Dear Shareholders,

The HORNBACH Group can look back on an extraordinarily successful 2006/2007 financial year. We achieved further substantial improvements in the key figures for the Group as a whole and for its three subgroups – HORNBACH-Baumarkt-AG, HORNBACH Immobilien AG and HORNBACH Baustoff Union. I would like to highlight the following points in particular:

	Total sales rose by 7.5 percent at HORNBACH HOLDING AG to reach € 2.544 billion.
	Like-for-like sales improved by 4.0 percent at the DIY megastores with garden centers.
	Operating earnings (EBIT) grew by 29.6 percent to € 119.1 million.
	Consolidated net income jumped by 136.8 percent to € 75.9 million.
	The Group’s market share in Germany grew from 7.7 percent in the 2005 calendar year to 8.1 percent in 2006.
	The HORNBACH Baustoff Union subgroup improved its sales by 14.0 percent to € 153.5 million.
	The number of permanent employees at the HORNBACH Group rose by 1.2 percent to 12,156 individuals.

Focus on renovation and energy saving

The past year represented a further milestone in our long-term corporate strategy of relying on continuity and trust rather than on short-term campaigns and experiments. Our concept consistently focuses on customers aiming to tackle larger-scale projects in their houses, flats or gardens either themselves or with help from professionals. The project customer is the be all and end all of our activities! We subject this concept to ongoing development, focusing on areas which provide our company with opportunities for growth in the long term. In addition to the construction of new buildings, these areas especially involve the renovation and modernization of buildings and to an increasing extent energy-saving and environmental protection projects as well. Some examples I would mention in this regard are façade insulation, the replacement of outdated central heating boilers or the use of rainwater for residential buildings and gardens. The energy pass, which from 2008 will be obligatory for buildings built before 1978, can be expected to stimulate further demand on the part of our customers.

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, larger-scale conversion and extension projects, such as roof extensions and bathroom renovations, as well as for heating and air conditioning equipment. Macroeconomic developments have provided a welcome tailwind – the German economy is now performing more positively than it has done in a long time. The German population has begun to trust the economic upturn. There has been a tangible reduction in unemployment. Having grown by 2.7 % in the past year, the German economy is expected by leading economic institutes to achieve 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 the spring of 2007 meant that there was no interruption to demand in the construction sector.

Figures underline strength of HORNBACH’s concept

However, none of these factors represents the main reason for our pleasing performance in the 2006/2007 financial year. It is apparent from our financial figures that it is our concept which is responsible for the business success of the HORNBACH Group. In the past financial year, we managed to significantly increase 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. In the first quarter of the 2007 calendar year, we then generated like-for-like sales growth (excluding sales tax) of 10.1 % in Germany, compared with growth of 6.4 % in the sector as a whole and below-average growth at major competitors.

We achieved even more impressive levels of like-for-like growth at our international stores in the various quarters than in Germany. This provides further proof of the inherent strength of HORNBACH’s concept, given that these other countries were not affected by the rise in sales tax.

Consumers honor honest pricing policies

Another factor played a key role in the superb results for the past financial year. 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. Tests undertaken by consumer protection organizations have revealed that numerous retailers attempted to introduce clandestine price increases from the middle of 2006 already. At the beginning of the new year, consumers were then led to believe that prices had remained stable based on the motto “we will let you off the sales tax increase”. I am convinced, however, that most customers will have seen through this maneuver. One thing I can say with absolute certainty is that HORNBACH has benefited far more substantially from its transparent, honest pricing policies than have some competitors from their apparent “tax rebates” at the beginning of the year. We did very good business both in the months preceding and in the months following the tax increase. This makes it clear that the trust placed in pricing policies is one of customers’ key criteria when selecting their DIY megastore and garden center. We see this as providing confirmation of our longstanding price strategy, which is based on absolute transparency, continuity, and reliability.

Top position once again in the Kundenmonitor Deutschland consumer survey

	The Association of German Retailers (HDE) awarded the German Retail Prize “Management Achievement of the Year 2006” to HORNBACH.
	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 will build on the pleasing results reported for the past year. 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.

We plan to achieve medium-range single-digit percentage sales growth in the current financial year and high single-digit percentage sales growth in the coming financial year. We have also set ourselves ambitious targets for the following years. We aim to maintain our organic growth and to open an average of seven new stores per year. In this way, the HORNBACH Group intends to double its sales to more than five billion euros by 2016.

The accomplishment of our targets and visions is crucially dependent on the competence, creativity, commitment, team spirit, and customer focus shown by the 12,000 employees at our group of companies. It is these attributes which helped us to make further progress in the past year. I would therefore like to extend my heartfelt thanks to all of our employees. They are the guarantee for our future success. Above all, I would like to thank our shareholders for placing their trust in our business model. We aim to achieve further improvements in all aspects of our activities – long-term, sustainable, value-driven improvements. In the past year, we made major progress along this way.

Albrecht Hornbach
Chairman of the Board of Management