HORNBACH HOLDING AG acts as the holding company for all of the retail activities of the Group. The DIY
megastores with garden centers operated by HORNBACH-Baumarkt-AG since 1968 constitute the core of
the Group’s activities. In addition to these, the HORNBACH Group is also active on a regional level in the
construction materials and builders’ merchant business. All of the sales formats focus on the overall
retail market for construction, gardening, and DIY products. Alongside the retail business, a team of
specialists at the HORNBACH Immobilien AG subgroup is responsible for the real estate and location
development for all of the Group’s operating subsidiaries.

The DIY megastores with garden centers at the HORNBACH-Baumarkt-AG subgroup can look back on a successful 2006/2007 financial year. Once the erratic weather conditions in the spring of 2006 were over and the European economy began to gather increasing momentum, the sales performance showed a continuous upward trend. Sales at the subgroup showed year-on-year growth of 7.1 % to reach almost € 2.4 billion. The like-for-like sales growth of 4.0 % reported by HORNBACH compared with the previous year represents the second-best figure in the past twelve years. What’s more, earnings grew more rapidly than sales. As is apparent from the EBIT margin, which improved from 3.1 % to 4.0 %, the company considerably increased its earnings power compared with the previous year. Particularly pleasing in this respect was the fact that the stores in Germany made a notably larger contribution to Progressive seduction forum the success of the Group than in the previous year.

HORNBACH’s success in the German DIY market is due in particular to its inherent strengths. The company’s longstanding competence in operating DIY megastores with garden centers, coupled with its conceptual focus on projects and a policy of permanently low prices – these are the long-term value drivers underlying the company’s business model, which demonstrated its effectiveness even more clearly in the past financial year than in previous years.

The increase in effectiveness in the 2006/2007 financial year was basically attributable to the company’s existing store network, given that all of the scheduled new store openings were postponed to the current 2007/2008 financial year. A comparison of HORNBACH’s monthly sales figures with the likefor- like figures reported by the BHB sector association for Germany reveals that:

	HORNBACH outperformed its sector in every month
	The closer the end of the calendar year approached, the more marked the company’s head start over its sector became
	In the fourth quarter (October to December 2006) alone, HORNBACH surpassed the average sector performance in each month by an average of almost six percentage points
	The German stores generated like-for-like sales growth of 2.3 % compared with the previous year (2005/2006: minus 1.1 %).

The impact of purchases being brought forward in the run-up to the sales tax increase in Germany is likely to have played a role in this sales trend. HORNBACH’s project format, which is aligned towards larger-scale construction and renovation projects, was clearly better suited than other formats to benefit from this factor. After all, bathroom renovations, roof extensions, and similar projects represent investment decisions. These generally react more sensitively to tax increases than does discount-based purchasing behavior, which rather accords top priority to the price of individual products.

Having said this, the fact that HORNBACH achieved even greater sales growth in other European countries than in Germany proves that it was the quality of its retail format which was primarily responsible for the company’s strong performance in 2006/2007, given that all companies in the sector faced the same underlying conditions. This is also demonstrated by the company’s pleasing business performance in the first months of 2007.

Leaving the analysis of business performance figures to one side and looking at the company from a consumer perspective, the success of HORNBACH’s concept has been confirmed once again by a series of DIY studies. HORNBACH-Baumarkt-AG was the overall winner in the renowned “Kundenmonitor Deutschland” consumer survey for the second consecutive year. There was therefore no other large DIY chain with which German home improvement enthusiasts were as satisfied in 2006 as they were with HORNBACH. The company outstripped its competitors by a considerable margin once again, especially in the categories of value for money, specialist advice, product quality and variety of product range.

Number 1 for projects

The key to the company’s success is its organic growth in Germany and abroad based on a retail format which optimally meets the needs of private and commercial customers at first-class locations. HORNBACH has the most homogeneous large-scale structure of all DIY store operators in Germany and also generates the highest level of sales per square meter of all leading German DIY players. The resultant structural benefits are reinvested into a product range compiled with great competence, an attractive shopping environment for private and professional customers, a high quality of advice, ongoing enhancements in operating processes, and permanently low prices. The HORNBACH format is focused on passionate DIY enthusiasts who wish to tackle large-scale projects in their houses, flats, and gardens.

HORNBACH’s product range is restricted to genuine, unadulterated DIY and gardening products. Its customers consider HORNBACH to be the DIY and garden store with the highest competence in terms of its product range. An average of around 50,000 articles and a multitude of services are on offer to its customers at the 120 DIY megastores with garden centers across Europe (status: as of end of February 2007). These also help to introduce new target groups (“Do-it-for-me” or “Buy-it-yourself”) to larger-scale projects. Modernization and upkeep are playing an ever more significant role in this respect. The company’s undiluted concept enables it to differentiate itself successfully from the competition and to provide its customers with genuine added value.

Further information as to the business performance of HORNBACH-Baumarkt-AG during the 2006/2007 reporting period can be found in the extensive annual report published by the subsidiary, which is a publicly listed company in its own right.

Hornbach Baustoff Union GmbH (HBU) is a regional construction materials and builders’ merchant company. It currently operates 18 outlets in south-western Germany. Its wholesale product range is tailored to the needs of professional customers. Alongside the HORNBACH DIY megastores with garden centers in the retail segment, HBU therefore represents the second distribution channel within the HORNBACH HOLDING AG Group.

Like-for-like sales growth of 18 %

HORNBACH Baustoff Union GmbH once again outperformed its sector in Germany by a clear margin in the past financial year, reporting a pleasing level of double-digit sales growth and breaking even on an operating level (EBIT) for the first time. The construction industry witnessed a turnaround. At 4.2 %, the growth in construction investments was higher than at any time since 1994. The builders’ merchant business benefited from this economic upturn, which was also supported by mild weather conditions and the impact of purchases being brought forward in the run-up to the increase in sales tax. In view of these developments, the Federal Association of German Builders’ Merchants (BDB) also reported sales growth of 11.2 % for the 2006 calendar year. HBU outstripped this figure by a considerable margin – the subgroup’s sales increased by 17.9 % on a like-for-like basis and by 14.0 % overall to reach € 153.5 million (2005/2006: € 134.6 million).

The boom in demand for construction materials seen especially in the second half of the financial year related in particular to the roofing and civil engineering divisions. As a result, the balance of the product range shifted compared with the previous year, moving towards product groups with lower margins (third-party deals). The gross margin thus fell short of the previous year’s figure. Thanks to the substantial sales growth, however, the gross profit showed a marked increase in absolute terms. Moreover, by implementing rationalization measures, HBU achieved year-on-year reductions in its selling, store, general and administration expenses. All in all, the subgroup significantly improved its profitability. Operating earnings (EBIT) rose by almost six million euros, reaching breakeven as planned.

In the 2006/2007 financial year, HBU consistently maintained the restructuring program already initiated. The subgroup has fine-tuned its sales concept, which involves focusing its core competencies of building construction, civil engineering, roofing, and plaster even more strongly than in the past on the needs of its commercial customers in the construction industry. Moreover, the subgroup has renewed large sections of its vehicle pool and optimized its logistics activities. These measures have been accompanied by work undertaken on the public appearance of the outlets aimed at increasing recognition and awareness levels for the “UNION Bauzentrum” outlets in the subgroup’s regional catchment area in south-western Germany.

Growth course to be maintained

HORNBACH Baustoff Union GmbH expects the revival in the construction sector to continue in the current financial year, albeit presumably at a lower level than in 2006. The subgroup aims to acquire additional customers for its range of products and services, which focuses on plaster, dry construction, roofing, and civil engineering. The opening of a modern builders’ merchant outlet in Kaiserslautern in July 2007 will adapt the local sales network to market requirements. There will be a further increase in the significance of renovation and modernization measures undertaken on buildings and flats which are no longer up to date. Moreover, HORNBACH Baustoff Union GmbH expects further growth momentum to be provided by the rising need for energy-saving solutions, which is expected to lead to increased investment, not least as a result of the introduction of compulsory energy passes for buildings from 2008 onwards.

The business activities of the HORNBACH Group can basically be divided into two segments: the retail business and the real estate business. The Group’s retail activities are primarily undertaken by the HORNBACH-Baumarkt-AG and HORNBACH Baustoff Union GmbH subgroups. In addition to these activities, the HORNBACH Group has an extensive real estate portfolio. This chiefly consists of retail properties which are mainly used by the operating units within the Group. The real estate is owned by HORNBACH-Baumarkt-AG, as well as by HORNBACH Immobilien AG and the subsidiaries of these companies. The activities in the real estate sector are a result of the strategic decision that around half of the sales areas on which the company has retail operations should be in the hands of the Group. In the light of this decision, a team of first-class specialists in the field of real estate development has been built up over the years.

All the requirements of real estate development in Germany and abroad are competently covered, from the search for suitable land to the complex process of obtaining building permits to construction planning to awarding and supervising the execution of building contracts. This expertise built up over many years has become a decisive strategic competitive advantage for the HORNBACH Group. HORNBACH HOLDING AG acts as the central service provider for all real estate activities within the HORNBACH Group.

For several years now, part of the strategy for financing the rapid expansion of the network of DIY megastores with garden centers has involved using sale and rent back transactions to free up funds. The liquid funds released in this way have become an important source of financing for further growth. A total of two HORNBACH DIY megastores with garden centers across the Group were sold to various real estate companies in the past 2006/2007 financial year. These relate to the Essen and Potsdam locations.

The rights to use the properties as DIY megastores with garden centers have been secured on the basis of long-term rental agreements. In spite of the sale and lease back transactions undertaken every year, the overriding strategy of retaining ownership of around half of the real estate used for operating purposes, measured in terms of sales areas, remains valid. As of the reporting date on February 28, 2007, around 49 % (2005/2006: 53 %) of the total sales areas used for retail purposes (approx. 1.31 million m²) belonged to one of the group companies. The remaining 51 % (2005/2006: 47 %) of the sales areas are either rented from third parties (48 %) or leased from third parties with a repurchase option. In individual cases (3 %), the land has been leased (hereditary lease).

The 49 % of sales areas owned by the Group are divided between the HORNBACH-Baumarkt-AG (24 %) and the HORNBACH Immobilien AG (25 %) subgroups.

As of the reporting date on February 28, 2007, the HORNBACH Immobilien AG subgroup had let 40 DIY megastores with garden centers in Germany and abroad, with sales areas totaling 380,695 m², to HORNBACH-Baumarkt-AG on a long-term basis. Three of the stores hereby let were no longer used for operating purposes at the reporting date. Following their closure in the past financial year, they are either due to be sold (garden centers in Ludwigshafen and Germersheim) or to be replaced by a newly constructed store (Darmstadt).

Furthermore, HORNBACH Immobilien AG owned one builders’ merchant store, which has been let to HORNBACH Baustoff Union GmbH. A profit and loss transfer and subordination agreement is in place between HORNBACH Immobilien AG and HORNBACH HOLDING AG. A sum of € 19.1 million was thereby transferred for the past 2006/2007 financial year.

The HORNBACH-Baumarkt-AG subgroup operated a total of 120 DIY megastores with garden centers in Germany and abroad at the reporting date. Of these, 30 locations with sales areas totaling 317,530 m² are owned by HORNBACH-Baumarkt-AG or one of its subsidiaries..

The retail sales areas used as DIY megastores with garden centers across the HORNBACH HOLDING AG Group totaled 1,307,572 m² at the reporting date..

The ownership of the sales areas was structured as follows at the reporting date on February 28, 2007:

In Neustadt an der Weinstrasse, HORNBACH Immobilien AG has rented an office building to HORNBACH HOLDING AG and various subsidiaries. A specialist retail center in Bornheim bei Landau with sales areas in excess of 4,700 m² has been rented to renowned retail chains. In addition, HORNBACH Immobilien AG and HORNBACH-Baumarkt-AG both hold a number of purchase options entitling them to acquire further land at first-class locations in Germany and abroad. Moreover, the two companies also both already own pieces of land in Germany and abroad which are earmarked for use as retail locations.

High level of hidden reserves in real estate assets

The real estate owned by HORNBACH Immobilien AG and the HORNBACH-Baumarkt-AG subgroup includes a high level of hidden reserves. The property already completed and rented out by HORNBACH Immobilien AG is reported at a carrying amount of around € 269 million in the balance sheet as of February 28, 2007. The application of a conservative average multiplier of 13 based on the agreed rental income, as well as an age discount of 0.6 % p.a. in terms of the costs of acquisition, produces a calculated yield value of € 486 million at the reporting date. The deduction of the carrying amount of the real estate in question (€ 269 million) results in hidden reserves amounting to € 217 million.

At the reporting date on February 28, 2007, the HORNBACH-Baumarkt-AG subgroup owned real estate in Germany and abroad used for proprietary purposes as DIY megastores with garden centers with a carrying amount of around € 307 million. On the basis of intra-company rental income at usual market rates and a multiplier of 13, as well as an age discount of 0.6 % p.a. in terms of the costs of acquisition, the calculated yield value for the real estate amounts to around € 453 million. The deduction of the carrying amount (€ 307 million) results in calculated hidden reserves amounting to around € 146 million.

Based on this conservative calculation method, the hidden serves relating to the real estate used for operating purposes across the Group can be estimated as amounting to around € 363 million.

An even higher level of hidden reserves would result if the calculation of such reserves were to be based on a higher multiplier similar to those currently observable on the market for retail properties. Using a multiplier of 17, the hidden reserves would amount to around € 366 million at the HORNBACH Immobilien AG subgroup and to € 284 million at the HORNBACH-Baumarkt-AG subgroup. Based on this calculation methodology, the hidden reserves at the overall Group would thus total € 650 million.