TO OUR SHAREHOLDERS

Dear Shareholders,

Dear Shareholders, In the past financial year, HORNBACH reinforced and further extended its position as one of Europe’s leading DIY players. We acquired additional market share and increased our likefor- like sales. That gives us reason to be proud. To understand the reasons for our success, however, you should visit one of the 130 stores we currently operate. Whichever store you wander through, whether it be the DIY megastore with a garden center in Hamburg, our newest in Germany, or our stores in Prague, Luxembourg or any other of our locations, you will find that they all have their individual charm. However, at all of our stores you will also see the aspects they have in common, a factor crucial to HORNBACH’s concept of projectdriven DIY megastores. Here you will gain firsthand experience of the fascination exercised by our sector, regardless of whether you happen to enter the store out of sheer curiosity, as a passionate DIY enthusiast or a specialist trademan. A product range of unrivalled breadth and depth, brand quality, advisory competence and services offering added value to customers, the stocking of large quantities and, not least, permanently low prices – these are just some of the catchwords which convince talented amateurs and seasoned professionals alike of the merits of our concept.

HORNBACH is the DIY store for projects. Its store size, product range, prices and service are focused entirely on the needs of hobby and master builders planning major construction measures – we call them projects – such as attic conversions, bathroom renovation or adding a new terrace. Our stores offer all the materials and tools needed for a total of more than 1,000 projects, all in professional quality. Alongside more traditional topics, such as parquet flooring and wall decoration, we also offer the latest solutions in areas such as energy saving in residential buildings and environmental protection.

For customers to be able to budget such projects reliably, often over longer periods, they need stable prices. In view of this, HORNBACH does not offer discounts or loss-leading prices on individual products. Instead, our customers can rely on the fact that they will find permanently low prices across the entire product range. What’s more, we also assist them in implementing their projects by offering various services – the tradesman service, equipment rental, paint mixing machine for all kinds of paints and lacquers and the wooden board cutting service, to name just the most important. These are offerings that our customers appreciate and that have made HORNBACH a unique partner for home improvement fans.

Our DIY megastores with garden centers have average sales areas of more than 11,000 m². The stores newly opened in recent years, most of which equipped with drive-in builders’ merchant facilities, are about as large as two football fields – space we put to intelligent, meaningful use on behalf of our customers. After all, size alone is no guarantee of competitive advantages or of satisfied customers. The way in which the space is used is what counts. And it is on this that we focus every day anew – persistently, consistently and without compromise. Retail is detail. That also involves setting out in new directions which are less conventional and less than convenient at times in order to put the best concepts for our merchandise presentation, advice or logistics into practice – and thus to optimally satisfy our customers.

It pleases me not only that we have the earnings power necessary for all of this, not least as these investments often come at a price which many competitors cannot afford (any longer). It also pleases me that HORNBACH employees are in a position to identify and master innovations. It is the human factor that plays the critical role here. Our people are our actual capital – and we treat them as such, as a glance at our “Non-Financial Performance Indicators” will show (from Page 57 of the report onwards).

Size, product selection, and service – none of these factors is sufficient to account for our long track record of success without also mentioning our employees. People with a passion for home improvement, with outstanding training and longstanding experience. Highly motivated and committed, friendly and helpful people. Men and women who in many cases have themselves worked as decorators and lacquerers, joiners, masons and foremen. People who have practical experience of every project and every task, who can give advice and lend a hand. Employees who take time and are patient – even on a Saturday afternoon or at peak times. HORNBACH has been as successful as it has over many years because its employees in Germany and neighboring European countries, now numbering 12,700 in total, do such a great job, champion their company day in day out, and all that with a degree of personal commitment which I would like to take this opportunity of thanking them for.

Thanks to the components of our success outlined above, HORNBACH can look back on a successful financial year, one in which we returned to normality following the dip in earnings a year earlier and of which we can rightly be proud, especially in the light of the financial and economic crisis. So here are the key facts for 2008/2009:

• The HORNBACH-Baumarkt-AG Group boosted its sales by 5.2 % to almost € 2.6 billion in the 2008/2009 financial year (February 28). Around 41 % of sales are now accounted for by our locations outside Germany.
• We improved our like-for-like sales by 1.4 %. We are especially proud of the like-for-like sales growth of 1.2 % we achieved in Germany. HORNBACH thus yet again outperformed the DIY and home improvement sector, which reported a 2.0 % downturn in comparable store sales in the 2008 calendar year.
• We maintained our course of expansion with four new DIY megastores and garden centers in Sweden, Romania, Switzerland and Hamburg.
• As expected, earnings showed disproportionate growth compared with sales, following on from a weaker performance in the previous year. Operating earnings (EBIT) reached € 136.5 million (2007/2008: € 79.1 million). We owe this on the one hand to increased operating earnings power. On the other hand, these pleasing results also benefited from substantial disposal gains in the real estate segment.
• The Group’s equity ratio now amounts to an impressive 41.5 %, thus underlining our firm financial foundation

Of course, even though the figures for 2008/2009 look good, they provide no reason to exaggerate. Fluctuations in our sales and earnings performance are part of our business. We cannot influence one-off factors, such as the hike in the sales tax rate in Germany in 2007, macroeconomic developments or extreme weather conditions. Windfall profits in the real estate segment may look good in the income statement, but provide precious little insight into whether our operations are on the right track. What counts is this – we must work consistently on enhancing our own inherent strengths, enabling us to make consistent progress on our course of long-term profitable growth. The operating business made a valuable contribution in this respect in 2008/2009. In a difficult macroeconomic climate, HORNBACH successful defied the overall trend.

HORNBACH will be acting circumspectly in the current 2009/2010 financial year. We will monitor economic developments very closely and adjust our operating activities to the opportunities and risks as appropriate. Our top priority is to manage our investments flexibly and to safeguard the liquidity and earnings power of the HORNBACH-Baumarkt-AG Group. The good news is that we intend to achieve further profitable growth even in these difficult economic times.

On behalf of the entire Board of Management, I would like to thank our customers, shareholders and business partners for their support and the trust they place in us. After all, trust is possibly the most precious commodity when it comes to overcoming economic crises on the current scale.

Steffen Hornbach
Chairman of the Board of Management
HORNBACH-Baumarkt-AG