Report on Expected Developments
2. EXPECTED REVENUE AND EBITA DEVELOPMENT
For 2019, the REWE Group projects slightly increasing revenue marked by stronger growth due to expansion and growth on existing space. The projected earnings for 2019 will be achieved by increasing existing store space, positive developments from integration effects and the enhancement of existing business models. Cost-efficiency projects, particularly those at headquarters, are intended to improve the Group's cost structure and make a positive contribution to EBITA¹. The increasing competitive and price pressure will weigh down the future earnings trend.
In the REWE division, the strengthening of the price-performance perception in the over-the-counter business and the further development of the online business will be at the forefront in 2019. Investments in the existing store network and logistics will secure the Company's long-term future.
Positive developments from the units integrated in the previous year as well as the favourable performance of the store and wholesale business will lead to higher revenue. The increase in revenue as well as more efficient cost structures will contribute significantly to a positive earnings trend.
In the PENNY division, we expect continued positive revenue development. Decisive here is the further investment in the existing store network, the optimisation of the product ranges, efficient process and cost structures as well as an increasing number of stores. The heightened competitive situation and resultant high price pressure will reduce revenue.
The positive revenue trend, the enhanced customer loyalty programmes and efficient cost structures will have a favourable effect on earnings in 2019.
In the Austria and CEE Full-Range Stores business segment, revenue is forecast to increase slightly in 2019 as compared to 2018. The modernisation measures conducted and still planned will continue to result in revenue and earnings growth. BIPA Austria is performing according to plan but will continue to weigh down earnings in 2019. Nevertheless, the planned activities lay the foundation for future competitiveness in a solid environment.
The increased expansion activities will also lead to higher revenue and stable earnings in Eastern Europe. The situations in Russia and Ukraine remain challenging going forward. The integration of UAB Palink, Vilnius, Lithuania, in 2018 and the resulting effect for 2019 as a whole will significantly affect the division's performance.
At Penny International, revenue is forecast to increase as compared to 2018. This is due primarily to the positive performance of existing stores and the continued expansion. The positive revenue trend has a positive influence on the earnings situation, although increasing costs will erode this. Despite various project activities, the infrastructure expansion and the planned cost increases, earnings are projected to exceed the figure recorded in 2018.
Travel and Tourism
We expect the Travel and Tourism business segment to record higher revenue in 2019. This will be attributable to positive market developments as well as catch-up effects in the tour operator business compared to the previous year.
The positive revenue trend and cost efficiency measures will lead to a significant improvement in EBITA as compared to 2018.
The DIY Stores business segment expects a slight improvement in the revenue situation and plans on an increase in earnings. The continued development of the online activities in connection with the brick-and-mortar business will be a focus of activities in 2019.
Management's Overall Assertion on Revenue, EBITA and Debt Development
We expect slight increases in revenue and a slightly rising price level for the business units for the 2019 financial year. Additional expansions and renovation activities will support long-term revenue development but will lead to higher investments in 2019.
We expect that the positive revenue trend, efficient cost structures and the expansion of the business models will lead to a significant year-on-year growth in operating EBITA in 2019.
As a result of high capital expenditures, the Group's net debt will continue to increase by the end of 2019. Sufficient provisions have been made for this in connection with the current credit facilities.
Cologne, 26 March 2019