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DES - Online Annual Report 2007



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Germany remains the most important market for Deutsche EuroShop AG. The uninterrupted upward trend of the euro, a higher oil price and the continued turbulence on the international financial markets could lead to a weakening of global economic growth. Despite these factors, the Federal Government of Germany expects a stable domestic economy in 2008 and an increase in the domestic growth rate of 1.7%. Positive development in the labour market, rising wages and salaries could brighten the situation and stimulate consumption. For retail, the HDE expects a nominal increase in revenue of 2.0%, or 0.5% in real terms. The price trend represents the greatest risk for the retail economy.

Difficult market environment

Investors’ interest is moving in the direction of commercial properties, in particular retail property. Shopping centers are especially in demand and the portfolio transactions of larger investors have been at a high level in 2007 despite the financial crisis. Investors are increasingly interested in pure office and retail property, since as an investment it has several advantages over residential property: a lower number of tenants, for example, long-term leases or a lower default risk on the part of the tenant. We are assuming that the demand for high-quality retail property will not significantly weaken over the current year and the purchase prices will remain high. Coupled with the increased costs for the capital procurement, it is therefore difficult for us to foresee more acquisitions. However, our most important objective remains the growth of our Company.

Complementary investment in shopping center project developments

We are currently examining additional investment opportunities, for example in the area of shopping center project developments, although these are associated with a level of higher risk than was previously the case. It is therefore our aim to limit the volume of the cash to be invested in the area of project development, in order that the Company’s capacity to pay dividends is not restricted. In the event that these projects are not realised, this will be reported.

Three shopping centers to open in 2008

The construction of the Stadt-Galerie in Hameln was successfully concluded on schedule at the beginning of March 2008. It was opened on 12 March 2008 with the active participation of the local population. Approximately 100 retail outlets, restaurants and service providers across over 25,000 m² of rental floor space invite visitors to shop and spend time.

The Stadt-Galerie in Passau is expected to open its doors mid-September 2008. Over 85% of the rental income was already contractually secured with long-term leases by the end of February. We are expecting that the most recent rental agreements will be concluded in the coming weeks, meaning there will be full letting at the time of opening.

With the successive opening of the shopping centers still under construction, revenue and earnings should continue to improve..

Agreed transactions are the foundation for revenue and earnings planning

The Deutsche EuroShop Group’s revenue and earnings planning for 2008 and 2009 does not include the purchase or sale of any properties. The results of the annual appraisal of our shopping centers and exchange rate factors are similarly not included in our planning, since they are not foreseeable. Forecasts about the future revenue and earnings situation of our Group are thus based on:

  1. the development of revenue and earnings of the existing shopping centers,
  2. the construction activities described above for the shopping centers in Hameln and Passau as well as the resulting revenue and earnings performance following their opening.

Revenue in 2008 climbs 18%; increase of 8% expected in 2009

For the 2008 financial year, we are anticipating revenue of between €110 million and €113 million. Not only the openings in Hameln and Passau had an effect, the Galeria Baltycka in Gdansk also delivers revenue contributions for the first time for a full financial year.

In 2009, the shopping centers in Hameln and Passau will also contribute for the first time to revenue over 12 months. We are therefore expecting that revenue will increase during the 2009 financial year to between €119 million and €121 million. Deutsche EuroShop will continue to grow organically: Until 2012, we are expecting annual increases for revenues in single-digits and a double-digit rise in EBIT.

Significant earnings growth over the next two financial years

Earnings before interest and taxes (EBIT) were €77.2 million in 2007. According to our forecast, EBIT will amount to between €90 million and €92 million in the current financial year. In 2009, once all properties still under construction have opened, this is expected to increase to between €100 million and €102 million.

Earnings before tax (EBT) excluding measurement gains and losses amounted to €37.7 million during the year under review. We expect the corresponding figure to be between €43 million and €45 million for financial year 2008 and between €49 million and €51 million for financial year 2009.

Dividend policy

It is our intention to pursue a long-term dividend policy in future focussing on continuity. We seek an increase in the dividends only where a distribution at this new minimum level is feasible in subsequent years. On the basis of our forecasts, we believe at the present moment that an increase of the dividend from 2008 is possible.

Forward-looking statements

This Management Report contains forward-looking statements based on estimates of future developments by the Executive Board. The statements and forecasts represent estimates based on all of the information available at the current time. If the assumptions on which these statements and forecasts are based do not materialise, the actual results may differ from those currently being forecast.

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