GROUP MANAGEMENT REPORT

Asset Situation

Equity ratio rises to 39.1 %

Balance Sheet of the HORNBACH HOLDING AG Group (Abridged Version)

The total assets of the Group rose by € 93.8 million, or 4.9 %, compared with the previous year to reach € 1,995.8 million. The growth in total assets reflects the further moderate expansion of the HORNBACH HOLDING AG Group, which is mainly apparent in the increase in property, plant and equipment, including investment property, and increased inventories. In particular, the rise in cash and cash equivalents by € 79.2 million documents the increasingly important objective in the context of the international financial and economic crisis of securing and extending the Group’s liquidity and financial scope.

The equity of the Group as stated in the balance sheet amounted to € 780.5 million at the end of the financial year (2007/2008: € 687.6 million). At 39.1 %, the equity ratio thus once again increased on the previous year’s figure (36.1 %).

Non-current and current assets
Non-current assets amounted to € 1,072.1 million at the reporting date (2007/2008: € 1,046.8 million) and thus accounted for around 54 % of total assets (2007/2008: 55 %). Property, plant and equipment and investment property rose by 1.0 % from € 975.0 million to € 985.0 million. In this respect, the additions to assets of € 125.1 million were countered by depreciation amounting to € 68.7 million, write-ups of € 1.3 million and disposals of assets amounting to € 1.3 million. Furthermore, the application of IFRS 5 required real estate held for sale or already sold as of the reporting date without simultaneous assignment of ownership, amounting to a net total of € 27.7 million, to be reclassified as current assets. This primarily involved the planned sale of one HORNBACH DIY megastore with a garden center outside Germany by way of a sale and leaseback transaction. This property had been reported under property, plant and equipment in the previous year. Due to developments in exchange rates, there was a reduction of € 18.7 million in the volume of property, plant and equipment and investment property as stated in the balance sheet.

Other non-current receivables rose from € 7.0 million to € 23.8 million, largely as a result of the deferral of portions of the purchase prices in connection with a sale and leaseback transaction executed in the year under report, the disposal of three real estate development companies, and the partial deferral of the loans granted to these companies.

Structure of Consolidated Balance Sheet
(€ million)

Non-current income tax receivables involve a claim to payment of corporate income tax credits with a present value of € 16.9 million. These were capitalized in previous years on account of legislative amendments (SEStEG).

Current assets rose by 8.0 % from € 855.2 million to € 923.7 million, equivalent to around 46 % of total assets (2007/2008: 45 %). Based on constant inventory turnover rates, inventories rose by 3.6 % (€ 18.1 million) from € 498.1 million to € 516.2 million, mainly as a result of the opening of four new DIY megastores with garden centers. Receivables and other assets (including receivables relating to taxes on income) decreased by € 1.0 million from € 82.3 million to € 81.3 million. Non-current assets held for sale and disposal groups pursuant to IFRS 5 reduced by € 27.7 million from € 78.7 million to € 51.0 million. In this respect, the reclassification of a HORNBACH DIY megastore with a garden center held for sale from non-current assets was countered by the derecognition following the disposal of three HORNBACH DIY megastores with garden centers by way of sale and leaseback transactions and the sale of three real estate companies in the current financial year. At the same time, cash and cash equivalents grew from € 196.0 million in the previous year to € 275.2 million. Further information can be found in the comments made on the financial situation.

Non-current and current liabilities
Liabilities, including provisions, amounted to € 1,215.4 million at the reporting date, compared with € 1,214.4 million in the previous year. Non-current liabilities declined from € 735.6 million to € 712.9 million. The reduction in non-current liabilities by € 22.7 million was mainly due to the scheduled repayment of long-term liabilities to banks. Non-current liabilities include deferred tax liabilities of € 71.7 million (2007/2008: € 71.1 million).

Current financial debt rose from € 130.7 million to € 153.3 million, mainly as a result of the increase in current liabilities to banks in connection with interim financing facilities. Trade payables and other liabilities amounted to € 248.2 million at the reporting date, and were thus more or less unchanged on the previous year (2007/2008: € 245.2 million).

The net debt of the HORNBACH HOLDING AG Group, i.e., financial debt less cash and cash equivalents, reduced markedly from € 583.6 million in the previous year to € 499.4 million at the reporting date.

Key Balance Sheet Figures of the HORNBACH HOLDING AG Group

Off-balance sheet financing instruments and rental obligations
In addition to the DIY megastores with garden centers owned by the HORNBACH HOLDING AG Group and the DIY megastores with garden centers used on the basis of finance lease agreements, there are 56 DIY megastores with garden centers which are let from third parties. Moreover, there are also a small number of additional leasehold, leasing and rental agreements for pieces of land.

The obligations under rental, hiring, leasehold and leasing contracts relate exclusively to rental agreements for which the companies of the HORNBACH HOLDING AG Group do not constitute the economic owners of the assets thereby leased pursuant to IFRS accounting standards (Operating Lease). The rental agreements principally relate to DIY megastores in Germany and other countries. The terms of the rental agreements amount to between 15 and 20 years, with subsequent rental extension options. The respective agreements include rent adjustment clauses.

At February 28, 2009, the obligations under rental, hiring, leasehold and leasing contracts amounted to € 911.2 million (2007/2008: € 891.0 million). The increase resulting from the rental agreements newly concluded for three DIY megastores with garden centers was countered by annual rental payments for the 2008/2009 financial year. All in all, this item showed a net increase of € 20.2 million.

Overall assessment of the earnings, financial and net asset situation
The HORNBACH HOLDING AG Group performed very well in a difficult climate in the 2008/2009 financial year and strengthened its market position. In spite of tough price competition and the emergence of the financial and economic crisis in the second half of the year, the company managed to increase its sales both in absolute terms and on a like-for-like basis, as well as achieving significantly disproportionate earnings growth in its operating business. Due to one-off factors, the real estate segment also reported high earnings growth. We outperformed the sector average by a clear margin once again, thus further extending our market position in Germany. Our international activities continued to develop well, further expanding their share of sales and earnings. The expansion outside Germany has thus broadened the foundation for further growth and made the performance of the overall Group more independent of the tough competitive situation in Germany. The restructuring program has further stabilized the HORNBACH Baustoff Union GmbH subgroup. The equity ratio has risen to 39.1 %. The capital structure and liquidity situation remain at good levels. In view of the broad spectrum of financing sources, we have a high degree of security and flexibility to face the challenges presented by the international financial and economic crisis and to finance further moderate growth. Overall, the economic situation of the Group is satisfactory.