash funds Cash funds at beginning of period Cash funds at end of period Cash funds at the end of the period, discontinued operations Cash funds at the end of the period, continuing operations * Prior- year amounts adjusted in accordance with the provisions relating to reporting discontinued operations (IFRS 5). (For disclosures, see note 38 "Cash Flow Statement") Page 39 of 177

7 Statement of Changes in Equity FOR THE 2015 FINANCIAL YEAR in million Sub- scribed capital Capital reserves Retained earnings Reserve for cash flow hedges Reserve for available- for- sale financial assets Other reserves Revaluation reserve Difference from currency translation Reserve for at- equity accounting components taken directly to equity Reserve for deferred taxes Treasury shares Equity parent company Non- control- ling interests Total As at 1 Jan , , ,957.0 Currency translation adjustments Available- for- sale securities Cash flow hedges Remeasurement of defined- benefit pension commitments Other comprehensive income of associates and joint ventures Other comprehensive income Net income for the year Comprehensive income Dividend distribution Changes in equity by shareholders Changes in the scope of consolidation Acquisitions of non- controlling interests Transfer between reserves Other changes in equity Ending balance as at , , ,303.5 Page 40 of 177

8 FOR THE 2016 FINANCIAL YEAR in million Sub- scribed capital Capital reserves Retained earnings Reserve for cash flow hedges Reserve for available- for- sale financial assets Other reserves Revaluation reserve Difference from currency translation Reserve for at- equity accounting components taken directly to equity Reserve for deferred taxes Treasury shares Equity parent company Non- control- ling interests Total As at 1 Jan , , ,303.5 Currency translation adjustments Available- for- sale securities Cash flow hedges Remeasurement of defined- benefit pension commitments Other comprehensive income of associates and joint ventures Other comprehensive income Net income for the year Comprehensive income Dividend distribution Changes in equity by shareholders Changes in the scope of consolidation Acquisitions of non- controlling interests Transfer between reserves Other changes in equity Ending balance as at , , ,723.3 (For disclosures, see note 32 "Equity") Page 41 of 177

9 Notes CONTENTS GENERAL ACCOUNTING PRINCIPLES OF THE COMBINED FINANCIAL STATEMENTS Basic Principles Application and Effects of New or Revised Accounting Standards Consolidation Acquisitions Divestitures Currency Translation Accounting Policies Significant Accounting Judgements, Estimates and Assessments 73 INCOME STATEMENT DISCLOSURES Revenue Other Operating Income Cost of Materials Personnel Expenses Depreciation, Amortisationand Impairments Other Operating Expenses Results from Companies Accounted for Using the Equity Method Results from the Measurement of Derivative Financial Instruments Interest Result Other Financial Result Taxes on Income Profit or Loss Attributable to Non- controlling Interests 85 BALANCE SHEET DISCLOSURES Intangible Assets Property, Plant and Equipment Investment Properties Leases Companies Accounted for Using the Equity Method Other Financial Assets Trade Receivables Other Assets Inventories Current and Deferred Taxes 100 Page 42 of 177

10 31. Cash and Cash Equivalents Equity Employee Benefits Other Provisions Other Financial Liabilities Trade Payables Other Liabilities Cash Flow Statement 116 OTHER DISCLOSURES Capital Management Disclosures Financial Risk Management Financial Instrument Disclosures Contingent Liabilities/Receivables and Other Financial Obligations Events after the Balance Sheet Date Related Party Disclosures Fees for services provided by the auditor Management Board and Supervisory Board 134 ANNEX: LIST OF SHAREHOLDINGS AS AT 31 DECEMBER Page 43 of 177

11 General Accounting Principles of the Combined Financial Statements 1. BASIC PRINCIPLES These combined financial statements are a summary of the consolidated financial statements of REWE- ZENTRALFINANZ eg, Cologne (hereinafter referred to as "RZF" for short), and REWE - Zentral- Aktiengesell- schaft, Cologne (hereinafter referred to as "RZAG" for short), for the financial year ended on 31 December 2016, and were prepared voluntarily. The consolidated financial statements of the companies identified above were prepared in accordance with International Financial Reporting Standards, as applicable in the European Union (hereinafter referred to as "IFRSs" for short), the supplemental provisions of the German Commercial Code (Handelsgesetzbuch, "HGB"), as well as the supplemental provisions of the articles of association of RZAG and RZF, and were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft, Cologne. The Combined Financial Statements were also combined following IFRSs and were subject to the premise that the two companies are considered to be joint parent companies of their consolidated subsidiaries. The Combined Financial Statements fully comply with all IFRSs as applicable in the European Union. All ac- counting standards and interpretations requiring application for financial years starting 1 January 2016 have been taken into account. The financial statements of the companies included in the Combined Financial Statements have been prepared pursuant to uniform accounting principles. The income statement in the Combined Financial Statements was prepared using the nature of expense method. The financial years of RZF and RZAG and their subsidiaries (here- inafter referred to as the "groups" for short) correspond to the calendar year. Unless otherwise indicated, all disclosures are in millions of euros ( million). Rounding may result in differences of ± one unit (, %, etc.). These financial statements were released for publication by the Management Boards on 27 March RZF's registered office is at Domstraße 20 in Cologne, Germany, and is registered in the Register of Cooperative Societies at the Local Court of Cologne under GnR 631. RZAG's registered office is also at Domstraße 20 in Co- logne, Germany, and is registered in the Commercial Register of the Local Court of Cologne under HRB The groups' business activities are divided into seven "business segments", which are subdivided further into divisions and business units. The main focus of the business activities is on the chain food retail sector, in both the full- range stores and discount segments. The new central Retail Germany organisation, which combines the former National Full- Range Stores and Natio- nal Discount Stores business segments, was launched in July In this connection, the domestic real estate companies were reallocated from the Other business segment to Retail Germany. In 2017, the production and sale of baked goods by Glockenbrot Bäckerei GmbH & Co. ohg, Cologne, under the Glocken Bäckerei brand, as well as the production of meat and sausage products by Wilhelm Brandenburg GmbH & Co. ohg, Cologne, under the Wilhelm Brandenburg brand, will also be transferred from the Other business segment to Retail Germany. Responsibility for the Retail Germany business segment rests with REWE Beteiligungs- Holding Aktiengesellschaft, Cologne. The final restructuring measures at management level will be implemented from 1 January 2017 on- wards, meaning that the reporting structure is still based on the old business segment structure. Page 44 of 177

12 The National Full- Range Stores business segment operates the chain food retail sector in Germany under the REWE, REWE CITY, REWE CENTER, REWE to go and TEMMA brands. It also supplies independent retail dealers, group companies and REWE partner retailers in the merchandise wholesale business. The business segment is operated primarily by REWE Markt GmbH, Cologne. The National Discount Stores business segment operates the chain food retail sector in Germany under the PENNY sales brand. Penny- Markt GmbH, Cologne, operates the stores. International Full- Range Stores business segment operates supermarkets and consumer markets in Austria under the BILLA, MERKUR and ADEG brands. The BILLA supermarket format also represents the business seg- ment in Bulgaria, Russia, Slovakia, the Czech Republic and Ukraine. In addition, drug stores are operated under the BIPA brand in Austria and Croatia. The business segment's key companies are Billa Aktiengesellschaft, Wiener Neudorf, Austria, and Merkur Warenhandels- AG, Wiener Neudorf, Austria. The Travel and Tourism business segment comprises a number of tour operators, specialists which offer a number of travel agency chains, franchise sales channels and online portals under the DER Touristik umbrella brand. Travel and Tourism operates in Germany, Austria, Switzerland, Eastern Europe, as well as Scandinavia, Finland, the United Kingdom and the Benelux countries since the addition of the Kuoni units in Travel and Tourism is operated primarily by DER Deutsches Reisebüro GmbH & Co. OHG, Frankfurt am Main, and DER Touristik Köln GmbH, Cologne, mainly under the ADAC REISEN, Apollo, DER.COM, DER Reisebüro, DERPART, DERTOUR, EXIM Tours, helvetic tours, ITS, Jahn Reisen, KUONI, Meier s Weltreisen and TRAVELIX brands. The International Discount Stores business segment operates the food retail sector in Italy, Austria, Romania, the Czech Republic and Hungary via separate sales and distribution companies in each country operating under the PENNY MARKET, PENNY MARKET and XXL MEGA DISCOUNT brands. The National Specialist Stores business segment operates DIY stores under the toom Baumarkt and B1 Discount Baumarkt brands. The business segment is operated primarily by toom Baumarkt GmbH, Cologne. The Other business segment provides corporate services for REWE Group companies. This segment handles goods procurement through REWE Group Buying GmbH, deliveries to wholesale customers through RZAG, and centralised settlement through RZF. Additional activities include the production and sale of baked goods by Glockenbrot Bäckerei GmbH & Co. ohg, Cologne, under the Glocken Bäckerei brand, as well as the production of meat and sausage products by Wilhelm Brandenburg GmbH & Co. ohg, Cologne, under the Wilhelm Branden- burg brand. The business segment's other key companies are the financing company REWE International Finance B.V., Venlo, Netherlands (hereinafter referred to as "RIF" for short), and REWE Digital GmbH, Cologne, which bundles its online activities. For an exhaustive overview of the Group's subsidiaries, please refer to the List of Shareholdings appended to the notes. Page 45 of 177

13 2. APPLICATION AND EFFECTS OF NEW OR REVISED ACCOUNTING STANDARDS The following accounting standards were adopted for the first time in the 2016 financial year: Name of standard, amendment or interpretation IAS 1 IAS 16, IAS 38 IAS 19 IFRS 11 Miscellaneous Miscellaneous Amendments: Presentation of Financial Statements Amendments: Clarification of Acceptable Methods of Depreciation and Amortisation Amendments: Defined Benefit Plans - Employee Contributions Amendments: Accounting for Acquisitions of Interests in Joint Operations Amendments: Annual Improvements: cycle Amendments: Annual Improvements: cycle The first- time adoption of these new or revised accounting standards did not have any significant effects on the presentation of net assets, financial position or results of operations. New or Revised Accounting Standards Published, but not yet Applied During the 2016 Financial Year The new standards and interpretations listed below, as well as amendments to existing standards, were issued by the IASB, but if adopted as European law did not yet require application in the 2016 financial year. Any option for voluntary early application was not exercised for these accounting standards. NEW OR REVISED ACCOUNTING STANDARDS PUBLISHED, BUT NOT YET APPLIED DURING THE 2016 FINANCIAL YEAR Mandatory appli- cation expected in financial year 2017 Name of standard, amendment or interpretation IAS 7 2 Amendments: IAS 7 Statement of Cash Flows No 1 IAS 12 2 Amendments: IAS 12 Income Taxes Recognition of Deferred Tax Assets for Unrealised Losses Standard has already been adopted as European law No IFRS 9 Financial Instruments, including amendments to this standard Yes IFRS 15 Revenue from Contracts with Customers Yes IFRS 15 2 Amendments: Revenue from Contracts with Customers No 1 IFRS 2 2 IFRS 4 2 Amendments: Classification and Measurement of Share- based Payment Transactions Amendments: Delaying application of IFRS 9 Financial Instruments for insurance companies IAS 40 2 Amendments: Transfers of Investment Property No 1 IFRIC 22 2 Foreign Currency Transactions and Advance Consideration No 1 Various 2,3 Amendments: Annual Improvements: cycle No IFRS 16 Leases No 1 TBD IFRS 10, IAS 28 Amendments: Sales or Contributions of Assets Between an Investor and its Associate/Joint Venture No 1 No 1 No Since the standard, amendment or interpretation has not yet been adopted as European law, there is no mandatory application date within the European Union. Consequently, the date of initial application as planned by the IASB, on which the allocation to financial years is based, is subject to change. No material impacts are expected to result from the standard, amendment or interpretation. Mandatory application partially in 2017 and Page 46 of 177

14 The first- time application of the new standards or amendments is expected to have the following effects on the presentation of net assets, financial position and results of operations. IFRS 9: Financial Instruments, Including Amendments to this Standard This standard will replace the previous provisions on accounting for financial instruments set forth in IAS 39. The new standard will replace the measurement categories in IAS 39 with the two categories "at amortised cost" and "at fair value". The classification of an instrument in the "amortised cost" category depends both on its product characteristics and on the entity's business model. If an instrument is allocated to the "fair value" category, it can either be remeasured through profit or loss or remeasured with changes in fair value recog- nised in other comprehensive income and therefore in equity, similar to the way it was accounted for under IAS 39. Exceptions are in place for changes in the fair value of financial liabilities due to changes in own credit. Furthermore, the new standard incorporates new guidance on calculating loss impairments. The previous model for accounting for losses was replaced by a model for accounting for expected loss impairments. In addi- tion, the provisions of IFRS 9 provide greater flexibility for recognising hedges. Moreover, the extent of notes disclosures is significantly higher. The new standard is anticipated to have effects on the presentation of net assets, financial position and results of operations which are currently still being analysed. IFRS 15: Revenue from Contracts with Customers The new standard provides uniform, principle- based guidance on the revenue recognition for all industries and all categories of transactions and replaces a number of individual provisions. The date and amount of revenue is based on a five- step model. Under this model, an entity must recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity ex- pects to be entitled in exchange for those goods or services. Control can still be passed either at a point in time or over time. Furthermore, the standard clarifies a number of technicalities such as how changes to contracts should be handled and how variable consideration such as rebates, rights of return and performance- based compensation should be measured. Moreover, the standard includes new guidance on principal versus agent considerations and costs of obtaining a contract. The revenue disclosure requirements in the notes were also expanded significantly. The effect of the new standard on the presentation of net assets, financial position and results of operations is currently being analysed. IFRS 16: Leases The goal of the new standard is in future to generally recognise all leases and the related contractual rights and obligations in the lessee's balance sheet. The previously required classification between finance and operating leases will no longer apply in the future. For all leases, the lessee recognises a lease liability in its balance sheet for the obligation for the future lease payments to be made. At the same time, the lessee capitalises a usage right to the underlying asset, which generally corresponds to the fair value of the future lease payments plus directly allocable costs. During the term of the lease the lease liability is adjusted using a model, while the usage right is amortised. There are exemptions when accounting for leases with terms of less than 12 months and leased assets of low value. At the lessor, however, the provisions of the new standard do not differ from the previous standards of IAS 17. The criteria of IAS 17 are taken over for the classification pursuant to IFRS 16. The new standard will have significant effects on the presentation of net assets, financial position and results of operations. Page 47 of 177

15 Amendments to IFRS 10 and IAS 28: Sales or Contributions of Assets Between an Investor and its Associate/Joint Venture The amendments remove inconsistencies between the provisions of IFRS 10 and IAS 28. The gain or loss resul- ting from the sale or contribution of assets to an associate or a joint venture must be recognised in full if the assets that were sold or contributed constitute a business as defined in IFRS 3. However, if the transferred assets do not constitute a business, then only part of the gain or loss must be recognised. The amendments would only have an effect on the presentation of net assets, financial position and results of operations if going forward a business were to be transferred to an associate or joint venture. The IASB has deferred the initial application of the above amendments indefinitely due to planned additional amendments to IAS CONSOLIDATION Consolidation Principles The Combined Financial Statements are prepared in accordance with the consolidation methods presented below. a) Subsidiaries Generally, subsidiaries are all companies at which RZF or RZAG, or both together, that on account of substantial direct or indirect rights have the ability to control key business activities of these companies so as to generate variable returns (controlled companies). The existence and effect of potential voting rights which are currently exercisable or convertible are taken into account when evaluating whether control exists. Subsidiaries are generally included in the Combined Financial Statements (full consolidation) from the date on which control has been transferred, directly or indirectly, to RZF or RZAG or both together. They are deconsoli- dated when control is lost. Subsidiaries classified as held for sale are recognised pursuant to the provisions for non- current assets, disposal groups and discontinued operations held for sale. Acquired subsidiaries are recognised using the acquisition method. The acquisition cost corresponds to the fair value of the assets acquired, the equity instruments issued and the liabilities incurred or assumed as at the transaction date. Costs related to the business combination are always treated as expenses, regardless of whe- ther they are directly allocable to the acquisition. Upon initial consolidation, the assets, liabilities and contin- gent liabilities identifiable in connection with a business combination are measured at their fair value as at the acquisition date, irrespective of the extent of any non- controlling interest. The excess of the acquisition cost over the interest in the net fair value of the assets acquired is recognised as goodwill. If the acquisition cost is less than the net fair value of the assets of the acquired subsidiary after reasses- sing the measurement, the difference is recognised in the income statement under "other operating income". Intercompany transactions and any resulting gains that are included in the Combined Financial Statements are eliminated. Losses are also eliminated unless the transaction indicates an impairment of the transferred asset. The separate financial statements of the domestic and foreign subsidiaries consolidated are prepared accor- ding to uniform accounting policies. Page 48 of 177

16 b) Joint Ventures and Joint Operations Joint arrangements, over which RZF or RZAG, or both together, directly or indirectly, exercise joint control with one or more partners by virtue of a contractual agreement, are included in the Combined Financial Statements as joint ventures or joint operations. Currently, no joint operations are included in the Combined Financial State- ments. Joint ventures are included in the Combined Financial Statements using the equity method. Please see the explanatory notes with regard to associates for the general accounting treatment using the equity method. They are recognised from the date on which joint control can be exercised until the date on which joint control is lost. Joint ventures classified as held for sale are recognised pursuant to the provisions for non- current assets, disposal groups and discontinued operations held for sale. Entities over which joint control cannot be exercised despite a corresponding share of voting rights are classified as associates or as other equity investments. c) Associates An entity at which the groups have the ability to significantly influence financial and operating decisions, and in which the groups regularly hold 20 to 50 per cent share of voting rights, directly or indirectly, is classified as an associate and recognised in the Combined Financial Statements using the equity method. The equity method is not used if an associate has been classified as held for sale. An entity in which the share of voting rights is 20 per cent or more, but whose financial and operating policy cannot be significantly influenced, is classified as an other investment. In that event, the entity is treated as a financial asset held for sale and measured at the fair value, or at amortised cost if the fair value cannot be measured reliably. An entity is generally included in the group of associates accounted for using the equity method from the date on which significant influence over the entity can first be exercised. An entity is no longer included in the Com- bined Financial Statements using the equity method as at the date on which significant influence can no longer be exercised. An associate classified as held for sale is recognised in accordance with the provisions for non- current assets, disposal groups and discontinued operations held for sale. Investments in associates are initially recognised at cost. In addition to the interest in net assets, cost reflects the disclosed hidden reserves and liabilities and a premium paid in the form of goodwill. A gain on a bargain purchase is recognised immediately in profit or loss. If there are indications of an impairment of the entity accounted for using the equity method, the entire carrying amount of the investment is subjected to an im- pairment test. A subsequent reversal of impairment also applies to the entire carrying amount. The groups' interest in an associate includes the goodwill identified upon acquisition, subsequent effects from the adjustment of hidden reserves and liabilities and pro- rata profits and losses of the associated company as at the acquisition date, less the cumulative impairment losses from impairment testing of the carrying amount of the equity- accounted investment. During subsequent consolidation, the carrying amount recognised in the balance sheet increases or decreases in accordance with the groups' share of the associate's net income/loss for the period. Changes recognised directly in the associate's equity are also recognised directly in equity in the Combined Financial Statements in the amount of the groups' interest. If the carrying amount of the investment and other unsecured receivables of the groups are written down in full due to pro- rata losses of the associate, the groups do not recognise any additional losses unless they have entered into a legal or constructive obligation or have made payments for the associate. Page 49 of 177

17 Significant transactions and resulting profits between the companies of the groups as well as those between an associate or joint venture are eliminated. Significant losses are also eliminated unless the transaction indicates an impairment of the transferred asset. The accounting policies of associates are adjusted as required to ensure uniform accounting treatment. Consolidation Principles in Connection with Step- ups and Step- downs a) Control Obtained in Stages For a business combination achieved in stages, there is an upward consolidation as at the acquisition date when control is obtained for the first time. First, the previously held interest is measured at fair value through profit or loss. Then, a first- time consolidation is recognised based on the fair values of all acquired shares. Together with the consideration transferred for the recently acquired shares, the amount of non- controlling interests and the net fair value of the subsidiary's assets, the remeasured interest forms the basis for calcu- lating goodwill or a bargain purchase. If the previously held interests were treated as financial instruments in the "available for sale" category and the fair value changes were recognised directly in equity, then the equity reserve is reversed to profit and loss. The adjustments reflect deferred taxes. Upon a transition from the equity method to full consolidation, the interest previously recognised using the equity method is also remeasured to fair value through profit or loss. Reserves recognised directly in equity are reversed as if the previously held interest had been sold. Upon disposal, these reserves are reversed in accor- dance with the individual standards under which they were recognised. b) Loss of Control with Retention of an Interest Upon loss of control, the interest disposed of is deconsolidated through profit or loss. At the same time, amounts related to this interest recognised directly in equity are either recognised through profit or loss or reclassified to other retained earnings depending on the provisions of the individual standards under which these reserves were recognised. Any remaining interest in the entity is measured at fair value through profit or loss in the Combined Financial Statements as at the date of the step- down. The accounting treatment of this remaining interest in subsequent periods is made in accordance with the provisions for financial instruments, for associates or for joint ventures. c) Step- ups or Step- downs in Interests Without Loss of Control i) Step- ups in Interests in Controlled Companies Acquisitions of interests in a subsidiary, whose direct or indirect control by the groups was possible prior to the acquisition, are accounted for as equity transactions between owners. A difference between the purchase price and the interest of the non- controlling interests in the net assets resulting from such an acquisition is recog- nised directly in equity in the Combined Financial Statements. Page 50 of 177

18 ii) Step- downs of Interests in Controlled Companies The disposal of interests in a subsidiary without loss of control is treated analogously to an increase in control- ling interests as a pure equity transaction. As a result, for sales to non- controlling interests, differences between the disposal proceeds and the corresponding interest in the net carrying amount of the subsidiary's assets are also recognised directly to equity in the Combined Financial Statements. Scope of Consolidation The Combined Financial Statements for the financial year include 235 domestic subsidiaries (previous year: 219) and 150 foreign subsidiaries (previous year: 150). CHANGES TO THE SCOPE OF CONSOLIDATION IN FINANCIAL YEAR 2016 Fully- consolidated subsidiaries Germany International Total As at 1 Jan Additions of which: new formations or initial consolidations of companies already under control of which: acquisitions Disposals of which: mergers, accretions or liquidations of which: disposals As at Disclosures on Changes in the Scope of Consolidation COMPANIES INCLUDED IN THE SCOPE OF CONSOLIDATION FOR THE FIRST TIME DURING THE FINANCIAL YEAR No. Germany 1. Avigo GmbH, Cologne 2. coop Logistik GmbH, Kiel* 3. DER Touristik VG1 GmbH, Cologne 4. DER Touristik VG2 GmbH, Cologne 5. DER Touristik VG3 GmbH, Cologne 6. DERPART Reisebüro Service GmbH, Frankfurt am Main 7. Eurogroup Deutschland GmbH, Langenfeld* 8. REWE LOG 8 GmbH, Cologne 9. REWE LOG 51 GmbH, Cologne 10. REWE LOG 62 GmbH, Cologne 11. REWE LOG 63 GmbH, Cologne 12. REWE LOG 64 GmbH, Cologne 13. REWE Märkte 23 GmbH, Cologne 14. REWE Märkte 36 GmbH, Cologne 15. REWE Märkte 40 GmbH, Cologne 16. REWE Märkte 41 GmbH, Cologne 17. Supermärkte Nord Vertriebs GmbH & Co. KG, Kiel* 18. Supermärkte Nord Verwaltungs GmbH, Kiel* * Acquisitions Company Name, Registered Office Page 51 of 177

19 No. Company Name, Registered Office International 1. Campina Verde Ecosol, S.L., Cordoba* 2. CAMPINA VERDE ITALIA S.R.L., Verona 3. DTS Destination Touristic Services Incoming GmbH, Salzburg 4. E U R O G R O U P S.A., Brussels* 5. Eurogroup Espana F&V S.A.U., Valencia* 6. EUROGROUP ITALIA S.R.L., Verona* 7. REWE Projekt EOOD, Stolnik * Acquisitions COMPANIES THAT WERE DECONSOLIDATED IN THE FINANCIAL YEAR DUE TO MERGERS, ACCRETIONS, LIQUIDATIONS OR DISPOSALS No. Company Name, Registered Office Germany 1. R- Kauf Märkte Gesellschaft mit beschränkter Haftung & Co. REWE- Vertriebs- Kommanditgesellschaft, Cologne 2. today GmbH, Cologne No. Company Name, Registered Office International 1. Allib Rom S.R.L., Bucharest* 2. BILLA INVEST CONSTRUCT S.R.L., Bucharest* 3. BILLA Romania SRL, Bucharest* 4. REC Finance AG, Volketswil 5. REWE BUYING GROUP SRL, Bucharest 6. REWE Projekt EOOD, Stolnik 7. Rila Projekt EOOD, Stolnik * Disposals GO VACATION VIETNAM COMPANY LIMITED, Hanoi, Vietnam, was added as a joint venture. Due to an acqui- sition in stages, Campina Verde Ecosol, S.L., Cordoba, Spain, is no longer included as an associate but rather is fully consolidated. Five joint ventures (previous year: four) and 15 associates (previous year: 16) were included using the equity method in the financial year. In addition, the groups have interests in a total of 1,096 REWE partner companies (previous year: 1,080) which are also included as associates using the equity method. Page 52 of 177

20 4. ACQUISITIONS On the basis of the agreement dated 1 July 2016, REWE Markt GmbH, Cologne, acquired 55.0 per cent of shares in Supermärkte Nord Verwaltungs GmbH, Supermärkte Nord Vertriebs GmbH & Co. KG and coop Logis- tik GmbH, each with its registered office in Kiel. Previously, the seller, coop eingetragene Genossenschaft, Kiel, has spun off its supermarkets business into the German legal form of a limited partnership (Kommanditgesell- schaft), which was subsequently renamed Supermärkte Nord Vertriebs GmbH & Co. KG. The acquisition cost of million euros was paid for various components. It was paid on the one hand for the limited partnership contribution to Supermärkte Nord Vertriebs GmbH & Co. KG. On the other, it was paid to unwind existing lia- bilities held by the acquired companies. The initial consolidation date is 31 December The acquired companies operate in the food retail and wholesale sectors and have supermarkets in the Ger- man states of Hamburg, Mecklenburg- Western Pomerania, Lower Saxony and Schleswig- Holstein. The high potential for synergies in these business segments is reflected in the goodwill of million euros recognised as at the date of initial consolidation. In addition, goodwill also reflects the locational advantage acquired and the incoming employees. The goodwill is partially tax deductible. Acquisition- related costs of 3.8 million euros were reported in the income statement under other operating expenses. The assumed receivables do not include any receivables that are expected to be uncollectible. FAIR VALUE OF THE IDENTIFIED ASSETS AND LIABILITIES AS AT THE DATE OF ACQUISITION in million Supermärkte Nord Intangible assets 11.1 Property, plant and equipment Inventories 88.1 Trade receivables 31.3 Other financial assets 2.8 Other assets 3.6 Cash and cash equivalents 23.0 Deferred tax assets 35.8 Total assets Employee benefits 42.0 Other provisions Trade payables 82.9 Other financial liabilities Other liabilities 80.1 Deferred tax liabilities 20.7 Total liabilities Fair value of net assets Non- controlling interests Cost Goodwill (+)/Negative consolidation difference (- ) Page 53 of 177

21 Had the acquisition of the supermarket business of coop eingetragene Genossenschaft, Kiel, been effected as early as 1 January 2016, revenue would have been 1,111.7 million euros higher than reported and combined earnings 26.4 million euros lower. In addition, REWE Deutscher Supermarkt AG & Co. KGaA, Cologne (hereinafter referred to as "KGaA" for short), acquired pursuant to the agreement dated 8 December 2015 a further 50.0 per cent of shares in EURO- GROUP S.A., Brussels, Belgium, as well as its subsidiaries Eurogroup Deutschland GmbH, Langenfeld, Eurogroup Espana S.A.U., Valencia, Spain, and Eurogroup Italia S.R.L., Verona, Italy. The shares were sold by coop- Gruppe Genossenschaft, Basel, Switzerland. The acquisition date was 4 January REWE- Zentral- Handelsgesellschaft mbh, Cologne, already held 50.0 per cent of shares in EUROGROUP S.A. and the above- named subsidiaries. These shares, too, were transferred to the KGaA, meaning that it has held per cent of shares in the four EUROGROUP companies since 4 January Since its business activities comprise trading in fruit, vegetables and similar products, the acquisition will help to strengthen the trading business. The purchase price for the 50 per cent tranche acquired at the beginning of the year consisted of two compo- nents: a base price of 7.3 million euros and an additional 1.3 million euros. FAIR VALUE OF THE IDENTIFIED ASSETS AND LIABILITIES AS AT THE DATE OF ACQUISITION in million EUROGROUP Intangible assets 1.2 Property, plant and equipment 0.3 Inventories 0.9 Trade receivables 63.0 Other financial assets 2.2 Other assets 4.9 Cash and cash equivalents 22.8 Total assets 95.3 Employee benefits 0.6 Other provisions 6.2 Trade payables 62.8 Other liabilities 6.2 Deferred tax liabilities 0.1 Total liabilities 75.9 Fair value of net assets 19.4 Fair value of previously held shares 9.7 Cost 8.5 Negative consolidation difference The negative difference of 1.2 million euros was recognised in profit or loss under other operating income, as was the income of 8.6 million euros resulting from the revaluation of the previously held shares. The assumed receivables do not include any receivables that are expected to be uncollectible. Immaterial acquisition related costs were incurred in the course of the transaction, and are recognised under other operating expenses. Page 54 of 177

22 The acquisition of the EUROGROUP has led to an increase of 58.8 million euros in revenue and to an increase of 21.9 million euros in combined earnings since the date of initial consolidation. Shares in another company have been purchased during the financial year as part of an acquisition in stages. The costs to acquire the new shares amounted to 0.4 million euros. The acquisition resulted primarily in addi- tions to inventories amounting to 0.8 million euros, cash and cash equivalents of 4.0 million euros, receivables of 1.4 million euros and liabilities of 14.9 million euros. In the previous year, RZF acquired companies from Kuoni Travel Investments Ltd., Zurich, Switzerland. The 10.0 million euro receivable from the seller recognised as a result of this acquisition increased to 11.7 million euros in December This increase was recognised in other operating income. 5. DIVESTITURES Full- Range Stores Italy The Management Board of RZF resolved in 2014 to pull back from the full- range business in Italy and sold the BILLA Italy business unit. Accordingly, this business unit was classified as a discontinued operation. The business segment was unwound in subsequent years, with the exception of a few properties which are still intended for sale. COMPOSITION OF NON- CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE in million As at 2015 Change As at 2016 Property, plant and equipment Other assets and cash- in- hand Total assets Employee benefits Total liabilities COMPOSITION OF RESULTS FROM THE DISCONTINUED OPERATION in million Income Expenses Results from discontinued operations The result of this discontinued operation is attributable exclusively to the shareholders of the parent company. Page 55 of 177

23 Consumer Electronics (ProMarkt) In financial year 2013, the operating activities of the consumer electronics business segment were discontinued and unwound in subsequent years. COMPOSITION OF RESULTS FROM THE DISCONTINUED OPERATION in million Income Expenses Results from discontinued operations The result of this discontinued operation is attributable exclusively to the shareholders of the parent company. BILLA Romania In Romania, the Management Board of RZF had resolved for strategic considerations to focus on the discount business with PENNY going forward and to divest itself of the Romanian supermarkets. Therefore, 86 of the BILLA sales line's stores were sold in this connection. Following the Cartel Office's approval for the sale, the sales line was deconsolidated as at 30 June COMPOSITION OF THE ASSETS AND LIABILITIES SOLD in million 30 June 2016 Intangible assets 0.5 Property, plant and equipment 99.0 Inventories 20.0 Other assets 7.8 Cash and cash equivalents 3.1 Total assets Trade payables 29.9 Other liabilities 7.9 Total liabilities 37.8 COMPOSITION OF RESULTS FROM THE DISCONTINUED OPERATION in million Income Expenses Results from discontinued operations The result of this discontinued operation is attributable exclusively to the shareholders of the parent company. Page 56 of 177

24 The disposal gain on the discontinued operation is provided in the following overview: CALCULATION OF DISPOSAL GAIN in million 2016 Consideration received 99.4 Net assets divested 92.6 Gain on the disposal of the discontinued operation 6.8 In the course of the deconsolidation, 18.8 million euros in exchange rate effects were recognised in profit or loss which had previously been recognised directly in equity. PENNY Bulgaria In the previous year, the Management Board of RZF resolved to pull back from the discount business in Bulga- ria. Of the 49 stores, 6 were transferred to the BILLA Bulgaria business unit in 2015; all of the rest were closed. In addition to stores, individual assets were also transferred to BILLA Bulgaria. The virtually complete liquida- tion and settlement of the remaining discount business in Bulgaria took place in With the decision to exit the market and thus close PENNY Bulgaria, this business unit was classified as a dis- continued operation. The income statement items for the financial year and the previous period have been reclassified in accordance with the regulations of IFRS 5. COMPOSITION OF RESULTS FROM THE DISCONTINUED OPERATION in million Income Expenses Results from discontinued operations The result of this discontinued operation is attributable exclusively to the shareholders of the parent company. BILLA CROATIA Based on strategic considerations, REWE International AG, Wiener Neudorf, Austria, decided to withdraw from the food retail sector in Croatia and to concentrate going forward on the drug store sector with BIPA. Pursuant to the agreement dated 15 December 2016, all shares in the companies BILLA NEKRETNINE d.o.o., BILLA d.o.o. and MINACO d.o.o., each with its registered office in Zagreb, Croatia, were therefore sold to Österreich Waren- handels- AG, Salzburg, Austria, as part of a share deal. 62 stores of the BILLA sales line and the BILLA logistics centre were acquired by the buyer. The final purchase price currently cannot be definitively determined, as the transfer of ownership has not yet been completed. BILLA Croatia was classified as a discontinued operation. The assets and liabilities held for sale have been presented in combined form in the balance sheet and separately from the other assets and liabilities. Page 57 of 177