Report on Expected Developments

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2. Expected Revenue and Ebita Development

For 2018, the REWE Group projects slightly increasing revenue marked by stronger growth due to expansion and growth on existing space. The projected earnings for 2018 will be influenced primarily by integration and refurbishment costs for prior-year acquisitions and by increasing investment in the online and bricks-and-mortar businesses. The increasing competitive and price pressure will weigh down the future earnings trend.

Retail Germany

In the REWE division, the expansion of delivery service and the strengthening of price-performance perception in the over-the-counter business will be at the forefront in 2018. Capital spending on the existing store network, the integration of the former Kaiser's Tengelmann stores and the Supermärkte Nord companies acquired, as well as the fully consolidated joint venture with REWE Dortmund, will lead to an increase in revenue but will weigh down earnings in the year of integration and restructuring. 

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 as well as an increasing number of stores. The heightened competitive situation and resultant high price pressure will reduce revenue. Increased price pressure, capital spending on the store network and projects to optimise the product range and customer loyalty will depress the projected earnings for 2018 compared with 2017 but will secure competitiveness in the long term.

Retail International

In the Austria and CEE Full-Range Stores business segment, revenue is forecast to increase slightly in 2018 as compared to 2017. The modernisation measures conducted and still planned will continue to result in revenue and earnings growth. The repositioning of BIPA Austria is on schedule but will have a negative impact on revenue and earnings in 2018. Nevertheless, it lays the foundation for future competitiveness in a solid environment. In Eastern Europe, too, increased expansion is expected to result in rising revenue and stable earnings. The situations in Russia and Ukraine remain challenging going forward.

At Penny International, revenue is forecast to increase as compared to 2017. This is due primarily to the positive performance of existing stores and the continued expansion. The positive revenue and gross profit trend has a positive influence on the earnings situation, although increasing costs will largely erode this. Due to various project activities, the infrastructure expansion and the planned cost increases, earnings are projected to be below the figure recorded in 2017.

Travel and Tourism

Following the successful integration of the Kuoni activities in 2017, the Travel and Tourism business segment plans a significant revenue increase and earnings growth for 2018. The continued development of tourist activities remains the focus of activities.

National Specialist Stores

The National Specialist Stores business segment expects a slight improvement in the revenue situation and plans on a slight decrease in earnings. The continued development of the online activities in connection with the physical business will be a focus of activities going forward.

Management's Overall Assertion on Revenue, EBITA and Debt Development

We expect further slight increases in revenue and a slightly rising price level for the business units for the 2018 financial year. Additional expansions and renovation activities will support long-term revenue development.

The development of the Group's EBITA will be influenced by the integration of the Supermärkte Nord companies and the acquired stores from the former Kaiser's Tengelmann Group. 

Despite the restrained price trend and the increased activities in the national and international online business, we expect a slightly higher EBITA in 2018 than in 2017.

As a result of high capital expenditures, the Group's net debt will increase sharply by the end of 2018. Sufficient provisions have been made for this in connection with the current credit facilities.

Cologne, 23 March 2018