HORNBACH BAUMARKT AG | Annual Report 2008|2009

THE HORNBACH-BAUMARKT SHARE

Banking crisis draws capital markets into maelstrom

For many investors around the world, 2008 was a disastrous year. With record losses and extreme price breaks, it was a year which will find its place in the financial history books – and there is every indication that a good few inglorious chapters remain to be written in this unparalleled ongoing drama.

The financial crisis, which began on the US real estate market in mid-2007 and reached one of its sorry climaxes with the Lehman insolvency in September 2008, placed a heavy burden on international stock markets. The enormous loss of confidence, coupled with illiquidity on the markets and growing fears of recession, triggered panic among numerous investors. Stoxx50, the select European index, plummeted by more than 44 % in the course of the year. The German lead index, the Dax, did not fare much better, reporting the worst trading week in its history with a loss of 22 % in October 2008 alone. Over the twelve-month period, it lost 40 % in value, thus bringing the five-year bull market abruptly to a close.

Stock markets found themselves confronted with an unprecedented volume of execution sales on the part of financial investors forced to react to the immense outflow of resources from their funds. At times, observers might be forgiven for thinking that stocks had been placed on sell lists literally at random. This sell-off across the board since the fall of last year also affected the share of HORNBACH-Baumarkt-AG, regardless of the Group’s pleasing business performance, high level of equity resources and substantial free liquidity.

A stable start

In the first trading weeks of the financial year, HORNBACHBaumarkt’s share (ISIN DE0006084403) developed in line with the overall market, remaining within a range of between € 35 and € 40. The DIY sector showed signs of a weak sales performance in spring 2008 due to significantly cooler and damper weather conditions compared with the previous year. Over and above this, the high rate of inflation eroded purchasing power among consumers in Germany and other European countries. Against this backdrop, many investors were more reluctant to make new investments. The communication of our results for the 2007/2008 financial year and above all the positive outlook for the financial year helped our share to consolidate its position at a level of around € 40. On June 26, 2008, the HORNBACH Group published its figures for the first quarter (March 1 to May 31, 2008). The share closed this day in Xetra trading at its annual high of € 41.25.

Profit taking subsequently took its toll on the share price, which was scarely able to make itself heard in the following weeks against the crescendo of news reports on the banking crisis. At the end of August, the share then regained ground from its monthly low of around € 33. It was also assisted in this by the share buyback program, within which framework around 10,000 shares were collected on the market for the annual issue of employee shares. However, the recovery was only short-lived. From October 2008 onwards, the share receded ever further.

The shockwave following the insolvency of the US investment bank Lehman Brothers triggered an unprecedented domino effect in the financial sector, one which governments around the world struggled to stem with state assistance. Bank crisis, financial crisis, economic crisis – that was the worrying escalation in the period under report. HORNBACH was unable to escape the downward pull, even in spite of its solid halfyear and nine-month figures. The slight recovery in the Baumarkt share at the end of December was then of hardly more than cosmetic value.

Notwithstanding economic stimulus programs worth billions and the Obama effect, the 2009 calendar year began on the capital markets on a note which was anything but promising, as quarterly and annual results from the banking sector and industry showed no signs of turning for the better. Our share ended the 2008/2009 financial year at its annual low of € 23.39 on the final trading day on February 27, 2009. This corresponds to a minus of 42 % compared with its valuation twelve months earlier. One small consolidation is that HORNBACH finds itself in the best company. The 30 largest German stock corporations listed in the Dax fell by 42 % over the same period, while the second-tier stocks in the MDax and SDax lost 49 % in value.

The uncertainty on the stock markets impacted negatively on the liquidity of our share. In their search for safe havens, many investors withdrew from lower-capitalized second-tier stocks or turned their backs on the stock market entirely. Average Xetra trading volumes in the HORNBACH-Baumarkt share dropped from around 1,700 to around 900 shares a day. The options exercised in the context of our share option programs also lent less support than in the previous year, with a total of 55,040 new shares arising in the year under report (2007/2008: 178,900). The number of non-par ordinary shares grew from 15,685,020 to 15,740,060 at the reporting date.

* at the end of the financial year (the last day in February)

Finding a fair valuation for HORNBACH’s share was presumably harder than ever in the past financial year. There is a lot to be said for the share price performance having been shaped by the all-devouring financial crisis, rather than by a widespread loss of confidence in HORNBACH: This assumption is backed up indirectly by the performance of the corporate bond of HORNBACH-Baumarkt-AG (ISIN XS0205954778; WKN: A0C4RP). HORNBACH’s bond, which runs until 2014 and has an interest coupon of 6.125 %, also failed to escape the downward stampede in the horrendous month of October 2008 (annual low at 76.10 %), but nevertheless proved extremely robust over the year as whole. Our bond reached its annual high at 98.50 % at the end of December (Frankfurt Stock Exchange), posting a twelve-month performance of 9 % at a price of 95.00 % on the reporting date on February 28, 2009.

High degree of transparency

Our investor relations activities once again provided shareholders, analysts, the financial media and the general public with prompt information on the performance of HORNBACHBaumarkt- AG in the past financial year. All quarterly reports, annual reports, press releases and additional financial information were published on the internet communications platform of the HORNBACH Group (www.hornbach-group.com), where we have pooled all of our information and services, especially for shareholders and press representatives. This separate site for corporate communications thus complements the productrelated and marketing content available at HORNBACH’s internet site at www.hornbach.com.

The Annual General Meeting, the annual results press conference, analysts’ conferences and meetings with investors in Germany and abroad give us the opportunity to maintain our dialog with the capital markets. Moreover, we also draw on personal contracts with the media in order to present the objectives and strategy of our company in interviews. In doing so, we outline the specific details of our concept, our market position and the further growth prospects for the Group, as well as our current performance figures.

Refocusingon stability and reliability

For decades now, HORNBACH has successfully focused on achieving organic growth with its DIY megastores and garden centers across Europe. Our share is particularly interesting for value investors with a long-term perspective. These investors see sustainable growth potential in our retail format, especially in view of the opportunity profile set out in greater detail in the management report. However, increasing numbers of more traditional investors will once again be stock-picking among companies in tiers below the Dax. This is because the global economic crisis has led investors to refocus on values such as reliability, trust and stability. Viewed in this light, HORNBACH’s stable business model means that it should return to the foreground among investors once again in the long term.

The share of HORNBACH-Baumarkt-AG (ISIN DE0006084403) represents a solid long-term investment with a high intrinsic value and a stable dividend. Of around 15.74 million ordinary shares in HORNBACH-Baumarkt-AG, 77.2 % were held by its parent company, HORNBACH HOLDING AG, at the reporting date on February 29, 2008 (2007/2008: 77.4 %), while 17.5 % were owned by independent shareholders (2007/2008: 17.3 %). The British retail group Kingfisher plc, with which HORNBACH entered a strategic alliance at the end of 2001, holds 5.3 % of the shares. In line with the index system of the German stock exchange, HORNBACH-Baumarkt-AG is admitted for trading in the Prime Standard (a subsection of the official market involving additional admissions requirements). Among other requirements, the company’s listing in the Prime Standard obliges it to meet a high level of transparency standards.


Home Company Profile To Our Shareholders The HORNBACH-Baumarkt Share Corporate Governance Group Management Report Directors and Officers Report of the Supervisory Board Our Locations Consolidated Financial Statements Auditor´s Report Toolbox German Print this page Downloadcenter Download PDF Font Size: Save Settings					THE HORNBACH-BAUMARKT SHARE Banking crisis draws capital markets into maelstrom For many investors around the world, 2008 was a disastrous year. With record losses and extreme price breaks, it was a year which will find its place in the financial history books – and there is every indication that a good few inglorious chapters remain to be written in this unparalleled ongoing drama. The financial crisis, which began on the US real estate market in mid-2007 and reached one of its sorry climaxes with the Lehman insolvency in September 2008, placed a heavy burden on international stock markets. The enormous loss of confidence, coupled with illiquidity on the markets and growing fears of recession, triggered panic among numerous investors. Stoxx50, the select European index, plummeted by more than 44 % in the course of the year. The German lead index, the Dax, did not fare much better, reporting the worst trading week in its history with a loss of 22 % in October 2008 alone. Over the twelve-month period, it lost 40 % in value, thus bringing the five-year bull market abruptly to a close. Stock markets found themselves confronted with an unprecedented volume of execution sales on the part of financial investors forced to react to the immense outflow of resources from their funds. At times, observers might be forgiven for thinking that stocks had been placed on sell lists literally at random. This sell-off across the board since the fall of last year also affected the share of HORNBACH-Baumarkt-AG, regardless of the Group’s pleasing business performance, high level of equity resources and substantial free liquidity. A stable start In the first trading weeks of the financial year, HORNBACHBaumarkt’s share (ISIN DE0006084403) developed in line with the overall market, remaining within a range of between € 35 and € 40. The DIY sector showed signs of a weak sales performance in spring 2008 due to significantly cooler and damper weather conditions compared with the previous year. Over and above this, the high rate of inflation eroded purchasing power among consumers in Germany and other European countries. Against this backdrop, many investors were more reluctant to make new investments. The communication of our results for the 2007/2008 financial year and above all the positive outlook for the financial year helped our share to consolidate its position at a level of around € 40. On June 26, 2008, the HORNBACH Group published its figures for the first quarter (March 1 to May 31, 2008). The share closed this day in Xetra trading at its annual high of € 41.25. Profit taking subsequently took its toll on the share price, which was scarely able to make itself heard in the following weeks against the crescendo of news reports on the banking crisis. At the end of August, the share then regained ground from its monthly low of around € 33. It was also assisted in this by the share buyback program, within which framework around 10,000 shares were collected on the market for the annual issue of employee shares. However, the recovery was only short-lived. From October 2008 onwards, the share receded ever further. The shockwave following the insolvency of the US investment bank Lehman Brothers triggered an unprecedented domino effect in the financial sector, one which governments around the world struggled to stem with state assistance. Bank crisis, financial crisis, economic crisis – that was the worrying escalation in the period under report. HORNBACH was unable to escape the downward pull, even in spite of its solid halfyear and nine-month figures. The slight recovery in the Baumarkt share at the end of December was then of hardly more than cosmetic value. Notwithstanding economic stimulus programs worth billions and the Obama effect, the 2009 calendar year began on the capital markets on a note which was anything but promising, as quarterly and annual results from the banking sector and industry showed no signs of turning for the better. Our share ended the 2008/2009 financial year at its annual low of € 23.39 on the final trading day on February 27, 2009. This corresponds to a minus of 42 % compared with its valuation twelve months earlier. One small consolidation is that HORNBACH finds itself in the best company. The 30 largest German stock corporations listed in the Dax fell by 42 % over the same period, while the second-tier stocks in the MDax and SDax lost 49 % in value. The uncertainty on the stock markets impacted negatively on the liquidity of our share. In their search for safe havens, many investors withdrew from lower-capitalized second-tier stocks or turned their backs on the stock market entirely. Average Xetra trading volumes in the HORNBACH-Baumarkt share dropped from around 1,700 to around 900 shares a day. The options exercised in the context of our share option programs also lent less support than in the previous year, with a total of 55,040 new shares arising in the year under report (2007/2008: 178,900). The number of non-par ordinary shares grew from 15,685,020 to 15,740,060 at the reporting date. * at the end of the financial year (the last day in February) Finding a fair valuation for HORNBACH’s share was presumably harder than ever in the past financial year. There is a lot to be said for the share price performance having been shaped by the all-devouring financial crisis, rather than by a widespread loss of confidence in HORNBACH: This assumption is backed up indirectly by the performance of the corporate bond of HORNBACH-Baumarkt-AG (ISIN XS0205954778; WKN: A0C4RP). HORNBACH’s bond, which runs until 2014 and has an interest coupon of 6.125 %, also failed to escape the downward stampede in the horrendous month of October 2008 (annual low at 76.10 %), but nevertheless proved extremely robust over the year as whole. Our bond reached its annual high at 98.50 % at the end of December (Frankfurt Stock Exchange), posting a twelve-month performance of 9 % at a price of 95.00 % on the reporting date on February 28, 2009. High degree of transparency Our investor relations activities once again provided shareholders, analysts, the financial media and the general public with prompt information on the performance of HORNBACHBaumarkt- AG in the past financial year. All quarterly reports, annual reports, press releases and additional financial information were published on the internet communications platform of the HORNBACH Group (www.hornbach-group.com), where we have pooled all of our information and services, especially for shareholders and press representatives. This separate site for corporate communications thus complements the productrelated and marketing content available at HORNBACH’s internet site at www.hornbach.com. The Annual General Meeting, the annual results press conference, analysts’ conferences and meetings with investors in Germany and abroad give us the opportunity to maintain our dialog with the capital markets. Moreover, we also draw on personal contracts with the media in order to present the objectives and strategy of our company in interviews. In doing so, we outline the specific details of our concept, our market position and the further growth prospects for the Group, as well as our current performance figures. Refocusingon stability and reliability For decades now, HORNBACH has successfully focused on achieving organic growth with its DIY megastores and garden centers across Europe. Our share is particularly interesting for value investors with a long-term perspective. These investors see sustainable growth potential in our retail format, especially in view of the opportunity profile set out in greater detail in the management report. However, increasing numbers of more traditional investors will once again be stock-picking among companies in tiers below the Dax. This is because the global economic crisis has led investors to refocus on values such as reliability, trust and stability. Viewed in this light, HORNBACH’s stable business model means that it should return to the foreground among investors once again in the long term. The share of HORNBACH-Baumarkt-AG (ISIN DE0006084403) represents a solid long-term investment with a high intrinsic value and a stable dividend. Of around 15.74 million ordinary shares in HORNBACH-Baumarkt-AG, 77.2 % were held by its parent company, HORNBACH HOLDING AG, at the reporting date on February 29, 2008 (2007/2008: 77.4 %), while 17.5 % were owned by independent shareholders (2007/2008: 17.3 %). The British retail group Kingfisher plc, with which HORNBACH entered a strategic alliance at the end of 2001, holds 5.3 % of the shares. In line with the index system of the German stock exchange, HORNBACH-Baumarkt-AG is admitted for trading in the Prime Standard (a subsection of the official market involving additional admissions requirements). Among other requirements, the company’s listing in the Prime Standard obliges it to meet a high level of transparency standards.
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