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DES GB2013 E

DEUTSCHEEUROSHOPANNUALREPORT2013/GROUPMANAGEMENTREPORT 131 ADVICE ON LIMITATIONS By virtue of the organisational, control and monitoring measures laid down in the Group, the internal control and risk management system enables the full recording, processing and evaluation of Company- related facts as well as their proper presentation in Group financial reporting. Decisions based on personal judgment, flawed controls, criminal acts or other circumstances cannot be entirely ruled out, however, and may limit the effectiveness and reliability of the internal control and risk management system that is in use such that the application of the systems used cannot guarantee absolute certainty in respect of the correct, complete and timely recording of facts in Group financial reporting. The statements made relate solely to those subsidiaries included in the consolidated financial statements of Deutsche EuroShop for which Deutsche EuroShop is in a position, directly or indirectly, to dictate their financial and operating policies. PRESENTATION OF MATERIAL INDIVIDUAL RISKS CYCLICAL AND MACROECONOMIC RISKS The German economy posted moderate growth in 2013. According to data published by the German Federal Statistical Office, GDP rose by 0.4% after price, seasonal and calendar adjustments (2012: 0.7%). Strong experts and robust domestic demand were the main growth drivers. The federal government forecasts GDP growth of 1.8% in Ger- many in 2014. The labour market remained relatively strong. Employment was at a record high of 42.0 million. The annual average unemployment rate for the active population was 6.9% in 2013 (2012: 6.8%). The unem- ployment rate is expected to fall slightly in 2014. In contrast, gross domestic product (GDP) in the eurozone fell by 0.4%. However, economic developments varied considerably from one EU member state to another. Southern European countries are still strug- gling with high debt-to-GDP ratios and a lack of competitiveness. To date, they have been unable to reduce debt levels significantly. Unem- ployment is at a record high of 12% in the eurozone. At around 50%, youth unemployment in countries such as Greece and Spain is par- ticularly worrying. However, the eurozone economy should pick up in 2014 – the World Bank forecasts that economic output will rise by 1.1%. Inflation slowed year-on-year in 2013. Germany and the eurozone posted identical inflation rates: 1.5%. Energy and food prices remained the main price drivers. Economic imbalances within the eurozone will persist. The Stability and Growth Pact adopted by the EU member states in 2012 and asso- ciated debt brake have essentially eliminated government investment, meaning that no significant growth is expected in the foreseeable future in southern EU member states. Deutsche EuroShop AG is not as strongly affected by short-term eco- nomic developments as other sectors are in terms of its business model – long-term, inflation-proofed leasing of retail space – and the associated risks. However, in light of the sovereign debt crisis, we cannot rule out the possibility of a change in economic conditions that would impact Deutsche EuroShop AG’s business. Past experience has demonstrated that by locating our shopping cent- ers in prime locations and by ensuring broad sector diversification within the centers, we can achieve commercial success even under difficult economic conditions. MARKET AND SECTOR RISKS There has been a structural change in retail trade in recent years, caused by shifts in demand patterns and new product formats. The greatest success has been enjoyed by large-scale retail operations that are able to offer customers a wide range of goods. Thanks to its business model, Deutsche EuroShop is in a position to benefit from this development, especially as the experience aspect of shopping has gained in importance and a trend towards shopping as a recreational and lifestyle activity has become apparent. Revenue in the stationary retail sector saw nominal growth of 1.4% and 0.1% in real terms (2012: 1.9% nominal growth; down 0.3% in real terms). The German Retail Federation (HDE) predicts nominal retail sales growth of 1.5% to €439.7 billion in 2014. The Internet and online trading are now established economic factors. Stationary retailers need to address the issues and challenges that this situation has created. The growth and success of e-commerce will result in a gradual structural change within stationary retail as retailers respond with different pricing models, special promotional offers and particularly by building up their own online presence. How- ever, in the medium term, retailers will need to reconsider their net- work of locations. Properties in prime locations could benefit from this development.

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