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DES - Online Annual Report 2008

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Financial position and net assets

Principles and objectives of financial management

For the purposes of financing its investments, Deutsche EuroShop uses the stock exchange for procuring equity and loans, as well as the credit markets for procuring loans. Within the Group, both individual real estate companies and Deutsche EuroShop borrow from banks. Deutsche EuroShop’s credit standing has shown to be advantageous when negotiating loan conditions. The Group can also arrange its financing independently and flexibly.

Loans are taken out in euro for all Group companies. In general, the use of equity and loans for investments should be equally weighted and the equity ratio within the Group (including minority interests) should not fall below 45%.

Financing of our real estate projects is done on a long-term basis. For this purpose, derivative financial instruments are also used which serve to hedge against increasing capital market interest rates. Available credit lines enable Deutsche EuroShop to react quickly to investment opportunities. Unless used for investment, unnecessary cash is invested for financing ongoing costs or for paying dividends in the short term as term deposits or in money market funds.

Financing analysis

As of 31 December 2008, Deutsche EuroShop reported the following key financial data:

€ million 2008 2007 Change
Total assets 2,006.9 1,976.3 +30.6
Equity (incl. minority interests) 977.8 974.0 +3.8
Equity ratio (%) 48.7 49.3 -0.6
Bank loans and overdrafts 899.8 895.9 +3.9
Loan to value ratio (%) 46.0 47.0 -1.0

At €977.8 million, the economic capital of the Group, which comprises the equity of the Group shareholders (€860.5 million) and the equity of the minority shareholders (€117.3 million), is €3.8 million higher than in the previous year. The equity ratio decreased slightly by 0.6 percentage points to 48.7%.

Current and non-current bank loans and overdrafts rose from €895.9 million to €899.8 million in the reporting year, corresponding to an increase of €3.9 million. Long-term loans totalling €32.2 million were raised in the period under review. Of this amount, €28.4 million served to finance the Stadt-Galerie Passau and the purchase of property for expanding Altmarkt-Galerie Dresden. The remaining €3.8 million was used to replace an expiring loan in the Allee-Center Hamm. Meanwhile, loans amounting to €28.3 million were repaid.

The bank loans and overdrafts in place at the end of the year exclusively serve to finance non-current assets. Thus around 46% of non-current assets were financed by loans.

As in previous years, in the 2008 financial year Deutsche EuroShop had €100 million available in credit facilities, around €11 million of which was taken up as of the end of the year (2007: €35 million). This is in line with the average utilisation of credit facilities in the financial year.

Overall, the debt finance terms as of 31 December 2008 remained fixed at 5.33% p.a. (previous year: 5.36% p.a.) for an average period of 7.0 years (previous year: 7.7 years). Deutsche EuroShop maintains credit facilities with 20 banks, which - with the exception of one Austrian bank - are all German banks.

Interest lockin Duration Principle
amounts
(€ thousand)
Share of
total loan
Average
interest
rate
Up to 1 year 1.0 59,485 6.6% 5.93%
1 to 5 years 4.7 348,155 38.9% 5.28%
5 to 10 years 7.2 367,405 41.1% 5.38%
Over 10 years 17.3 119,900 13.4% 5.05%
Total 7.0 894,945 100% 5.33%

In 2009, the interest lock-in for a loan of around €50 million will expire and scheduled repayments amounting to €9.5 million will be made from cash flow during the course of the financial year. From 2010 to 2013, loans will be repaid at an average rate of €12.8 million per year. Interest lock-ins for loans in the amount of €26.9 million will expire in 2012, while those for loans amounting to €259.1 million expire in 2013. Our credit line is due to be extended in 2010.

Bank loans and overdrafts totalling €899.8 million were recognised in the balance sheet as of the reporting date. The difference compared with the amounts given here of €894.9 million relates to deferred interest and repayment obligations that were settled at the beginning of 2009.

Investment analysis

The Stadt-Galerie Hameln and Stadt-Galerie Passau were completed during the period under review. Following investment of €144.3 million in these two properties in the preceding years, a further investment of €66.0 million was made in the reporting year. Around €150 million is budgeted for investments for expanding the Altmarkt-Galerie Dresden. The share attributable to the Group amounts to around €75 million, of which approximately €21 million was invested in the purchase of property and planning costs in the period under review. We assume that the construction measures can commence in summer 2009 and that completion will follow in spring 2011.

Liquidity analysis

The Group’s operating cash flow of €55.1 million (2007: €40.6 million) is the amount which has been generated for the shareholders following deduction of all costs from the leasing of the shopping center floor space. It serves to finance the dividends of Deutsche EuroShop and payments to minority shareholders. The rise of €14.5 million compared with the previous year chiefly results from the opening of the shopping centers in Gdansk, Hameln and Passau.

In addition to operating cash flow, cash flow from operating activities contains changes in receivables and other assets and other liabilities and provisions. At €79.8 million, cash flow from operating activities was up €2.9 million on the previous year (€76.9 million).

Investments in the reporting year amounted to €91.2 million and were thus considerably lower than in the previous year, in which €144.3 million was invested.

The outflow of funds from financing activities totalled €39.1 million. An increase of €3.9 million in bank loans and overdrafts was offset by payments to Group shareholders and minority shareholders of our property companies amounting to around €43.0 million.

Thus cash and cash equivalents decreased by €67.3 million in the period under review and amounted to €41.7 million on the balance sheet date.

Balance sheet analysis

The Group’s total assets increased by around €30.5 million in the 2008 financial year.

Balance sheet structure (Balkengrafik)

Current assets

As of year-end, current assets totalled €52.9 million, which corresponds to a decrease of €84.2 million compared with the previous year. This is largely attributable to the decline in other assets and lower cash and cash equivalents.

As at the balance sheet date, cash and cash equivalents amounted to €41.7 million, compared with €109.0 million in the previous year. The cash has been invested as short-term deposits and time deposits.

Non-current assets

In the period under review, non-current assets climbed from €1,839.2 million to €1,954.0 million, which represents an increase of €114.8 million.

Overall, property, plant and equipment declined by €123.1 million to €21.2 million following the opening of Stadt-Galerie Hameln and Stadt-Galerie Passau. Following completion, these shopping centers were reclassified to Investment properties and recognised at their market value for the first time as of 31 December 2008. At the end of the year, only the investments incurred to date for the expansion of Altmarkt-Galerie Dresden remained under the Property, plant and equipment item.

Investment properties grew by €239.6 million compared with the previous year. Costs for Stadt-Galerie Hameln and Stadt-Galerie Passau totalled €210.3 million. The Investment properties item increased by a further €29.3 million due to measurement effects recognised in income and recognised directly in equity.

Other non-current assets declined by €1.7 million.

Current liabilities

Current liabilities fell €35.5 million from €88.2 million to €52.7 million due in particular to the decrease in current bank loans and overdrafts (€-26.0 million).

Non-current liabilities

Non-current liabilities rose by €66.3 million from €1,027.4 million to €1,093.7 million. This is chiefly attributable to higher non-current financial liabilities (€+29.8 million) and recognition of further deferred tax provisions (€+18.0 million).

Equity

At €860.5 million, Group equity in the period under review remained at the level of the previous year (€860.8 million). Significant changes resulted from measurement of the interest swap and currency translation adjustments which reduced equity by €31.9 million. The measurement of interests attributable to Group shareholders in accordance with IAS 39 reduced equity by €0.9 million. This was largely offset by the difference of €68.9 million in consolidated profit and the dividend of €36.1 million paid in June 2008, which increased equity.

Net Asset Value

Net asset value as at 31 December 2008 was €942.8 million (€27.43 per share) compared with €925.1 million (€26.91 per share) in the previous year.

€ thousand 2008 2007
Equity 860,450 860,798
plus deferred taxes 82,313 64,303
Net asset value of Deutsche EuroShop = net asset value 942,763 925,101
Number of shares 34,374,998 34,374,998
Net asset value per share (€) 27.43 26.91

 

Net asset value (Balkengrafik)

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