HORNBACH, one of Europe’s largest DIY chains and the fourth-largest DIY player in Germany, can look back on a successful year. Here are the most important figures, which you will also find explained in greater detail within this report:

	Consolidated net sales rose by 7.1 % at HORNBACH-Baumarkt-AG to reach € 2.392 billion. Like-for-like sales improved by 4.0 % across the Group, with growth of 2.3 % in Germany and 7.2 % at the international stores.
	Our DIY megastores with garden centers generated average net sales of around € 20 million. With average sales of € 1,833 per square meter, HORNBACH generated the highest net surface productivity of any of the leading German DIY players.
	The company’s market share in Germany grew from 7.7 % in the 2005 calendar year to 8.1 % in 2006.
	The operating earnings (EBIT) of the HORNBACH-Baumarkt-AG Group increased by 36.9 % to € 96.1 million. At € 3.95, earnings per share were considerably more than double the previous year’s figure.
	The number of individuals in permanent employment across the Group rose by 158 to 11,577. We increased our training quota in Germany, which was already above average in the past, from 8.0 % to 8.8 %.

Project store concept reveals its strengths
With its long-term perspective, our concept provided particularly impressive evidence of its potential in the past financial year. Our concept is tailored to the needs of people who intend to roll up their sleeves and tackle largescale projects in their houses, flats, and gardens. These are the customers we focus on – project customers. They come to us because our DIY megastores with garden centers, with the competence of their product ranges and service offerings, are well-nigh predestined for DIY and renovation projects. We were early to focus on those areas which harbor promising growth potential for our company in the longer term. Of greatest significance for the DIY retail business in this respect is the modernization and renovation of existing buildings. If it is recalled that more than 80 % of houses in Germany were built more than 20 years ago and that three quarters of rented flats are more than 30 years old, then it is possible to imagine the dimensions of the impact which the modernization and renovation market will have on demand at DIY stores and garden centers in the onger term. Given the rise in energy costs and climate protection, there will also be an ongoing increase in consumer demand for energy-saving projects (catchword: Building Energy Pass). I am convinced that we are already superbly positioned in this high-growth market and that we have succeeded in differentiating ourselves from the competition. In the past, we successfully launched complex projects, such as façade insulation and the replacement of central heating boilers, as “project shows” at our stores. The competence of specialist advice and selection of the right product ranges for customers played a key role in this respect. These activities are being extended further.

Since summer 2006, our DIY megastores with garden centers have witnessed an outright “stampede”, with unprecedented levels of demand for products relating to shell construction and larger-scale conversion and extension projects, such as roof extensions or bathroom renovations, as well as for heating and air conditioning equipment. This was not only the case at our locations in Germany – our stores in seven other European countries also managed to further increase their already high level of sales and earnings in the past year.

Macroeconomic developments and the highly favorable weather conditions of late have provided a welcome tailwind in this respect. The German economy is now performing more positively than at any time in the recent past, with a booming domestic economy as well as export sector. People in Germany have begun to have confidence in the positive development of the economy. There has been a tangible reduction in unemployment. Having grown by 2.7 % in the past year, the German economy is forecast to show similarly high levels of growth in 2007 and 2008 – in spite of the increase in sales tax at the beginning of the year. Not only that, the mild winter followed by summer temperatures in spring 2007 meant that there was no interruption in demand in the onstruction sector. However, none of these factors represent the main reason for our performance in the 2006/2007 financial year.

Record level of like-for-like sales
It is apparent from the figures presented in this annual report that it is our concept which is responsible for the economic success of the HORNBACH Group. In the past financial year, we significantly increased the sales of our stores from quarter to quarter. In particular, we achieved record levels of like-for-like sales growth in the third and fourth quarters of 2006/2007. Without doubt, the rise in sales tax led to a certain volume of purchases being brought forward. After all, project-related purchases tend to involve a higher level of customer receipts than that generated at other players in the sector. However, the inherent strength of HORNBACH’s concept is underlined by the fact that we outperformed our sector and major competitors by a considerable margin, coupled with the fact that our like-to-like sales growth in other countries, especially in the second half of the year, was even more impressive than that reported in Germany.

In my opinion, our superb results for the past financial year were also attributable to one other factor. There is hardly any other retail company which published its approach to the increase in sales tax as clearly and unambiguously as did HORNBACH. We communicated in interviews and via our website in July 2006 already that HORNBACH would keep its prices stable up to the tax increase on January 1, 2007. On the day itself, we then simply factored the higher tax rate into our price calculations. Apart from HORNBACH and IKEA, we are not aware of any other retailer who adopted this strategy.

This approach merely represents the consistent extension of our longstanding pricing strategy, which is based on absolute transparency, continuity and reliability. HORNBACH benefited to an extraordinary extent from its honest pricing policy in the context of the sales tax increase. We did very good business both in the months preceding and in the months following the tax increase. This success makes it clear that the trust placed in pricing policies is one of customers’ key criteria when selecting their DIY megastore and garden center.

Our large-scale project-driven store concept and our permanent low price strategy – these were the two chief reasons underlying our extraordinarily successful performance in the past 2006/2007 financial year and enabling us to extend our head start over the competition.

Numerous industry awards
The unique position of the HORNBACH Group in the DIY sector is documented not only by its pleasing business figures, but also by numerous awards. Here are a few examples:

	The Association of German Retailers (HDE) awarded the German Retail Prize “Management Achievement of the Year 2006” to HORNBACH in October.
	As in the previous year already, our company came out on top in the renowned “Kundenmonitor Deutschland 2006” consumer survey. HORNBACH was awarded the best marks for overall customer satisfaction, as well as in the individual categories of selection and variety of product range, product quality, service quality, and value for money.
	HORNBACH’s advertising campaigns once again received a multitude of international and national awards, including the German advertising Oscar, the “Golden Nail” of the Art Directors Club (ADC). Our TV commercials and print adverts are intended to arouse consumers’ passion for home improvement and to motivate customers to tackle larger-scale projects in their houses, flats, and gardens.

In the current financial year we aim to build on the pleasing results in the period under report. We have set ourselves ambitious targets and are making painstaking efforts to achieve ongoing improvements in our customer focus. Not only that, we are also making substantial investments in the future. Although delays in the granting of building permits meant that it was not possible to open any new stores in 2006/2007, the current and coming financial year will witness a total of up to 13 new store openings, of which up to eleven will be located outside Germany. In June, we will be celebrating our entry into the Rumanian market with the opening of our first store in Bucharest. This will mark the eighth country in which we operate outside Germany. Moreover, following extensive optimizations, we will be rolling out the SAP merchandise system to the stores. Together with the higher level of pre-opening expenses compared with the previous year, this will squeeze our earnings performance in 2007/2008. However, if we look at the operating earnings power of the existing stores and leave the one-off items to one side, then we expect earnings to develop positively in the current financial year as well.

I would like to thank our shareholders for placing their trust in our business model. With this annual report, we aim to demonstrate that our success does not simply arise of its own accord but rather has to be shaped in detail by the efforts of around 12,000 employees across the Group. I would therefore also like to express my gratitude to the entire workforce – for channeling their energies every day into advancing the HORNBACH model with a great deal of commitment, customer focus, ideas, hard work and no little idealism.

Steffen Hornbach
Chairman of the Board of Management