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Deutsche EuroShop: Amendment to the FFO guidance

Deutsche EuroShop AG is an asset management holding company that has until now availed itself of “extended trade tax deduction” (section 9 para. 1 sentence 2 Gewerbesteuergesetz (GewStG – Trade Tax Act)). This has been the case for many years and has always been recognised by the tax authorities.

As a result of a ruling by the German Federal Fiscal Court (BFH) published recently by the German Federal Ministry of Finance on page 367 of Part II of the Federal Tax Gazette 2011, there is a risk that Deutsche EuroShop AG may no longer be able to apply the above-mentioned tax treatment in future. In a case involving a limited company that was involved in a general partnership, the BFH ruled that the company was not entitled to apply the extended trade tax deduction in connection with its participation in an asset-managing real estate partnership. Were the tax authorities to extend this ruling to Deutsche EuroShop AG, the Company would be subjected to an unprecedented trade tax burden.

Based on current knowledge, Deutsche EuroShop AG will have to set aside a provision for trade tax risks in the 2011 financial year of around EUR 6.1 million for the 2011 financial year and the preceding years. This tax expense will impact on the Company’s FFO (funds from operations) to the tune of around EUR 0.12 per share in the 2011 financial year. The Company now expects to generate FFO of EUR 1.40-1.44 per share in 2011 in contrast to the primary forecast of EUR 1.48-1.52, following on from last year’s figure of EUR 1.40.

The Company’s satisfactory business performance in 2011 means that the remaining objectives for the key performance figures revenue, EBIT and EBT excluding measurement gains/losses remain unchanged.

The Company is maintaining its FFO guidance of EUR 1.60-1.64 per share for 2012 for the time being, as the Company will be investigating alternative domestic and foreign locations in the coming weeks.

The 2011 measurement gains would also be negatively affected by the trade tax obligation and deferred tax provisions would need to be increased significantly. Were Deutsche EuroShop AG’s company management to remain in Hamburg, this would result in an additional, one-off provision of EUR 85-90 million (worst-case scenario) charged to the measurement gains/losses, a figure that could be reduced to up to EUR 50 million by moving the Group headquarters to another location in Germany.

The text of the ruling (German only) can be retrieved on Deutsche EuroShop’s website:

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