HORNBACH-Baumarkt-Aktiengesellschaft

Transcription

1 HORNBACH-Baumarkt-Aktiengesellschaft A N N U A L R E P O R T /

2 Goldener Zuckerhut In 2000, HORNBACH-Baumarkt-AG was awarded the Goldener Zuckerhut the highest award in German retailing. Outstanding operating figures, organic growth and the unique superstore concept were some of the features that netted this distinction for this family company with its long history Corporate Profile To our Shareholders Group Overview of HORNBACH-Baumarkt-AG 5 Management Report and Group Management Report of HORNBACH-Baumarkt-AG 16 HORNBACH in and around Berlin 25 Supervisory Board and Board of Management 26 Report of the Supervisory Board 28 The HORNBACH-Baumarkt Share Annual Financial Statements and Consolidated Financial Statements Balance Sheet Income Statement Consolidated Balance Sheet Consolidated Income Statement Notes to the Annual Financial Statements and Consolidated Financial Statements Auditors Report 59 Financial Calendar The HORNBACH DIY Superstores and Garden Centers Please turn over...

3 KEY GROUP, FINANCIAL AND OPERATING INFORMATION Amounts shown in DM million unless otherwise stated Change in financial year 2000/2001 on 2000/ / / / / / / / /93 the previous year Sales and profits data Gross sales 10.6% 2,983 2,698 2,368 2,156 1,871 1,666 1,463 1, of which: in other European countries 25.5% Net sales 10.5% 2,570 2,327 2,047 1,879 1,633 1,456 1,278 1, Sales increase as a % of net sales Result from ordinary activities 18.9% as a % of net sales Net income for the year 50.3% as a % of net sales EBITDA 1) 7.2% as a % of net sales DVFA/SG result 24.0% Gross margin as a % of net sales Store costs as a % of net sales General and administrative costs as a % of net sales Pre-opening costs 24.6% as a % of net sales of which: personnel costs as a % of net sales Cash flow data Capital investments 32.2% Gross cash flow 2) 7.2% as a % of net sales Earnings potential 3) 3.2% as a % of net sales Net cash flow 4) 10.9% as a % of net sales Dividend payments Presentation of depreciation costs Total depreciation 40.3% as a % of net sales Presentation for international comparison: Straight-line depreciation 45 years Additional straight-line depreciation 25/10 years to 45 years Declining balance depreciation Depreciation in line with section 6b EStG 41.2 Special depreciation allowed in eastern Germany Total depreciation on buildings Depreciation on other fixed assets of which: special depreciation allowed in eastern Germany Balance sheet and financial data Balance sheet total 6.5% 1,642 1,542 1,365 1,312 1,130 1, Fixed assets 3.0% Inventories 6.2% Cash and cash equivalents 0.2% Shareholders equity 5.2% Shareholders equity as a % of balance sheet total Inventory turnover frequency per year Return on shareholders equity based on DVFA/SG result in % 20.2% Store data Number of stores in Germany abroad Gross sales 10.6% 2,983 2,698 2,344 2,134 1,849 1,643 1,438 1, % change Comparable store sales increase in % Sales area, per BHB in sq. ft. 7.9% 8,507,862 7,882,620 6,850,233 5,943,202 5,245,549 4,359,630 3,665,180 2,774,446 2,429,995 Weighted average sales per sq. ft. in DM 0.9% Average size of store in sq. ft. 2.7% 103, ,061 97,857 91,429 87,430 82,259 76,357 69,359 67,499 Average weighted sales per store Other information Sales as builders merchant (without intercompany sales) Employees annual average in full time equivalents 11.4% 6,122 5,494 4,926 4,529 3,899 3,354 2,833 2,283 1,840 Sales per employee in DM thousand 0.8% Number of shares in thousand 5) 15, , , ,000 15,000 15,000 1,500 1,500 1,200 EBITDA per share in DM DVFA/SG net cash flow per share in DM 10.9% DVFA/SG result per share in DM 24.0% ) EBITDA (exc. depreciation under section 6b EStG) 4) Net income plus scheduled depreciation 2) Result from ordinary activities plus scheduled depreciation 5) Since October 1995, change in nominal value to DM 5.00 per share 3) Gross cash flow plus pre-opening costs HORNBACH-Baumarkt-AG Group balance sheet structure in DM million Assets 1,542 1,642 1,642 1,542 Shareholders Equity and Liabilities Cash and cash equivalents 58/58 Short-term third party liabilities 536/478 Inventories, receivables and other assets 546/674 Medium and longterm liabilities 591/575 Fixed assets 938/910 Shareholders equity 515/489 Feb. 29,2000 Feb. 28,2001 Feb. 28,2001 Feb. 29,2000 Result from ordinary activities Gross cash flow in DM million in DM million

4 Corporate Profile The ability to respond to the challenges of trading in retail building materials, DIY supplies and garden products and to set new standards in the process is what makes the HORNBACH Group special. From 1877 onwards, five generations of Hornbachs have been active in almost all areas of the construction sector in the building trade, as manufacturers of prefabricated components, and (starting in 1900) as builders merchants. In 1968, HORNBACH as one of the pioneers in Germany and Europe opened its first DIY store, combined uniquely for Europe with a garden center. This combination has become a European standard today. In the second half of the 1980s (and even more so since 1990), HORNBACH has added a new dimension to the market with its concept of large DIY superstores and garden centers. Today, an impressive range of around 50,000 top quality DIY and gardening articles is available to DIY customers in spacious stores and at permanently low prices, with an impressive presentation. Welltrained, service-orientated employees ensure that the customer is king. As of February 28, 2001, HORNBACH-Baumarkt-AG operated 82 DIY superstores and garden centers in Europe with an average sales area of sq. m. (103,740 sq. ft.). The consistent pursuit of this concept and the high quality standards of the locations, stores, product range and employees have made the dynamic expansion in recent years possible and form the basis for future expansion. HORNBACH is the market leader of Germany among operators of large DIY superstores and garden centers with a sales area in excess of 8,000 sq. m. (86,000 sq. ft.). In terms of total turnover, HORNBACH is also one of the leaders with sales of DM 2,983 million in the financial year 2000/2001. After the successful move into Austria in August 1996, expansion in neighbouring European countries was consistently pursued. Stores were subsequently opened in The Netherlands, Luxembourg and the Czech Republic. Currently, preparation is under way for entering the Swiss market. As of February 28, 2001 HORNBACH is operating a total of 12 DIY superstores and garden centers outside the territory of the Federal Republic of Germany. This number is expected to increase to 16 in the current financial year 2001/2002. Opportunities for expansion in Germany are also continually pursued. In the current financial year 2001/2002, for example, up to six new HORNBACH DIY superstores and garden centers will open in Germany. HORNBACH-Baumarkt-AG is a publicly listed company. The company s ordinary share is listed on a continuing basis in official trading on the German Stock Exchange and is also listed on SMAX, the quality segment for small caps. Approximately 80% of the company s c. 15 million shares are held by HORNBACH HOLDING AG, and the remaining 20%, or about 3 million shares, are held by independent shareholders. Sales of HORNBACH DIY superstores and garden centers DM million / /2001 CORPORATE PROFILE 1

5 To our Shareholders Albrecht Hornbach Dear Shareholders, The key figures for the past financial year 2000/2001 are: Gross sales rose 11% on the previous year from DM 2.7 billion to DM 3.0 billion. Up went the result from ordinary activities also, from DM 70 million to approximately DM 83 million, a 19% increase which well outstripped sales. So much for the facts but we might still ask ourselves: Is this a satisfactory result? Does it meet expectations? Naturally, there are various facets to be considered regarding the result and the course of business, some on the positive and others on the negative side of our expectations and targets. In the following, I propose to comment on the most important aspects. Both the sales and results achieved are in line with our forecasts; in particular, results grew faster than sales for the first time in three years. This means that the return on sales measured by the result from ordinary activities rose from 3.0% to 3.2% of net sales. The foundation for this increase in productivity is the repeated positive development in comparable store sales. Following last year s 3.2%, we again took another important step forward with a growth of 2.5%. Differentiated consideration of the figures for the individual countries quickly demonstrate that sales growth outside Germany is contributing to an especially large extent to this positive development; whereas the contribution of our German stores primarily because of the shrinking market in eastern Germany remains below average with a growth in like-for-like sales of only 1.0%. Nevertheless, comparison with the rest of the sector puts our performance in Germany in the correct light: while the DIY sector saw like-for-like sales drop a further 2.0% on average in calendar year 2000, HORNBACH s sales grew by 2.1% in the same period. Accordingly, our lead over our competitors is widening steadily even in Germany; which is again reflected in a renewed increase in our market share from 5.3% to 5.7%. Thus we are scarcely surprised (albeit somewhat proud) that with weighted average sales of DM 365 per square foot, we lead the field of the six largest German DIY store chains, not only in sales per store but also in productivity per unit area. As announced earlier, our gross margin narrowed slightly. The decrease of 0.2 percentage points from 36.4% to 36.2% is more than offset by the sales growth in our stores, and is thus of no detriment to our earning power. Nevertheless, despite all gratification, we cannot overlook the fact that not all the profitability ratios show an increase in earning power. In contrast to the result from ordinary activities, which outgrew sales with an improvement of 19%, the earnings figures based on cash flow lagged behind sales. For example, gross cash flow and EBITDA both rose by only 7.2%. What is the significance of this for the company s profitability? Has the negative productivity trend in the last few years really come to an end, as predicted in the 1999/2000 annual report, or not? Undisputed is the fact that cash flow based ratios give the best picture of the earnings of retail enterprises, as they are adjusted for the effects of differing corporate policies on real estate, growth and capital structure. This is particularly important in international comparisons. However, if earnings are related to sales (in order to arrive at comparable profitability ratios), this involves a simplification which is only valid under certain conditions. The yardstick for returns can naturally only be the capital employed to generate the earnings, not just sales. Sales can only be used as a stable indicator as long as there is no change in capital structure and the ratio of sales to capital remains constant; any change in this ratio changes the yardstick to be used. 2

6 The fact that we have advanced to second place in Kundenmonitor Deutschland 2000 and have also won the Goldener Zuckerhut 2000 award is both an acknowledgement and a stimulus. We feel that we are justified in investing in further growth in sales area, on the basis of the right strategy and sustained growth in earning power. Two independent trends have recently led to a systematic increase in the ratio of sales to capital, thus apparently reducing the return on sales while at the same time making it more valuable : 1. Growth in like-for-like sales. Over the past two years, this has totaled almost 6%, and has involved insignificant capital investment. 2. Implementation of our real estate strategy in sale and lease back transactions. This has two consequences: firstly, it reduces the capital required for a given level of sales, which also accordingly increases the value in all sales-related earning ratios; secondly, it has very different effects on the different earning ratios: while the result from ordinary activities is largely unaffected, EBITDA (for example) decreases by exactly the amount of the rentals for all preceding sale and lease back transactions. In the past year, this amounted to as much as DM 17 million. Even so, EBITDA is at a record DM 223 million. In this context, the trend in cash flow based ratios is compatible with the picture of growing earning power. In other words: no need for concern regarding the productivity trend, but rather confirmation that our approach towards increasing efficiency, with all the efforts and changes this involves, is clearly leading in the right direction the direction of rising profitability. The driving forces on this path are, on the one hand, the ongoing refinement of our customer-friendly concept ideally tailored to the capabilities of our large-format stores in product range, inventory and price and, on the other hand, strict cost management. The fact that we have advanced to second place in Kundenmonitor Deutschland 2000 and have also won the Goldener Zuckerhut 2000 award is both an acknowledgement and a stimulus. We feel that we are justified in investing in further growth in sales area, on the basis of the right strategy and sustained growth in earning power. In the past financial year, we opened six new stores, increasing the average sales area to 9,650 sq. m. (103,740 sq. ft.). This is just twice the sector average (4,826 sq. m. or 51,880 sq. ft. according to BHB). At the same time, we have advanced from sixth to fourth place in the sales league table for German DIY store operators. The share of our international sales has risen from 18% to 21% and will continue to grow. Our entry into the Swiss market is imminent. In the current financial year, up to ten new store openings and growth in existing stores will bring us another step closer to our stated goal: to rank third in the German league table and fifth among European DIY store operators! This continuing positive development has yet to be appropriately reflected in our share price. While this has been disappointing, we refuse to be discouraged. Rather, we are convinced that the sustained success we have achieved with our DIY superstores and garden centers in international competition will sooner or later attract investors attention back to our shares. We have faith in our company and its future. We are happy that, through thick and thin, we have always been able to rely on the personal commitment and high motivation of our employees. On behalf of the entire Board of Management, I should like to express our appreciation and gratitude to all of you. Albrecht Hornbach Chairman of the Board of Management TO OUR SHAREHOLDERS 3

7 HORNBACH DIY superstore and garden center Straubing Group Overview of HORNBACH-Baumarkt-AG HORNBACH-Baumarkt-AG* Bornheim 70 DIY superstores and garden centers in Germany HORNBACH International GmbH ** Bornheim HORNBACH Baumarkt GmbH Brunn am Gebirge Austria HORNBACH Holding B.V. Amsterdam The Netherlands HORNBACH Baumarkt CS spol. s.r.o. Prague Czech Republic HORNBACH Baumarkt Luxemburg S.A.R.L. Bertrange Luxembourg HORNBACH Baumarkt (Schweiz) AG Zug Switzerland * plus additional participations in affiliated companies; please refer to page 36 for a complete list ** 12 DIY superstores and garden centers in other European countries 4

8 Management Report and Group Management Report of HORNBACH-Baumarkt-AG Slowing economic growth in Germany The high hopes for growth apparent in Germany at the start of the year 2000 faded in the closing months. Although German industrial output continued to rise at the end of the year, a phase of strong growth was followed by a marked slowdown in the tempo. While the first half-year showed an annualized growth of 3.75%, this had slipped to just 2.5% by the second half. According to the provisional national figures from the Federal Statistics Office, the full year figure for real GDP grew 3.1% in 2000, compared with 1.6% in the previous year. The improvement in the labour market continued. Employment duly rose again and, despite the wintry weather, unemployment in February 2001 was only 10.1%, compared with 10.9% a year before. The unemployment rate in eastern Germany in February 2001 was 18.9%, still significantly higher than in western Germany (8.0%). Recent economic forecasters have sharply reduced their growth predictions. After initial forecasts of nearly 3.0%, real growth in the current year is now expected to be only 2.1%. Even so, this would still be significantly higher than the levels in the 90 s. A major factor in the economic slowdown was the increasing burden of higher oil prices. This affected private households as well as corporate earnings. In addition, uncertainty, particularly concerning the US economy which was for a long time the main driver of the global economy probably also helped to undermine confidence. The ifo Institut surveys, for example, have shown a significant decline recently in optimism in the manufacturing industry. The rise in oil prices has pushed up costs, diverting purchasing power away from domestic demand to the oil exporting nations. According to HDE (Hauptverband des Deutschen Einzelhandels the main association of German retailers), German consumers spent DM 25 billion for higher petrol and energy prices alone. This has severely affected the German consumer products industry and retailing. Meanwhile, the continuing weakness of the Euro has increased the danger of imported inflation. The European Central Bank felt obliged to raise key interest rates six times in the course of This did not encourage investment, and also reduced consumer willingness to borrow for consumption. As a result, spending on private consumption rose by only a modest 1.9% in real terms in 2000; this was below the previous year s 2.6%. According to provisional figures from the Federal Statistics Office, German retail sales grew by a nominal 2.5% in 2000; this represents a real growth of 1.3% on Eliminating fuel sales, which were sharply inflated by the price increases, and sales of pharmaceutical products, the growth rates for classic retailing fell to 1.6% in nominal terms and 1.2% in real terms. Investment in construction fell by a further 2.5%. In contrast to increased construction in the public sector and manufacturing industry, housebuilding continued to decline. Activity fell further below what was already a very low level. Bundesbank figures put the decrease compared with the previous year at 17%. The decline was even steeper in eastern Germany. Here, new orders were only 40% of their level in One factor which accounts for this is the large number of unrentable houses in eastern Germany. DIY store sector sees decline in like-for-like sales For the DIY store sector in Germany, 2000 was, overall, an unsatisfactory year. Growth in sales at the start of the year levelled off in mid-year. Higher fuel oil and petrol prices combined with the debate on pension reform and the eco-tax had a strong impact on consumer confidence: there was a tendency to postpone spending on homes and MANAGEMENT REPORT 5

9 superstore and garden center Ostrava, Czech Republic Sales development (in DM million) gardens which was not absolutely essential. Despite growth in individual groups of articles, the Bundesverband Deutscher Heimwerker-, Bau- und Gartenfachmärkte e. V. (BHB) calculated that likefor-like sales fell by 2.0% in This followed a decrease of 2.0% in Even so, growth in sales area continued unabated. According to the BHB, the total sales area of all DIY stores in Germany rose from 12.3 million sq. m. (132.2 million sq. ft.) to 13.8 million sq. m. (148.4 million sq. ft.). This growth enabled the DIY stores to increase total sales slightly in 2000, from DM billion to DM billion. HORNBACH sales go against the industry trend In the face of continuing difficult economic conditions, HORNBACH performed extremely well, raising consolidated sales (including VAT) from DM 2,698 million in the previous year to around DM 2,983 million in the year under review. Gross sales were thus DM 285 million, or just under 11%, higher than in the previous year. Consolidated net sales increased to DM 2,570 million (1999: DM 2,327 million). The sale of the standalone garden centers in Neunkirchen and Kassel to our fellow subsidiary HORNBACH Florapark GmbH means that their sales are no longer consolidated in HORNBACH-Baumarkt-AG. Comparison with the previous year is accordingly slightly misleading. Eliminating builders merchant business sales from the figure for the previous year increases growth in sales of the DIY superstores in the year under review to 11.6%. The proportion of sales generated in other European countries rose from DM 493 million in the previous year to DM 619 million (+25.5%). The twelve HORNBACH DIY superstores and garden centers in The Netherlands, Luxembourg, Austria and the Czech Republic at the balance sheet date generated 21% of Group gross sales (previous year: 18%). Six DIY superstores and garden centers were opened in the financial year 2000/2001. In all, the number of stores increased on balance to 82. Compared to the end of the previous financial year, total sales area increased on balance by c. 58,000 sq. m. (c. 623,500 sq. ft.) to c. 791,000 sq. m. 6

10 (c. 8,503,250 sq. ft.). The average sales area per store is now 9,650 sq. m. (103,740 sq. ft.). Despite the decline in DIY sales, HORNBACH achieved a growth of 2.5% in like-for-like sales. This continuing favourable trend was also supported by the very gratifying performance of international sales in Austria in particular, but also in The Netherlands and the Czech Republic. In these countries, HORNBACH DIY superstores and garden centers achieved sales growth figures rising into double digits, giving HORNBACH International, as a whole, a growth of 9.1% in like-forlike sales, in the past financial year 2000/2001. Sales in the DIY superstores and garden centers in Germany grew by 1.0% on like-for-like in the year under review. The trend differs between the western German stores and their eastern German counterparts. While comparable store sales rose 2.3% in the stores in western Germany, they dropped by a significant 3.4% in the eastern German stores. Earnings rose faster than sales HORNBACH-Baumarkt-AG succeeded in boosting consolidated earnings over sales. The consolidated result from ordinary activities of DM 83 million was up just under 19% on the previous year (DM 69.8 million). The pre-tax return on sales improved from 3.0% in the previous year to 3.2%. Growth in earnings is primarily due to the very impressive growth in the foreign subsidiaries. The expansion into other European countries which began in August 1996 with the opening of the first HORNBACH DIY superstore and garden center in Austria is beginning to pay off. The trend in Austria is particularly satisfactory: with only five DIY superstores and garden centers, our Austrian subsidiary nevertheless made a significant contribution to operating results. In the Czech Republic our three stores almost broke even, and the three stores in The Netherlands also significantly boosted their results. With just one store, the Luxembourg HORNBACH subsidiary is generating a steady growth in earnings. Unfortunately, the HORNBACH DIY superstores and garden centers in Germany saw profits fall overall. This unfavourable trend compared to our foreign operations is due in par- MANAGEMENT REPORT 7

11 Result from ordinary activities (in DM million) ticular to the increasingly difficult competitive environment. Particularly hard hit were our stores in the new Länder and in northern Germany. In the year under review the gross margin fell slightly to 36.2% (previous year: 36.4%). Consolidated store costs increased to c. DM 733 million (previous year: DM 672 million). This increase is, however, less than the growth in sales, so that store costs as a percentage of net sales fell from just under 29% to 28.5%. Despite substantial investment in securing the future of the business, central administration costs were held at 3.8% of net sales, or c. DM 97 million (previous year: DM 86 million). These costs include expenditure on a large number of future-orientated projects. For example, we invested significantly in IT, staff TV and management training. The cost structure of the HORNBACH- Baumarkt-AG has improved, primarily as a result of increased concentration on real estate activities within the HORNBACH Group by our fellow subsidiary HORNBACH Immobilien AG. This is particularly evident in the lower pre-opening costs compared to the previous year. This category covers the costs incurred before opening a new HORNBACH DIY superstore and garden center. A significant part of these costs represents interest expenditure on bridging finance for real estate. The increasing transfer of construction activities to our fellow subsidiary HORNBACH Immobilien AG means that these costs are not charged to HORN- BACH-Baumarkt-AG. Overall, pre-opening costs have fallen from c. 1.05% of net sales in the previous year to 0.72% in the year under review. The lower tax burden on foreign profits compared to the tax on domestic profits had a favourable impact on the consolidated results after tax. Consolidated net income rose more than 50% from DM 30.2 million to DM 45.3 million. The effective burden of income tax on the result from ordinary activities fell from 53.4% in the previous year to 42.0%. The EPS (DVFA presentation, adjusted for extraordinary items and income relating to other periods) improved significantly from DM 2.25 to DM 2.79, an increase of 24.0%. The consolidated gross cash flow, i.e. the result from ordinary activities plus scheduled depreciation, rose by around 7% to c. DM 182 million (previous year: DM 170 million). A figure highly regarded by analysts, EBITDA (earnings before interest, taxes, depreciation and amortization), is shown as DM 223 million, around 7% higher than the previous year (DM 208 million). EBIT (earnings before interest and taxes) grew by 14.9% to c. DM 125 million (previous year: DM 108 million). Individual financial statements of the AG The individual financial statements of HORN- BACH-Baumarkt-AG, which primarily cover operations of domestic DIY superstores and garden centers, show gross sales income (including VAT) of DM 2,396 million (previous year: DM 2,229 million) and net sales of DM 2,081 million (previous year: DM 1,936 million). This growth of 7.5% in like-for-like sales was a combination of growth (+1.0%) and new openings. Growth in comparable store sales was due primarily to the DIY superstores and garden centers in western Germany (+2.3%), with our stores in the new Länder showing a decline of 3.4% in sales. The gross profit was c. DM 841 million, or 40% of net sales: this compares with c. DM 738 million, or 38%, in the previous year. It should be taken into account that other operating income includes profits under sale and lease back transactions of DM 51 million. These profits do not affect results, as under section 6b EstG (German Income Tax Act) they are transferred to new investments (DM 41 million) or to special tax reserves (DM 10 million). Personnel expenses rose by DM 32.1 million to DM million; other operating expenses outstripped sales, rising 16.0% to DM million (previous year: DM million) primarily because of our new move into TV advertising. Scheduled depreciation of fixed assets totalled DM 78.1 million, 0.8% below the previous year (DM 78.7 million). Depreciation of DM million includes additional depreciation of DM 41.3 million permitted under section 6b EStG. The financial result was DM 29.0 million, almost matching the previous year (DM 30.0 million). The result from ordinary activities in the financial statements of the AG amounted to DM 63.0 million (previous year: DM 74.2 million). Net income, which determines the ability of the AG to pay a dividend, was DM 35.0 million (previous year: DM 39.8 million). HORNBACH International strengthens earning power HORNBACH is represented outside Germany in four other European countries, with twelve large DIY superstores and garden centers. As at the balance sheet date of February 28, 2001 there were HORNBACH DIY superstores and garden centers in Austria (5), The Netherlands (3), the 8

12 a special service for HORNBACH customers Czech Republic (3) and Luxembourg (1), with a total sales area of c. 137,000 sq. m. (c.1,472,750 sq. ft.) and an average store area of 11,400 sq. m. (122,550 sq. ft.). The move into other countries, starting with the opening of the first Austrian store in August 1996, has proved successful. The contribution to results from Austria and Luxembourg is very satisfactory. The three DIY superstores and garden centers in the Czech Republic almost broke even. Start-up losses in The Netherlands were significantly reduced. In Switzerland, a domestic company was formed in preparation for entering this market. As shown in the segment reporting in the notes (see p. 40 of the annual report), HORN- BACH International showed a result from ordinary activities of DM 17.4 million in the past financial year 2000/2001 on net sales of DM million (previous year: DM million). This compares with a loss of DM 6.7 million in the previous year and means that HORNBACH International is now established as a significant source of earnings for the Group. The growth of our stores in Austria again deserves special mention. With a total of five HORNBACH DIY superstores and garden centers and a sales area of c. 57,000 sq. m. (c. 612,750 sq. ft.) in the Vienna greater metropolitan area (4) and near Linz, both sales and earnings increased on the previous year. In the current financial year 2001/2002, two more openings of HORNBACH DIY superstores and garden centers are planned. Other highly promising locations are awaiting planning permission or are being developed. The activities in The Netherlands within HORNBACH Holding Nederland B.V. also showed significant improvements in results compared with the previous year. Although still in the start-up loss phase, the three HORNBACH DIY superstores and garden centers in Zaandam (Amsterdam), Tilburg and Kerkrade, with a total sales area of 34,617 sq. m. (372,133 sq. ft.) and an average sales area of 11,539 sq. m. (124,044 sq. ft.), reported a highly promising growth in sales. The network of stores is being consistently expanded with the opening of two more large HORNBACH DIY superstores and garden centers in Groningen and Wateringen. This expansion is bringing the operation to a scale which will be profitable in the medium term. The HORNBACH DIY superstore and garden center which opened in Luxembourg in September 1998 has fully met sales and earnings expectations. Activities in the Czech Republic were strategically expanded with the opening of the store in Ostrava in September Only two years after the opening of the first HORNBACH DIY superstore and garden center in Prague in November 1998, our operation in the Czech Republic almost broke even in the past financial year 2000/2001. A positive contribution to results is expected in the current financial year 2001/2002. Investment in new markets and infrastructure In the financial year 2000/2001 c. DM 152 million (previous year: DM 224 million) was invested in the Group, mainly in real estate, buildings, equipment and fittings. This figure is 32% (DM 72 million) lower than in the previous year and was MANAGEMENT REPORT 9

13 Capital investments (in DM million) financed from cash flow available, long-term mortgages on land and buildings, and funds released by real estate sales. Approximately 52% of capital investment was for new real estate, including advance payments and assets under construction, while approx. 48% was provided for the replacement and expansion of operating and office equipment as well as for intangible assets (primarily computer software). The most important investment projects related to the DIY superstores and garden centers opened in the year under review in Bremerhaven, Wilhelmshaven, Hannover, Straubing, Velten near Berlin and in the Czech Republic (Ostrava), stores in preparation (Erlangen, Garbsen) and purchases of sites in The Netherlands, Austria and Switzerland. With effect from February 28, 2001 the stores in Mönchengladbach, Jena and Görlitz were sold to various real estate funds under sale and lease back agreements. The proceeds from the sales totalling DM 87 million were received on March 1, As at the balance sheet date the corresponding receivable is shown under other assets. A book profit of c. DM 51 million was made on the transactions, and this was transferred to new investments under section 6b EStG or special tax reserves without affecting our results or tax liability. As a result, the transactions have no effect on net income. Their sole purpose is to release funds, without incurring a tax liability, for financing future growth. The right to use the stores is secured in the long term (15 years plus two five-year extension options). In addition, the rights to first refusal on leasing and purchase have been agreed. Balance sheet structure remains sound Compared to the previous year, total consolidated assets rose by some DM 100 million, or 6.5%, to DM 1,642 million. The sale and lease back of five stores means that the share of fixed assets in total assets fell from over 60% to 55%, or DM 910 million, despite total investment of DM 152 million. In contrast, current assets rose by 21% to DM 728 million (previous year: DM 599 million). The significant growth in current assets is primarily due to the inclusion in receivables and other assets of the receivable including VAT of c. DM 101 million from the three sale and lease back transactions. These were settled at the start of the new financial year 2001/2002. The growth of 6.2% in inventories to c. DM 545 million is due primarily to the opening of six new HORNBACH DIY superstores and garden centers during the year. Payables amounted to DM 1,040 million as at February 28, 2001, compared with DM 943 million in the previous year. Included herein are amounts due to banks of DM 669 million (previous year: DM 705 million). Growth in total payables is due primarily to short-term use of group loans as part of liquidity management in the HORNBACH Group. The cash flow statement prepared according to international standards in the notes forming part of this report give a detailed overview of the financial activities (see page 39). Consolidated shareholders equity at the end of the financial year amounted to DM 510 million, or 31.0% (previous year: 31.7%), of total assets. Taking into account 50% of the special tax reserves, the equity-assets ratio was 31.4%. In the individual financial statements of the AG, shareholders equity is shown at DM 521 million (previous year: DM 511 million), or 36% (previous year: 38%), of the higher total assets. Risk management Since May 1998 there has been a statutory requirement for members of the Boards of Management of public stock corporations to establish a risk management system (Section 91 (2) of the German Stock Corporation Act). The auditors of listed stock corporations are responsible for determining if the system is capable of performing its functions. Even before the coming into force of the new Act, the Board of Management of HORN- BACH-Baumarkt-AG committed itself to risk-aware management which gives top priority to ensure the continuing existence of the company as a whole. For the sake of clarity, risk policy principles were adopted which are binding on all Group employees. Commercial success is inevitably associated with risk. However, no act or decision is allowed to put a company at risk. Entrepreneurial risks must be rewarded by an appropriate return on capital invested. The success of all our stores is evaluated here using the CFROA ratio (cash flow return on assets). Our aim is its steady improvement. Unavoidable risks, insofar as commercialy acceptable, must be insured against. Residual risks must be managed using risk management techniques. 10

14 Employee development (average full-time equivalents p. a.) HORNBACH-Baumarkt-AG and its subsidiaries have numerous instruments in place for risk early warning and monitoring. The Group accounting system is highly developed and enables detailed and prompt reporting. Consolidated balance sheets and income statements are generated monthly and submitted to the decisionmaking bodies. The reporting system is supplemented by informative key ratios, deviation analyses and comments from the Controlling Department. In the financial year 2000/2001, the Group Controlling Department was further expanded and its staff increased. Corporate planning is drawn up carefully and in detail and is used to measure success in all divisions. To improve corporate planning, substantial investment was made in support systems during the past financial year 2000/2001. Major investment decisions are taken on the basis of dynamic investment computations and sensitivity analyses. Investment relating to new locations is prepared on the basis of detailed market research. The Board of Management has issued targets for minimum rates of return on projects using the internal rate of return technique. The Board of Management meets generally once a week. Significant investment and financing decisions are prepared for decision in the investment and financing committee. The internal audit department carries out regular audits at locations in Germany and abroad, and reports to the Board of Management. Ready for the launch of the Euro From the start of 2002, the Euro will be the sole legal means of payment in the Euro region. However, the countries involved have different transitional periods for replacing their present national currencies. In Germany and Austria the period is two months, i.e. up to the end of February In The Netherlands and Luxembourg, the transition period is limited to January We are well prepared for the introduction of the Euro as legal tender in the countries affecting us. Key IT systems have already switched to the Euro as corporate currency. The remaining period before the Euro launch is being utilized intensively for the substantial logistic challenges posed by the introduction of notes and coins. The programme also includes extensive training measures for all employees dealing with cash transactions. New jobs at HORNBACH Our successful growth is also reflected in the number of our employees. As at the balance sheet date February 29, 2000, there were 6,496 employees on permanent contracts with a company in HORNBACH-Baumarkt-AG or one of its subsidiaries; by the end of the financial year in February 2001, this number had risen to 7,126 in Germany and abroad. The number of employees rose from 5,105 to 5,510 in Germany and from 1,391 to 1,616 abroad. Averaged over the year, there were 6,122 (previous year: 5,494) full-time equivalent employees in HORNBACH-Baumarkt-AG. Average annual sales per employee (full-time equivalent) declined slightly from DM 491,000 to DM 487,000. Average personnel cost per employee (wages and salaries plus social security contributions) decreased slightly from DM 62,127 to DM 62,078. The composition of our workforce has remained largely unchanged; women made up 45.5%, compared with 46.4% in previous year, of the workforce. The share of full-time employees increased slightly to 75.7% (previous year: 74.9%). The average age was unchanged at 35. Training has traditionally been a high priority at HORNBACH. This is reflected in the choice of eight training programmes and the year-by-year increase in the number of training positions. In the year under review, 483 (previous year: 419) young people were given training positions. The majority, 300 (previous year: 263) are training for a qualification in retailing. We also continued with the development and training of our employees in the past year. Training was offered in product information, computing, sales, motivation and teamwork. A management training programme ( Leadership ), specially designed for HORNBACH needs, was very popular. Besides qualified external trainers, members of the Board of Management participated personally in the training in order to ensure pervasive and uniform understanding of corporate strategy among middle management. Changes in the companies included in the consolidation With effect from March 1, 2000 the activities of the two stand-alone garden centers in Neunkirchen and Kassel were sold to HORNBACH Florapark GmbH. The purchaser is a newly-formed subsidiary of the joint parent company HORNBACH HOL- DING AG. The purchase price, based on earnings, was DM 5.9 million. The purchase price was reviewed and confirmed by an independent MANAGEMENT REPORT 11

15 appraiser (Public Auditor). Under the management of HORNBACH Florapark GmbH stand-alone garden centers will operate as an independent type of outlet. HORNBACH-Baumarkt-AG will concentrate its resources on European expansion with large combined DIY superstores and garden centers. Proposal for the appropriation of retained earnings HORNBACH-Baumarkt-AG reported net income of DM 34,951, for the financial year 2000/2001. In addition, retained earnings of DM 405, were brought forward from the previous year. The Board of Management and the Supervisory Board propose, following the appropriation required by the articles of association of DM 9,800, (maximum 50%) to revenue reserves, that the remaining retained earnings be appropriated as follows: A dividend of DM 1.70 per share on 15,011,500 ordinary shares Dividend payment DM 25,519, To be carried forward DM 36, Together with the corporation tax credit of DM 0.73 this gives a total amount of DM 2.43 per share for shareholders resident in Germany. This represents a gross dividend return of 5% as at the balance sheet date. As a result of the changes in corporation tax law under the corporation tax reform, HORNBACH- Baumarkt-AG is abolishing, with effect from the financial year 2001/2002, the tax credit procedure which has been in force since 1977 and replacing it by a normal international flat-rate corporation tax system. Under the former tax credit procedure, distributed profits were subject to corporation tax at 30% for the distributing company, while retained earnings were taxed at (most recently) 40%. For the dividend referred to above, domestic shareholders will receive a tax credit for the last time, i.e. the corporation tax paid by HORNBACH- Baumarkt-AG will be offset against the shareholder s personal tax liability. This tax credit procedure is now being replaced, with effect from the financial year 2001/2002, by a flat-rate corporation tax of 25%. There will no longer be any distinction between the taxation of retained and distributed earnings. For domestic shareholders, the tax credit procedure will be replaced by the 50% exemption procedure, whereby domestic shareholders are taxed on half the dividends received. Shareholders with a personal tax rate of less than 40% will be worse off under the new procedure than in the past. Conversely, shareholders with a marginal tax rate in excess of 40% will be better off. The change in the corporation tax system will mean that the shareholders equity of HORN- BACH-Baumarkt-AG with retained earnings still subject to 45% corporation tax as at February 28, 2001 will be converted into a 40% tax category. For HORNBACH-Baumarkt-AG this reclassification will mean a loss of corporation tax credits totalling c. DM 4 million. This loss of tax credits could only be avoided through a dividend in the order of c. DM 77 million. However, HORNBACH-Baumarkt- AG could not fund such a heavy loss of liquidity without serious effects on its operating investment activities. We believe that putting undistributed earnings into the numerous highly-promising investments within HORNBACH-Baumarkt-AG is a better alternative in the medium and long term for our shareholders. The Board of Management accordingly proposes to keep the dividend unchanged; this policy is supported by the fact that an unchanged dividend will not pose a disadvantage to shareholders with marginal tax rates of at least 40%. The reduction of income tax rates under the tax reform programme means that these shareholders will actually receive a higher net dividend than before although the dividend has not be changed. Dependence report In accordance with Sec. 312 of the German Stock Corporation Act, a report has been drawn up on relationships with affiliated enterprises for the financial year 2000/2001. With regard to reportable transactions, the report states that HORNBACH-Baumarkt-AG received appropriate consideration for each transaction and suffered no disadvantage as a result of the measures taken. Important post balance sheet date events The start of the new financial year was affected by the bad weather in March and April. This meant that sales targets could not be reached, particularly by the garden centers. Nevertheless, we remain confident that we will achieve our sales targets for the full year. Lower sales of garden products will have to be offset by higher sales of DIY products. A review is currently in progress of our corporate administration procedures. The goal is to increase efficiency and achieve savings. Our advertising image was changed at the start of the new financial year. The aim is to use humorous TV spots and the slogan There s always a job to be done to 12

16 establish HORNBACH as the competent DIY superstores and garden centers people in the minds of a broad section of the public. As part of the continuing expansion in The Netherlands, a garden center at Nieuwerkerk near Rotterdam was acquired on May 1, It is planned to expand this into a large HORNBACH DIY superstore and garden center. Opportunities and risks for the future and outlook There has been no improvement in the economic environment in the new financial year 2001/2002. Currently, a sense of pessimism about the economy is gaining ground in Germany. Growth rates are being revised downwards. The reason is the significant adjustments to the national accounts published by the Federal Statistics Office. In the last quarter of 2000, growth fell almost to zero in the German economy. Seasonally adjusted, GDP in the fourth quarter was less than 0.25% up on the third quarter. The main factor in this economic slowdown was the burden of higher oil prices. The worsening in the terms of trade and the continuing bear market evidently impacted consumer spending harder than initially expected. The adverse effects are likely to linger into 2001, particularly since many households are just now facing the heavier energy costs in the form of higher bills from landlords. Overall, however, there is a slight improvement in the key data for Even the downturn in the USA seems to be less marked than was feared at the start of the year. Nevertheless, the response of the stock markets is anything but positive. Indeed, the trend on the stock markets has become increasingly detached from fundamentals in recent years. Basically, the German economy is still robust. The overall mood is evidently worse than the situation. We are confident that the mood will improve, bringing new hope for the future. HORNBACH DIY superstore and garden center Ostrava, Czech Republic with ideal transport links 13

17 The DIY store sector expects zero growth on the existing sales area in 2001, following the decline in sales (2%) last year. In recent years, HORNBACH has consistently succeeded in outperforming the industry, and we expect to do so again in the financial year 2001/2002. Our planning accordingly assumes growth in comparable store sales. We have taken into account here the difference in trend currently evident in northern and eastern Germany, on the one hand, and southern Germany, on the other. As a result, higher growth in like-for-like sales has been budgeted for our Southern Region than for the Northern Region (including eastern Germany). Furthermore, significant growth in comparable store sales has also been budgeted for the HORNBACH DIY superstores and garden centers in The Netherlands, Luxembourg and the Czech Republic. Our stores in Austria have achieved sales well above the average for the company, so that we have not budgeted for further growth here for reasons of prudence. Overall, our growth targets are ambitious in view of economic uncertainty. HORNBACH is the market leader in Germany in the large DIY superstore and garden center segment. We plan to consolidate this market leadership with additional megastores. For this purpose, up to six new HORNBACH DIY superstores and garden centers are planned in Germany in the current financial year. Expansion in other European countries is continuing with the opening of two more stores in Austria and two in The Netherlands. Intensive preparation is under way for entering the Swiss market, with the establishment of a domestic organisation. We are also continuing to invest heavily in the existing infrastructure. Investments totalling some DM 282 million planned for 2001/2002 will be financed from the operating cash flow, long-term real estate loans and funds released through sale and lease back transactions. Including the stores opened last year and in the current financial year, sales are budgeted to grow to c. DM 3.3 billion (gross) and DM 2.9 billion (net). The gross margin will narrow due to more aggressive pricing. However, the result from ordinary activities is budgeted to grow at least as fast as sales. This will be achieved primarily by reducing store costs as a percentage of net sales through improvements in operating efficiency. There will be no decisive improvement in the economic environment in the new financial year 2001/2002. There will be little growth (if any) in private consumption. Consumer confidence is still insecure. There are clear signs of reluctance, particularly with regard to buying consumer durables and to investing in the home and garden. Growth in net income due to wage and salary increases and lower taxes was largely absorbed by the rise in energy prices. The DIY industry in Germany is fiercely competitive. Consumers can choose from a large number of DIY superstores and garden centers of different sizes but with similar product ranges. Besides location, size and breadth and depth of product range, price has become a decisive competitive factor. The process of concentration will continue in Germany and at European level. Concepts which are not viable will disappear. DIY store companies will merge. The possible appearance of well-endowed foreign DIY store companies would add further pressure to the competitive environment. Despite the tough competition, HORNBACH will pursue consistently its policy of expansion in Germany and abroad. Parallel to developing new regions, the market position in existing countries will be systematically consolidated. The rapid advance to become one of the leading European DIY store companies involves both opportunities and risks. On the one hand, heavy investment is required, with the prospect of higher financing costs due to interest rate increases and periods of start-up losses; on the other hand, the new locations promise high sales growth. Furthermore, the continuing internationalization reduces our dependence on consumer spending in Germany. HORNBACH is already one of the leaders among the European DIY store chains in terms of expertise and concept. Independent market research institutes repeatedly note the strong potential for predatory competition from HORNBACH DIY superstores and garden centers. For these reasons we are convinced that our growth strategy is right. Internet sales of DIY and garden center articles (e-commerce) will, in our view, not be a significant factor, at least in the next few years. Customers want personal assistance on the spot and prefer to look at and touch articles live before making a decision on purchasing. The Internet will, however, improve customer service and increase price transparency. HORNBACH will systematically exploit the potential of the Internet for the benefit of our customers. Size, location, product range and price will continue to be decisive for sound (i.e. profitable) growth. HORNBACH is ideally equipped for the challenges of the future. 14

18 Total market potential for HORNBACH DIY superstores and garden centers (Eastern and western Germany) DIY Garden centers Building materials Total superstores for repairs and conversions in DM billion in DM billion in DM billion in DM billion 2002* * * Forecasts Source: GMA ( ); ICON ( ) MANAGEMENT REPORT 15

19 In Berlin, our popularity is our strength It was the wrong autobahn exit. No sign of an industrial zone, just empty roads through tiny villages and footpaths with meadows stretching to the horizon. Crows hunch on fence posts, grey herons flap away. With nothing to guide us, we followed our noses. Finally, a solitary figure appeared in the distance. Hopefully, we asked for directions. The address meant nothing to him. Our further enquiries irritated him. Then we mentioned the industrial zone and he looked thoughtful. Suddenly, his face cleared: Is that where HORN- BACH is? You should have said that in the first place! and he gave us directions. As simple as that. The keyword was HORNBACH. Our five markets in Berlin are popular. Customer loyalty and a confidence premium through the ideal concept right from the start. Rolf Heine, Northern Region Regional Manager, who is also responsible for the Berlin location, explains the success with an eye to the early days after the reunification: HORNBACH came with the ideal concept, new buildings, big stores, heavy investment. We didn t have to make do with temporary sales areas under canvas or repainted old stores. This did a lot for people s confidence. After the store opening in Dresden a sensational success, we were completely packed after the opening until 10 o clock at night! and after Leipzig ten years ago, came the first Berlin store in 1992, at Bohnsdorf near Schönefeld. Our flagship, the front runner among the German stores. Rolf Heine, Northern Region Regional Manager: HORNBACH came with the ideal concept 16

20 With over 645,000 sq.ft. of sales area in Berlin and Brandenburg, HORNBACH is a clear front runner. Popularity With premises covering approximately 806,250 sq. ft. and 645,000 sq. ft. of sales area (BHB) in Berlin and Brandenburg, HORNBACH is a clear front runner. Although the competition has crowded in during recent years, Heine is still very optimistic: We re getting our brand across very clearly in Berlin, and even with the tough competition we re still making good progress. When it comes to range, price and service, we re the tops. Nobody else can offer such a good combination. Naturally, this success is, first and foremost, a consequence of the outstanding locations in Berlin itself and the ever popular wealthy suburbs area around it. But the real key to the success is the quality of the staff. Heine has only nice things to say: We have highly-motivated, ideally-trained specialists, with a good mix of new employees and experienced staff. HORNBACH s reputation as a creator of employment has spread. In close cooperation with local employment offices, new prospects have been opened up for many in an area where unemployment can reach 16 %. The stores and that means our customers benefit enormously from employees who have come to the company from a wide range of trade backgrounds. A good working atmosphere is, of course, an essential part of this. There s a great sense of team spirit in the stores. People are up to speed right from the start, and show tremendous enthusiasm for their work, says Heine happily. Naturally, our man from the East has played a role here. He sees the key element of his job which includes looking after all the stores in the new Federal Länder as bringing East and West together. We ve succeeded in bringing people together. This has benefited stores in both East and West. With the commencement of the regionalization plan at the beginning of 1999, Berlin also became the headquarters for regional management, a little group within the group. The decision at that time to concentrate expansion here has proved worthwhile. The enormous growth in the capital and surrounding area leaves scope for even more expansion. During the current financial year a new HORNBACH store will open in Ludwigsfelde in south Berlin, and there are firm plans for more stores in the metropolitan area. HORNBACH IN AND AROUND BERLIN 17

21 Berlin-Velten DIY superstore and garden center Parkallee, in the Business Park Opened: January 10, 2001 Sales area: 127,183 sq. ft. (BHB) Number of employees: 95 Five stores Potsdam DIY superstore and garden center Marquardt, Friedrichspark Opened: October 2, 1996 Sales area: 123,367 sq. ft. (BHB) Number of employees:

22 Vogelsdorf DIY superstore and garden center Frankfurter Chaussee 51 Opened: October 23, 1995 Sales area: 137,288 sq. ft. (BHB) Number of employees: 129 at a Berlin-Marzahn DIY superstore and garden center swoop Märkische Spitze 15 Opened: April 9, 1997 Sales area: Number of employees: ,955 sq. ft. (BHB) Berlin-Bohnsdorf DIY superstore and garden center Grünbergallee 279 Opened: February 26, 1992 Sales area: 125,313 sq. ft. (BHB) Number of employees: 152 HORNBACH IN AND AROUND BERLIN 19

23 Five stores at a swoop but each with an individuality of its own The sky over Berlin is blue, mid-morning on a normal mid-week day. Out in the large parking area, people are busily coming and going. This is what makes store manager Martin Thiel explain later with great satisfaction: Bohnsdorf with its tremendous location near Schönefeld airport has the highest turnover of all our Berlin stores! And then there was the opening nine years ago as HORNBACH s debut in the capital: Sales were absolutely incredible: you wouldn t have thought you could move that volume of products through the goods entrance. The rapid response to the flood of customers (now much faster through the great cooperation with our logistics center in Lehrte, as Thiel constantly stresses) guarantees our success in his view, setting us apart from the competition. It all started nine years ago: debut in Bohnsdorf. Customer loyalty is strong; this is due not least to a committed team, most of whom have worked here since the opening. At the same time, the Bohnsdorf store is a management crèche, a launching pad for high fliers. Thiel makes no effort to hide his pride: A lot of smart people have come out of this store. For Thiel, job security and the soundness of the company are huge advantages. Furthermore, people see that you can make something of yourself here. Thiel s own career attests to this: he himself started ten years ago as a salesman in Dresden. Martin Thiel, Bohnsdorf store manager: Bohnsdorf has the highest turnover of all our Berlin stores. 20

24 Debut Gerold Pfützner, Vogelsdorf store manager: We were the store with the highest opening sales. Getting to the top with building materials. Gerold Pfützner, Vogelsdorf store manager for the past five years, has a similar story. He also recalls his disbelief at the 1995 opening: We were the store with the highest opening sales, over a million in cash went through our tills then. We had to close the store because of overcrowding. Here too, customers have remained loyal. A survey a few years ago showed over 50 % of visitors identifying themselves as regular customers. What of the future? We re in a very good position for the future, says Pfützner happily. They re forecasting that the Vogelsdorf population will grow by 30 % over the next five years. There s a lot of new building in the surrounding villages formerly a setting for weekend villas for Communist Party functionaries. In addition, the Brandenburg ring around the city still has plenty of unused space, and the influx has developed impressive momentum. This trend has put the Vogelsdorf store at the head of all HORNBACH stores in sales of building materials in Germany. Around 130 employees look after our customers here. Fortunately, we are able to attract qualified staff, and the store manager works closely with the local employment office. With unemployment on the Oder river running at 20 %, people are willing to travel up to 80 km to work. Many young people also seize the opportunity of obtaining a position as apprentice. Pfützner has some 50 applications for the new training year; there are usually five openings. HORNBACH IN AND AROUND BERLIN 21

25 Serving the prefab estate. If you travel due west from Vogelsdorf into the capital, you come to Marzahn, Germany s largest prefab estate. The identical boxes loom like a colossus, creating a unique and imposing backdrop for the store, which opened in But that s not all. The effect of local living conditions on customer needs has had a predominant impact on the product range here. For example, the sanitary ware department offers planning suggestions for bathrooms whose layout is identical with the dimensions of the prefabricated apartments. The garden department also has an unusually large range of plants for balconies, responding to the needs of their customers in Balconia. The above-average turnover of items here speaks for itself. Another strength of this store is the interior decorating department with its picture framing shop (particularly popular with local customers). This department is clearly our strength; we re the front runners in Germany, explains store manager Lutz Urbanek enthusiastically incidentally he also comes from the Bohnsdorf management crèche. A feature he enjoys is that Marzahn s unusual architecture the administrative offices are not on an upper floor makes it possible for him to walk directly out into the sales area. This means you re always in touch with the customers and always in the picture. Urbanek describes his store as a real city store which is running neck and neck with the Bohnsdorf store in terms of the frequency of customers visits. Lutz Urbanek, Marzahn store manager: always in touch with the customers and always in the picture. 22

26 Andy Kunz, Marquardt store manager: We have Germany s biggest shopping basket Rural store in Berlin s wealthy suburbs. Where Marzahn s special feature is the urban setting in the middle of a prefab estate, the key feature of the Potsdam store is its rural setting. Here, the store, surrounded by green fields, is very much a rural store but, like Vogelsdorf, it is dependent on the capital s wealthy suburbs. Here, customers flood in from the new development areas behind Spandau, where they build and renovate their single-family homes. Store manager Andy Kunz (at just under 30, the youngster among the Berlin store managers, and the second youngest in the company in his grade) is full of enthusiasm. The store lives from numerous customers with construction projects in mind, who come here for everything from their first sack of cement to the last screw and leave a lot of their money at the tills. We have Germany s biggest shopping basket, Kunz explains with obvious delight, whipping another ace out of his sleeve: In the last financial year we had the highest sales growth in the whole Northern Region. This is also a result of another strength of the stores in Berlin and Brandenburg: the stores function as test areas for new corporate concepts, such as focusing on professional customers. HORNBACH s new concept for professional customers was tested here, and Kunz is full of praise: The professional line is doing very well here; we have a very high ratio of trade customers. For all his success, Kunz freely admits that he has the major advantage at his store that he is less exposed than many of his colleagues to the brutal realities of competition. Wealthy suburbs HORNBACH IN AND AROUND BERLIN 23

27 While these four stores are well established, the Velten location is a newcomer dating back to the beginning of the year. Store manager Reinhard Thom, who has managed five different stores in eastern and western Germany over a five-year period, brings a wealth of experience to his job. Looking back, he talks about the tremendous fun he has had over this period getting to know the different regions and very different people. They also benefit from the expertise of our new employees, many of them with a craft background which they felt offered too little in the way of prospects. With his superteam, Thom has some new ideas: Velten is located in the catchment area for Havel, a water sports paradise. The store manager aims to use speciality product ranges to tie this area into the store s clientele. We re going out into the region and looking for associates we can target with our product range, explains Thom. New face for a new store. For him, Velten is another new experience but his expectations for the market have already been met: We had fantastic opening sales, although the winter is always a difficult time for DIY superstores. Thom is now all the more confident about the future: A store like this is just what the region has been lacking. We have competitors, but none of them attains our standard. Our customers are already regulars, and they re very happy with the store. Which all means that the new store will keep its individuality. There are plenty of ideas. And in the Berlin region, there is always plenty to be done. New store Reinhard Thom, Velten store manager: A store like this is just what the region has been lacking. 24

28 Supervisory Board and Board of Management Supervisory Board Dr. Wolfgang Rupf Chairman Chairman of the Board of Management of Bankgesellschaft Berlin AG Rudolf Helfer* Deputy Chairman Senior Specialist for Occupational Safety Gerhard Wolf Deputy Chairman Diplom-Kaufmann (Graduate in Business Administration) Dr. Claus Gastroph Notary Albert Wilhelm Hornbach Member of the Board of Management of HORNBACH HOLDING AG Johann Krämer* Caretaker Johann Liebl* PA to store manager, Passau store Christian Lilie* District manager, Southern region Johannes Otto* PA to store manager, Mannheim-Neckarau store Ralf Puley* PA to store manager, Wuppertal store Dr. Hans Schlarmann Lawyer Prof. Dr. Jens Peter Wulfsberg Diplom-Ingenieur (Graduate in Engineering) Permanent Professor of Manufacturing Technology at the German Army University, Hamburg The members of the Board of Management and their areas of responsibility: Albrecht Hornbach Diplom-Bauingenieur (Graduate in Civil Engineering) Chairman Expansion, environmental issues, PR, audit Karl Garrecht Businessman Personnel and social issues, general purchasing Martin Hornbach Diplom-Wirtschaftsingenieur (Graduate in Business Management and Engineering) IT systems, logistics Steffen Hornbach Diplom-Ingenieur (Graduate in Engineering) HORNBACH International, marketing and advertising, store organization, operations Roland Pelka Diplom-Kaufmann (Graduate in Business Administration) Finance, accounting, taxation, controlling, investor relations, legal Manfred Valder Businessman Purchasing and sales, merchandising Supervisory Board Committees These consists of an accounts committee and a personnel committee. The following persons are members of both committees: Dr. Wolfgang Rupf Rudolf Helfer Gerhard Wolf Albert Wilhelm Hornbach * Employee representative SUPERVISORY BOARD AND BOARD OF MANAGEMENT 25

29 Report of the Supervisory Board Dr. Wolfgang Rupf During financial year 2000/2001, the Supervisory Board performed its duties under statute and the articles and monitored the Board of Management s conduct of business, accompanied the Board of Management in an advisory capacity, and kept itself regularly informed as to the general course of business and the situation of the company. The Board of Management also kept the Supervisory Board informed of intended business strategy and other fundamental issues of corporate policy. At four meetings, held on June 14, 2000, September 13, 2000, October 26, 2000 and February 21, 2001, the Supervisory Board received verbal and written reports from the Board of Management and discussed them. The subjects discussed were primarily the development of earnings in the subsidiaries compared to budget and the previous year and the investment and financing policy. The personnel committee met on October 26, At this meeting the committee discussed, among other subjects, the impending reappointment of a member of the Board of Management. On the recommendation of the personnel committee, the full Supervisory Board approved the reappointment for a further five-year term of office. The Supervisory Board was informed extensively and in good time of all measures requiring its approval. Following the review and discussion of these matters, the Supervisory Board granted all the required approvals. The Chairman of the Supervisory Board was in regular contact with the Chairman of the Board of Management and was informed about all important business events and the development of the company. In addition, the Board of Management regularly reported on the state of the company as well as on the development of its earnings and financial position. In particular, it provided the Supervisory Board with the following documents: the audited annual financial statements the monthly reports on the development of sales and earnings the quarterly financial statements for the periods ending May, August and November 2000; and the sales and earnings budgets as well as the investment and financial budgets. The annual financial statements of HORNBACH-Baumarkt-AG, the consolidated financial statements as of February 28, 2001, and the combined management report/group management report were audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, appointed by the General Meeting, and were issued with an unqualified auditors report. The auditors also reviewed the risk early warning system in place at HORNBACH-Baumarkt-AG. This showed that the system is fulfilling its function. KPMG were appointed in writing on December 4, 2000 by the Chairman of the Supervisory Board, representing the whole Supervisory Board and acting in accordance with the resolution of the General Meeting, to audit the annual financial statements. The annual financial statements, the management report and the auditors report were submitted to all members of the Supervisory Board in good time and were discussed in detail at the Supervisory Board s meeting, devoted to the annual financial statements, on June 18, The auditors also attended this meeting and reported on significant results of the audit and answered questions. The Supervisory Board has reviewed conclusively the annual financial statements and the consolidated financial statements of HORNBACH- Baumarkt-AG as of February 28, 2001, the proposal for the appropriation of retained earnings, as well as the management report and the Group management report. Based on the results of these reviews, the Supervisory Board approved the annual financial statements prepared by the Board of Management which are accordingly adopted under section 172 of the German Stock Corporation Act. The Supervisory Board approves the proposal by the Board of Management for the 26

30 appropriation of retained earnings which envisages an unchanged dividend of DM 1.70 per share. The Supervisory Board has acknowledged and approved the consolidated financial statements, the Group management report and the Group auditors report. The Supervisory Board has also reviewed the report by the Board of Management on relationships with affiliated companies in accordance with section 312 of the German Stock Corporation Act. Neither this review nor the KPMG audit gave any reason for objection. KPMG has issued the following auditor s opinion: Based on our audit which we performed in accordance with professional standards, we confirm that 1. the facts presented in the report are accurate, 2. with respect to the transactions set out in the report, the performance of the company has not been unreasonably overstated, 3. with respect to the measures stated in the report, there are no circumstances which would speak for an assessment significantly different to that made by the Board of Management. Based on its review, the Supervisory Board has no objection to the statement of the Board of Management at the end of its report prepared in accordance with section 312 of the German Stock Corporation Act. We wish to convey our thanks and appreciation to the Board of Management and to all our employees in Germany and abroad for their commitment and successful work in the past financial year. Bornheim, June 2001 The Supervisory Board Dr. Wolfgang Rupf Chairman REPORT OF THE SUPERVISORY BOARD 27

31 The HORNBACH-Baumarkt Share HORNBACH-Baumarkt share price March 1, 2000 to February 28, 2001 (Base: February 29, 2000 = 100) Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Jan. Feb NEMAX50 SMAX DAX HORNBACH-Baumarkt-AG Source: Deutsche Börse AG On the balance sheet date February 28, 2001, the HORNBACH-Baumarkt-AG share (WKN ) closed on the Frankfurt Stock Exchange at 25 (previous year: 48.90). The high for the year was (DM 57.70) on May 5, The low for the year was (DM 43.26) on June 30, Despite the fundamental good development in the company s business, the share was locked into a disappointing sideways movement in the financial year 2000/2001. Turbulent stock market environment After a whirlwind start to 2000 fuelled by enthusiasm for hi-tech and telecommunication shares, the DAX index went into a sustained slide. Higher energy costs, warnings about earnings and the economic slowdown in the USA all steepened the dive. For the first time since 1994, the DAX closed the year with a loss. The situation was even worse for the speculative growth shares in the Neuer Markt. During the period from February 29, 2000 to February 28, 2001, the DAX lost just under 19%, while over the same period NEMAX shed over three-quarters of its starting value in a mudslide loss of confidence. In this context, the HORNBACH-Baumarkt- AG share at least succeeded in holding its price at the previous year s level during the stock market turbulence in As such, the share stayed within a similar range to that in the SMAX segment. Even so, we believe that the Baumarkt share still has considerable potential for further gains; it is still well below a fair valuation. An industry comparison with international top players also indicates that the HORNBACH-Baumarkt-AG share is, for example, valued at a significantly lower multiple of EBITDA, despite similar earning power. Retail format unique in Europe In our view, the price fails to reflect the outstanding market position of HORNBACH-Baumarkt-AG. We are the market leader in the large DIY superstore and garden center sector in Germany. We also rank as one of the most profitable companies in the industry. First-class locations in five European countries have been used to develop and replicate a retail format which industry experts and analysts regard as the best in Europe. Among other features, HORNBACH-Baumarkt-AG has the highest average sales per store and per square foot of sales area in Germany. In the financial year 2000/2001, we further increased our market share thanks to our strong potential as predatory competitors. While total market sales for DIY superstores and garden centers in Germany fell again on a comparable sales area, HORNBACH-Baumarkt- AG once more increased sales. In the Top 10 league table for gross sales, we advanced in 2000/2001 from the sixth to fourth place in Germany. Improved DVFA results Consolidated net income rose in the financial year 2000/2001 by more than 50% to DM 45.3 million (previous year: DM 30.2 million). EPS (DVFA presentation) increased from DM 2.25 to DM 2.79 (+24%). Return on equity also rose in the year under review, from 6.2% to 9.1%. 28

32 Capital structure The HORNBACH-Baumarkt-AG ordinary share is listed on the German Stock Exchange in floatingprice trading and is also listed on SMAX, the quality segment for small caps. Some 80% of the c. 15 million shares are held by HORNBACH HOLDING AG, and the remaining c. 20%, or around 3 million shares, are held by independent shareholders. Investor relations strengthened In the past financial year, we further intensified our investor relations activities in order to enhance interest in our company on the part of private and institutional investors, financial analysts and business journalists. The quarterly reports and press releases keep investors and the interested public abreast of current developments in our company. We provide information at the General Meeting, analysts conferences, press conferences concerning the financial statements, road shows in Germany and abroad, presentations in major international financial centers and in the form of numerous individual discussions with investors and analysts. Quarterly reports, press releases and other financial information in German and English are also available to private investors on the HORNBACH website ( Since November 2000, HORNBACH has been a member of the Deutscher Investor Relations Kreis (DIRK) e.v. Following the step by step crash on the Neuer Markt, more and more investors are looking for sound investments which will keep their value including HORNBACH. We use personal dialogue to make clearer the company s operating strengths, outstanding market position and focussed expansionary strategy. The revival apparent since autumn 2000 in institutional investor interest in the strong substance, stable earnings growth and long-term value orientation of our company gives us cause for optimism. We are convinced that the trading volume and market capitalization of the Baumarkt share will rise to an appropriate level in the medium and long term. The share is a long-term investment with good dividends. The gross return on dividend (including tax credit) in the financial year 2000/2001 was 5%. Key ratios for the HORNBACH-Baumarkt Share 1995/ / / / / /01 Nominal value of share DM Dividend DM Tax credit DM DVFA/SG result per share DM Cash Flow under DVFA/SG per share DM Total dividend payment DM ,500 25,500 25,500 25,520 25,520 25,520 13,048 Shareholders equity per share DM Market capitalization* DM , , , , , , ,288 Share price* DM month high DM month low DM Shares issued Units 15,000,000 15,000,000 15,000,000 15,011,500 15,011,500 15,011,500 Share price/earnings ratio* Share price/cash flow ratio* Dividend yield* in % * at the end of the financial year, the last day in February in each case THE HORNBACH-BAUMARKT SHARE 29

33 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG HORNBACH-Baumarkt-Aktiengesellschaft Balance Sheet as at February 28, 2001 ASSETS Feb. 28, Feb. 29, Notes DM 000 DM 000 DM 000 DM 000 A. Fixed assets (9) I. Intangible assets (10) 1. Concessions, industrial property rights and similar rights and licenses in such rights and assets 11,301 12, Payments on account ,128 12,523 II. Tangible assets (11) 1. Land, land rights and buildings, including buildings on third party land 486, , Other equipment, operating and office equipment 127, , Payments on account and assets under construction 25,793 21, , ,358 III. Financial assets (12) Shares in affiliated companies 52,742 52, , ,623 B. Current assets I. Inventories (13) 1. Raw materials and supplies 2,861 2, Merchandise 450, , , ,898 II. Receivables and other assets 1. Trade accounts receivable 1,847 1, Due from affiliated companies (14) 95,919 91, Other assets (15) 120,440 18, , ,047 III. Cash on hand, cash at banks, checks 42,725 44, , ,699 C. Deferred charges 2,832 3,807 1,421,261 1,363,129 30

34 SHAREHOLDERS EQUITY AND LIABILITIES Feb. 28, Feb. 29, Notes DM 000 DM 000 DM 000 A. Shareholders equity I. Subscribed capital (16) 88,080 88,080 Conditional capital DM 11,081,000 (previous year: DM 11,081,000) II. Capital reserve 239, ,580 III. Revenue reserves (17) 167, ,900 IV. Retained earnings 25,556 25, , ,485 B. Special tax reserves (18) 10,044 C. Provisions and accruals (19) 1. Accrued taxes 3,312 44, Other provisions and accruals 43,433 36,364 46,745 80,904 D. Payables (20) 1. Bonds Due to banks 542, , Advance payments from customers 3,362 3, Trade accounts payable 195, , Bills payable 2, Due to affiliated companies 58,100 6, Other payables 29,545 24, , ,022 E. Deferred income (21) 11,759 14,718 1,421,261 1,363,129 FINANCIAL STATEMENTS 31

35 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG HORNBACH-Baumarkt-Aktiengesellschaft Income Statement for the financial year from March 1, 2000 to February 28, / /2000 Notes DM 000 DM 000 DM Sales (23) 2,396,307 2,228,527 less VAT 315, ,229 Net sales 2,081,117 1,936, Other own work capitalized Other operating income (24) 92,192 35,759 2,173,469 1,972, Cost of materials (25) a) Cost of raw materials and supplies and purchased merchandise 1,318,173 1,222,930 b) Cost of purchased services 14,351 12,012 1,332,524 1,234, Gross profit 840, , Staff expenses (26) a) Wages and salaries 268, ,748 b) Social security contributions 50,646 45, , , Amortization/depreciation of intangible and tangible fixed assets 119,489 79, Other operating expenses (27) 307, , Investment result (28) 3,380 2, Result of financial activities (29) 28,994 30, Result from ordinary activities 63,010 74, Taxes on income (30) 26,584 33, Other taxes (31) 1,475 1, Net income for the year 34,951 39, Retained earnings brought forward Transfer to revenue reserves 9,800 14, Retained earnings (37) 25,556 25,925 32

36 HORNBACH-Baumarkt-Aktiengesellschaft Consolidated Balance Sheet as at February 28, 2001 ASSETS Feb. 28, 2001 Feb. 29, 2000 Notes DM 000 DM 000 A. Fixed assets (9) I. Intangible assets (10) 19,438 20,919 II. Tangible assets (11) 889, ,389 III. Financial assets (12) 1,025 1, , ,374 B. Current assets I. Inventories (13) 544, ,478 II. Receivables and other assets (14) / (15) 126,264 28,775 III. Cash on hand, cash at banks, checks 57,819 57, , ,189 C. Deferred charges 3,714 4,865 1,642,475 1,542,428 SHAREHOLDERS EQUITY AND LIABILITIES Feb. 28, 2001 Feb. 29, 2000 Notes DM 000 DM 000 A. Shareholders equity I. Subscribed capital (16) 88,080 88,080 Conditional capital DM 11,081,000 (previous year: DM 11,081,000) II. Capital reserve 239, ,580 III. Revenue reserves (17) 156, ,286 IV. Consolidated retained earnings 25,520 25, , ,466 B. Special tax reserves (18) 10,044 C. Provisions and accruals (19) 71,482 95,737 D. Payables (20) 1,039, ,507 E. Deferred income (21) 11,759 14,718 1,642,475 1,542,428 CONSOLIDATED FINANCIAL STATEMENTS 33

37 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG HORNBACH-Baumarkt-Aktiengesellschaft Consolidated Income Statement for the financial year from March 1, 2000 to February 28, / /2000 Notes DM 000 DM Sales (23) 2,982,573 2,697,804 less VAT 412, ,774 Net sales 2,570,193 2,327, Other own work capitalized Other operating income (24) 86,367 28,667 2,656,850 2,356, Cost of materials (25) 1,650, , Gross profit 1,006, , Staff expenses (26) 380, , Amortization/depreciation of intangible and tangible fixed assets 139,900 99, Other operating expenses (27) 361, , , , Result of financial activities (29) 41,498 38, Result from ordinary activities 83,004 69, Taxes on income (30) 34,888 37, Other taxes (31) 2,796 2, Net income for the year 45,320 30, Transfer to revenue reserves 19,800 4, Consolidated retained earnings 25,520 25,520 34

38 Notes to the Annual Financial Statements and Consolidated Financial Statements for 2000/2001 1/ Application of the German Commercial Code The annual financial statements and consolidated financial statements of HORNBACH-Baumarkt-AG have been prepared in accordance with the provisions of the Handelsgesetzbuch (German Commercial Code) and Aktiengesetz (German Stock Corporation Act). We have combined individual items in the balance sheet and income statement in order to improve the clarity of presentation. These items are disclosed separately in the Notes. The Notes also provide the additional information required for individual items. The annual financial statements and consolidated financial statements of HORNBACH-Baumarkt-AG are explained together in these Notes. Unless otherwise stated, the explanations apply to both sets of financial statements. 2/ Companies included in the (subgroup) consolidated financial statements In addition to HORNBACH-Baumarkt-AG, the consolidated financial statements include 25 subsidiaries; of these, 3 are domestic (previous year: 3) and 22 are foreign (previous year: 21) subsidiaries. 14 subsidiaries, which are of minor significance, individually or as a whole, have not been consolidated. The number of consolidated companies changed as follows: Balance at March 1, Added to consolidation 1 Balance at February 28, The change in the companies consolidated has a minimal effect on comparability with the previous year, so that no adjustments were made to the figures for the previous years. The consolidated financial statements relate to the superstores and garden center operations of the HORNBACH Group. In addition to these consolidated financial statements of HORNBACH- Baumarkt-AG, consolidated financial statements for the whole Group were prepared by HORNBACH HOLDING Aktiengesellschaft; these include its real estate and stand-alone garden center and building materials subsidiaries. The consolidated financial statements of HORNBACH HOLDING Aktiengesellschaft are filed with the Landau Local Court. 3/ Consolidation principles The financial statements of the individual subsidiaries are included in the consolidated financial statements pursuant to statutory regulations and the uniform accounting and valuation policies of HORNBACH-Baumarkt-AG. Capital consolidation uses the book value method. The acquisition values of the participations are eliminated against the proportional equity attributable to the parent company at the time of acquisition or at the time of initial consolidation. Any difference between the acquisition costs and the proportional equity is allocated in part or in full to the assets of the subsidiary. Any remaining difference on the assets side is recognized as goodwill and amortized; differences on the liabilities side arising from capital consolidation are allocated to the other provisions and accruals or to the reserves, depending on their nature. Intercompany profits relating to fixed assets and inventories are eliminated through the income statement. Expenses and income and receivables and payables between the consolidated companies are eliminated. The financial statements of the individual subsidiaries are, in general, prepared for the same period as the consolidated financial statements. One subsidiary with a financial year ending December 31, 2000 has been consolidated with interim financial statements for the period ending February 28, The assets and liabilities included in the consolidated financial statements are reported and valued using the uniform policies described in Note 6 below. NOTES TO THE FINANCIAL STATEMENTS 35

39 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG 4/ Affiliated companies: Parent company HORNBACH HOLDING Aktiengesellschaft, Bornheim Fellow subsidiaries HORNBACH Immobilien Aktiengesellschaft, Bornheim HORNBACH Florapark GmbH HORNBACH Baustoff Union GmbH Subsidiaries of the fellow subsidiaries decorama HORNBACH Fliesentechnik GmbH Union Bauzentrum HORNBACH (Bornheim) GmbH Union Bauzentrum HORNBACH (Germersheim) GmbH Union Bauzentrum Becker GmbH HORNBACH Mietservice GmbH HIAG Immobilien Alpha GmbH HIAG Immobilien Beta GmbH HIAG Immobilien Gamma GmbH HIAG Immobilien Delta GmbH HIAG Immobilien Zeta GmbH HIAG Immobilien Lambda GmbH HIAG Immobilien Jota GmbH HIAG Immobilien Kappa GmbH HIAG Immobilien Sigma GmbH HIAG Immobilien Tau GmbH HM Immobilien My GmbH HX Immobilien Xi GmbH Participations of HORNBACH-Baumarkt- Aktiengesellschaft Consolidated companies Shareholders Share of Result equity* capital DM 000 % DM 000 Direct participations HORNBACH International GmbH, Bornheim 50, ** AWV Agentur für Werbung und Verkaufsförderung GmbH, Bornheim Ollesch & Fitzner GmbH, Bornheim 1, ** Indirect participations HORNBACH Baumarkt CS spol s.r.o. Prague, Czech Republic 12, ,122 HORNBACH Baumarkt GmbH, Brunn am Gebirge, Austria 55, ,405 EZ Immobilien Beta GmbH, Brunn am Gebirge, Austria SM Immobilien Delta GmbH, Brunn am Gebirge, Austria SK Immobilien Epsilon GmbH, Brunn am Gebirge, Austria HK Immobilien Kappa GmbH, Brunn am Gebirge, Austria HL Immobilien Lambda GmbH, Brunn am Gebirge, Austria HO Immobilien Omega GmbH, Brunn am Gebirge, Austria HP Immobilien Psi GmbH, Brunn am Gebirge, Austria HT Immobilien Tau GmbH, Brunn am Gebirge, Austria 1, SZ Immobilien Zeta GmbH, Brunn am Gebirge, Austria HORNBACH Baumarkt Luxemburg S. A. R. L. Bertrange, Luxembourg 7, ,793 HORNBACH Baumarkt (Schweiz) AG, Zug, Switzerland 1, HORNBACH Holding B. V., Amsterdam, The Netherlands 24, ,857 HORNBACH Real Estate Zaandam B. V., Zaandam, The Netherlands 1, * including 2000/2001 annual result ** Control and profit transfer agreements 36

40 Shareholders Share of Result equity* capital DM 000 % DM 000 HORNBACH Real Estate Kerkrade B. V., Kerkrade, The Netherlands HORNBACH Real Estate Tilburg B. V., Tilburg, The Netherlands HORNBACH Real Estate Groningen B. V., Groningen, The Netherlands HORNBACH Real Estate Wateringen B. V., Wateringen, The Netherlands HORNBACH Bouwmarkt (Nederland) B. V., Driebergen-Rijsenburg, The Netherlands 15, HORNBACH Real Estate Alblasserdam B. V., Alblasserdam, The Netherlands HORNBACH Real Estate Nieuwegein B. V., Nieuwegein, The Netherlands Control and profit transfer agreements have been concluded between HORNBACH International GmbH and Ollesch & Fitzner GmbH. Non-consolidated companies Shareholders Share of Result equity* capital DM 000 % DM 000 Direct participations BM Immobilien Alpha GmbH, Bornheim BM Immobilien Beta GmbH, Bornheim BM Immobilien Gamma GmbH, Bornheim BM Immobilen Delta GmbH, Bornheim BM Immobilien Zeta GmbH, Bornheim Indirect participations HT Immobilien Theta GmbH, Brunn am Gebirge, Austria HJ Immobilien Jota GmbH, Brunn am Gebirge, Austria HO Immobilien Omikron GmbH, Brunn am Gebirge, Austria HS Immobilien Sigma GmbH, Brunn am Gebirge, Austria HY Immobilien Ypsilon GmbH, Brunn am Gebirge, Austria HN Immobilien Ny GmbH, Brunn am Gebirge, Austria HR Immobilien Rho GmbH, Brunn am Gebirge, Austria HC Immobilien Chi GmbH, Brunn am Gebirge, Austria HB Immobilien- und Beteiligungsverwaltung AG, Brunn am Gebirge, Austria * including 2000/2001 annual result NOTES TO THE FINANCIAL STATEMENTS 37

41 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG 5/ Currency translation Currency translation in the Group is carried out generally using the functional currency method, i.e. relatively independent foreign subsidiaries are translated at the balance sheet date rate of exchange, and dependent subsidiaries are translated using the temporal method. In the consolidated financial statements, all the financial statements of the foreign subsidiaries are translated at the balance sheet date rate of exchange in accordance with their economic independence. The assets and liabilities and the results of all foreign subsidiaries are stated at the parity rates for the Euro (Austria, The Netherlands, Luxembourg) or at the middle rate of exchange at the balance sheet date (Czech Republic and Switzerland) (balance sheet date rate of exchange method). Shareholders equity is shown at the rate prevailing at the time of the capital contribution. Income and expenses are, in general, translated at average rates. Currency differences arising from translation are taken directly to reserves; however, those arising from the translation of items in the income statement are taken through the income statement. 6/ Accounting and valuation policies Intangible assets are stated at acquisition cost less scheduled amortization over their estimated useful lives. Tangible assets are stated at acquisition/manufacturing cost less scheduled depreciation. Interest on borrowed capital is not capitalized. Buildings are depreciated using the declining balance or straightline method over a useful life not exceeding 33 years. Where permissible, the declining balance method is used to depreciate commercial and industrial buildings. Starting with the financial year 1999/2000, movable fixed assets at HORNBACH-Baumarkt-AG are depreciated using exclusively the straight-line method in accordance with international accounting principles. For acquisitions during the financial year, depreciation is prorated by time. Low value items are written off in the year of acquisition and shown as disposals. Financial assets are stated at acquisition cost where no permanent impairment exists. Inventories are carried at the lower of their acquisition/manufacturing cost or their market value. The cost of merchandise inventories is calculated on the basis of weighted average prices. Individual risks relating to receivables and other assets are reflected in appropriate individual allowances. The general credit risk associated with receivables is covered by means of a general allowance. Other provisions and accruals take into account all identifiable risks and uncertain obligations. Payables are stated at the amounts to be paid. Receivables and payables in foreign currency are valued at the exchange rate at the transaction date. Receivables and payables in a European Union currency are translated at the Euro parity rate. Exchange rate losses are recognized. 38

42 7/ Cash flow statement The following cash flow statement complies with German Accounting Standard No. 2 (DRS 2). The comparable figures for the previous year were adjusted to reflect the modified format. Group 2000/ /2000 DM 000 DM 000 DM 000 Consolidated net income for the year 45,320 30,150 Scheduled amortization/deprecation of fixed assets 98,654 99,709 Deprecation in accordance with 6b EStG 41,246 Transfer to special tax reserves 10,044 Decrease in provisions and accruals 24,281 4,398 Profit (previous year: loss) on disposal of fixed assets 51, Change in inventories, trade accounts receivable and other asset items 42, ,742 Change in trade accounts payable and other liability items 44,263 32,155 Funds generated by operating activities 120,959 56,560 Proceeds from the disposal of fixed assets 4,628 4,314 Proceeds from the disposal of participations 956 Investments in tangible fixed assets 143, ,641 Investments in intangible fixed assets 6,937 5,017 Investments in financial assets 96 1,066 Funds used in investing activities 145, ,454 Group financing receipts/payments 87, Payments to shareholders 25,520 25,520 Proceeds from borrowings 80, ,982 Repayment of borrowings and bonds 85,669 56,236 Change in current account payables 31,706 16,376 Funds generated by financing activities 24, ,525 Change in cash and cash equivalents ,369 Cash and cash equivalents as at March 1, ,936 96,305 Cash and cash equivalents as at February 28, ,819 57,936 Cash and cash equivalents include cash on hand, cash at banks, securities and other short-term cash deposits. The sale and lease back transactions entered into by HORNBACH-Baumarkt-AG on February 28, 2001 are not included in receipts from the disposal of fixed assets and changes in other assets as the purchase price (DM 87,218,000) had not been paid at the balance sheet date. Funds generated by operating activities were reduced by tax payments of DM 60,663,000 (previous year: DM 42,566,000) and interest payments of DM 42,924,000 (previous year: DM 39,278,000). NOTES TO THE FINANCIAL STATEMENTS 39

43 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG 8/ Segment reporting The segment reporting in accordance with section 297 (1) of the German Commercial Code was based on the German Accounting Standard No. 3 (DRS 3). Segment reporting follows the accounting and valuation methods used in the consolidated financial statements. Sales to external third parties represent net sales. Intersegment income was not significant. Classification of segments The breakdown into areas of business (segments) corresponds to the internal reporting system used by the Board of Management and management of the HORNBACH-Baumarkt Group in running the company. The DIY superstores Germany segment covers the 70 large domestic DIY superstores and garden centers. The segment DIY superstores international covers the 12 DIY superstores and garden centers in Luxembourg, The Netherlands, Austria and the Czech Republic. The segment Other and consolidation covers primarily the distribution costs not allocated to the segments and also unallocated administration costs and consolidation items. Segment result The segment result is the result from ordinary activities. Segment assets and liabilities The assets and liabilities in the consolidated balance sheet are allocated directly to the individual segments as far as possible. The remaining assets and liabilities were allocated appropriately. For the individual segments, the liabilities in the consolidated balance sheet were increased by the amounts due to group companies and allocated to the individual segments based on the reasons for which they arose. The resulting adjustments are eliminated in the item Other and consolidation. 2000/2001 in DM million DIY DIY Other and HORNBACH (1999/2000) superstores superstores consolidation DIY superstore Germany international Group Sales to external third parties 2, ,568.0 (1,910.6) (415.8) (0.0) (2,326.4) Result from ordinary activities (93.2) ( 6.7) ( 16.7) (69.8) including depreciation (75.0) (21.3) (3.4) (99.7) interest income (5.2) (0.3) ( 4.1) (1.4) interest expense (36.0) (10.3) ( 6.3) (40.0) Assets (incl. participations) 1, ,640.8 (1,242.5) (349.1) ( 51.0) (1,540.6) Investments (133.3) (77.0) (13.8) (224.1) Debt ,131.8 (770.9) (318.9) ( 38.0) (1,051,8) 40

44 EXPLANATORY COMMENTS ON THE BALANCE SHEET 9/ Fixed assets Changes to, and the composition of, the fixed assets of HORNBACH-Baumarkt-AG and the Group are presented in the pages which follow. 10/ Intangible assets Intangible assets comprise mainly computer software; Group options on real estate are also shown here. In the year under review unscheduled amortization totalled DM 143,000 (previous year: DM 618,000). 11/ Tangible assets Of the tangible assets of the Group, DM million is accounted for by HORNBACH-Baumarkt- AG and DM 2.7 million by the domestic subsidiaries and affiliated companies. DM million is reported in the financial statements of foreign Group companies. Additional tax-driven depreciation of DM 41.2 million (previous year: none) was charged in the financial statements 2000/2001 in accordance with section 6b of the German Income Tax Act. 12/ Investment portfolio The HORNBACH-Baumarkt-AG participations are shown above under affiliated companies (Note 4). 13/ Inventories The inventories in the Group consist of the following: Feb. 28, 2001 Feb. 29, 2000 DM 000 DM 000 Raw materials and supplies 3,471 3,146 Merchandise 541, ,332 Balance sheet amount 544, ,478 The balance sheet amounts at February 28, 2001 and February 29, 2000 relate exclusively to the segment of (combined) DIY superstores and garden centers. NOTES TO THE FINANCIAL STATEMENTS 41

45 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG HORNBACH-Baumarkt-Aktiengesellschaft Movements in fixed assets Acquisition Additions Disposals Reclassifications cost March 1, 2000 DM DM 000 DM 000 DM 000 I. Intangible assets 1. Concessions, industrial property rights and similar rights and assets and licenses in such rights and assets 34,434 5, Payments on account ,415 6, II. Tangible assets 1. Land, land rights and buildings including buildings on third party land 726,983 3,602 67,173 12, Other equipment, operating and office equipment 404,814 55,510 26,178 1, Payments on account and assets under construction 21,200 18, ,009 1,152,997 78,008 93, III. Financial assets 1. Shares in affiliated companies 52,742 52,742 Grand total 1,241,154 84,696 94,047 42

46 Acquisition Amortization/ Balance sheet Balance sheet Amortization/ cost depreciation amount amount depreciation (accumulated) (financial year) Feb. 28, 2001 Feb. 28, 2001 Feb. 29, 2000 DM 000 DM 000 DM 000 DM 000 DM ,345 29,044 11,301 12,159 7,083 1, ,789 29,661 12,128 12,523 7, , , , ,950 63, , , , ,208 49,008 25,793 25,793 21,200 1,137, , , , ,405 52,742 52,742 52,742 52,742 52,742 52,742 1,231, , , , ,488 NOTES TO THE FINANCIAL STATEMENTS 43

47 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG HORNBACH-Baumarkt-Aktiengesellschaft Movements in consolidated fixed assets Acquisition Additions Disposals Reclassifications cost March 1, 2000 DM DM 000 DM 000 DM 000 I. Intangible assets 1. Concessions, industrial property rights and similar rights and assets and licenses in such rights and assets 47,442 6, Payments on account 1, ,523 6, II. Tangible assets 1. Land, land rights and buildings including buildings on third party land 882,783 51,949 67,246 13, Other equipment, operating and office equipment 484,438 66,535 28,132 1, Payments on account and assets under construction 27,918 26,534 1,462 14,875 1,395, ,018 96, III. Financial assets 1. Shares in affiliated companies 1, Participations 3. Securities 96 1, Grand total 1,444, ,051 97,426 44

48 Acquisition Amortization/ Balance sheet Balance sheet Amortization/ cost depreciation amount amount depreciation (accumulated) (financial year) Feb. 28, 2001 Feb. 28, 2001 Feb. 29, 2000 DM 000 DM 000 DM 000 DM 000 DM ,553 35,045 18,508 20,455 8,413 1, ,100 35,662 19,438 20,919 8, , , , ,796 66, , , , ,623 64,840 38,115 38,115 26,970 1,443, , , , , , ,025 1,025 1,066 1,499, , , , ,900 NOTES TO THE FINANCIAL STATEMENTS 45

49 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG 14/ Receivables and other assets Of the amounts due from affiliated companies of HORNBACH-Baumarkt-AG, DM 3,015,000 (previous year: DM 16,760,000) relates to supplies of goods and services. Of the amounts due from affiliated companies of HORNBACH-Baumarkt-AG DM 60.0 million has more than one year to maturity. Receivables and other assets of the Group, all of which have less than one year to maturity, are composed of the following: Feb. 28, 2001 Feb. 29, 2000 DM 000 DM 000 Trade accounts receivable 2,914 1,560 Due from affiliated companies 653 3,209 (including trading accounts) (632) (1,776) Other assets 122,697 24,006 Balance sheet amount 126,264 28,775 15/ Other assets Other assets relate to the proceeds from the sale of three pieces of real estate, tax refund claims, merchandise credit notes, interest receivable, amounts receivable from credit card issuers etc. 16/ Subscribed capital The subscribed capital amounts to Euro 45,034, It is divided into 15,011,500 ordinary shares of Euro 3.00 each. The following conditions apply to the approved and conditional capital: The Board of Management is authorized, each time with the approval of the company s Supervisory Board, to increase the subscribed capital of the company against cash contributions once or several times up to August 27, 2003 by up to Euro 6,391, (nominal amount) through the issue of new shares ordinary shares carrying voting rights or nonvoting preference shares (approved capital I). The Board of Management is authorized, each time with the approval of the company s Supervisory Board, to increase the subscribed capital of the company against cash or fixed asset contributions once or several times up to August 27, 2003 by up to Euro 12,782, (nominal amount) through the issue of new shares ordinary shares carrying voting rights or non-voting preference shares (approved capital II). The conditional capital increase to implement the 1997 stock option plan (now for up to Euro 565,500.00) under the General Meeting resolution of August 28, 1997 remains in force (conditional capital I). Of the conditional capital, Euro 303, is no longer available for use, as the subscription period for the convertible bonds was from May 12 to June 6, 1997, and has accordingly lapsed. Furthermore, the Board of Management is authorized, with the approval of the Supervisory Board, to issue in the period up to August 28, 2002 registered convertible bonds for a total nominal amount of up to Euro 511, with a maturity not exceeding ten years. The convertible bonds grant holders the right to convert them into shares of the company for a total nominal amount of up to Euro 600, (conditional capital II). The General Meeting on August 26, 1999 resolved the creation of additional conditional capital for a total nominal amount of up to Euro 4,500, through the issue of up to 1,500,000 ordinary 46

50 shares. This is for the purpose of servicing the HORNBACH 1999 stock option plan, details of which are given in Note 33 (conditional capital III). HORNBACH HOLDING AG has notified the company in accordance with section 20 of the German Stock Corporation Act that it holds 12,000,000 ordinary shares of HORNBACH- Baumarkt-AG in its financial fixed assets. 17/ Revenue reserves Included in revenue reserves are statutory reserves amounting to DM 2,000, DM 9,800, was transferred out of net income for the financial year 2000/2001 to (other) revenue reserves of HORNBACH-Baumarkt- AG. Movements in revenue reserves in the Group were as follows: DM 000 Balance at February 29, ,286 Change in consolidation difference (currency translation etc) 402 Transferred from consolidated net income for the year 19,800 Balance at February 28, ,488 18/ Special tax reserves The special tax reserves relate to reserves set up in accordance with section 6b (3) of the German Income Tax Act. 19/ Provisions and accruals The provisions and accruals relate to: Group Feb. 28, 2001 Feb. 29, 2000 DM 000 DM 000 Accrued taxes 15,347 48,683 Other provisions and accruals 56,135 47,054 Balance sheet amount 71,482 95,737 Taxes have been accrued primarily for corporation tax (including the solidarity surcharge), trade tax and property tax. Other provisions and accruals take adequate account of identifiable risks and uncertain obligations. They relate principally to personnel expenses and outstanding invoices. NOTES TO THE FINANCIAL STATEMENTS 47

51 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG 20/ Payables HORNBACH-Baumarkt-AG Group Feb. 28,2001 Feb. 29,2000 Feb. 28,2001 Feb. 29,2000 DM 000 DM 000 DM 000 DM 000 Bonds of which convertible (397) (430) (397) (430) of which more than 5 years to maturity (397) (430) (397) (430) Due to banks 542, , , ,553 of which 1 year or less to maturity (51,903) (52,447) (77,374) (129,763) of which 1 to 5 years to maturity (187,361) (191,137) (211,209) (202,647) of which more than 5 years to maturity (302,919) (321,994) (380,195) (372,143) of which secured by liens (542,183) (565,578) (657,007) (621,407) Advance payments from customers 3,362 3,697 4,657 4,624 of which 1 year or less to maturity (3,362) (3,697) (4,657) (4,624) Trade accounts payable 195, , , ,479 of which 1 year or less to maturity (195,788) (154,383) (238,313) (196,479) Bills payable 2, , of which 1 year or less to maturity (2,422) (361) (2,422) (361) Due to affiliated companies 58,100 6,581 87,304 4,168 of which 1 year or less to maturity (58,100) (6,581) (87,304) (4,168) Other payables 29,545 24,992 37,651 31,892 of which 1 year or less to maturity (29,545) (24,992) (37,651) (31,892) of which for taxes (14,662) (9,763) (20,537) (15,239) of which for social security contributions (8,615) (7,657) (9,809) (8,775) Total 831, ,022 1,039, ,507 of which more than 5 years to maturity 302, , , ,573 of which secured by liens 542, , , ,407 For further information on bonds, see the comments in Note 32. Securities for borrowings from banks are mostly in the form of liens on land. The trade accounts payable are secured to a normal extent through retention of title. Amounts due by HORNBACH-Baumarkt-AG to affiliated companies include trade accounts payable of DM 1,856,000 (previous year: DM 3,849,000). 48

52 21/ Deferred income Deferred income relates to compensation paid by affiliated companies in respect of the termination of rental contracts; this item will be released to income in accordance with the remaining terms of the contracts. In the financial year 2000/2001, our fellow subsidiary HORNBACH Immobilien AG received compensation of DM 530,000 for assuming maintenance obligations for the leased property in Koblenz, and a (residual) compensation of DM 3,081,000 was transferred to HORNBACH Florapark GmbH for the leased Kassel garden center. 22/ Contingent liabilities and HORNBACH-Baumarkt-AG Group other financial obligations Feb. 28,2001 Feb. 29,2000 Feb. 28,2001 Feb. 29,2000 DM 000 DM 000 DM 000 DM 000 Contingent liabilities from letters of comfort * (of which in favour of affiliated companies) (164.0) (178.0) ( ) ( ) Other financial obligations arising from investment projects * HORNBACH-Baumarkt-AG has issued four letters of comfort in favour of affiliated companies, for which the maximum possible obligation is not quantified. The following financial obligations arise from rental, lease, heritable building lease and other lease contracts: Due next year Due in the 2 nd Due from the to 5 th year 6 th year DM million DM million DM million HORNBACH-Baumarkt-AG (of which to affiliated companies) (61.7) (243.5) (328.0) Group (of which to affiliated companies) (61.7) (243.5) (328.0) Derivative financial instruments Within the Group, only HORNBACH-Baumarkt-AG uses derivative financial instruments as a hedge against interest and currency risks. At the balance sheet date, there was an interest limitation agreement (cap) with a volume of DM 36.1 million as well as an interest rate swap with a volume of DM 59.5 million to hedge borrowings. NOTES TO THE FINANCIAL STATEMENTS 49

53 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG EXPLANATORY COMMENTS ON THE INCOME STATEMENT 23/ Sales Group sales relate to the following: Divisions 2000/ /2000 DM 000 DM 000 DIY superstores and garden centers 2,570,193 2,327,030 Of which sales generated in other European countries 521, ,769 The sales in other European countries relate to HORNBACH DIY superstores and garden centers in Austria, the Czech Republic, Luxembourg and The Netherlands. 24/ Other operating income Other operating income includes, inter alia, profits on disposals of fixed assets, refunds arising out of claims for damages, leasing income, the release of provisions and accruals, costs passed to affiliated companies and advertising cost contributions. Other operating income includes profits of DM 51,290,000 from sales of real estate which meet the requirements for transfer to hidden reserves under section 6b of the German Income Tax Act. Of these profits, DM 41,246,000 was transferred directly and DM 10,044,000 was taken to the reserve under section 6b (3) of the German Income Tax Act. Other operating income includes income relating to other accounting periods amounting to DM 55,967,000 (Group) and DM 55,235,000 (HORNBACH-Baumarkt-AG). The income relating to other accounting periods includes mainly profits from disposals of fixed assets and income from the release of provisions and accruals. 25/ Cost of materials The cost of materials is made up as follows: HORNBACH-Baumarkt-AG Group 2000/ / / /2000 DM 000 DM 000 DM 000 DM 000 Cost of raw materials and supplies and purchased merchandise 1,318,173 1,222,930 1,635,588 1,476,063 Cost of purchased services 14,351 12,012 15,121 12,726 1,332,524 1,234,942 1,650,709 1,488,789 Intercompany profits of DM 249,000 were eliminated from merchandise inventories. 50

54 26/ Staff expenses Staff expenses comprise: HORNBACH-Baumarkt-AG Group 2000/ / / /2000 DM 000 DM 000 DM 000 DM 000 Wages and salaries 268, , , ,605 Social security contributions 50,646 45,811 62,599 55, , , , ,327 Average number of employees HORNBACH-Baumarkt-AG Group 2000/ / / /2000 Salaried employees 4,676 4,303 6,266 5,664 Apprentices Wage-earners ,346 4,952 7,056 6,401 of which part-time employees ,261 1,222 The average number of employees in the financial year 2000/2001 was 7,056 (previous year: 6,401) and is broken down geographically into 5,346 in Germany (previous year: 4,952) and 1,710 elsewhere in Europe (previous year: 1,449). 27/ Other operating expenses Other operating expenses relate primarily to selling and advertising expenses, accommodation, sundry staff expenses, motor vehicle expenses and general operating and administrative expenses. Other operating expenses at HORNBACH-Baumarkt-AG include expenses relating to other accounting periods amounting to DM 12,234,000, of which DM 10,044,000 was transferred to the special tax reserve under section 6b (3) of the German Income Tax Act; in the Group this item amounted to DM 12,498,000 of which DM 10,044,000 was transferred to the special tax reserve under section 6b (3) of the German Income Tax Act. 28/ Investment result The investment result of HORNBACH-Baumarkt- AG relates to affiliated companies. 2000/ /2000 DM 000 DM 000 Income from profit transfers Expenditure from assumption of losses 3,380 2,655 Investment result 3,380 2,655 NOTES TO THE FINANCIAL STATEMENTS 51

55 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG 29/ Result of financial activities HORNBACH-Baumarkt-AG Group 2000/ / / /2000 DM 000 DM 000 DM 000 DM 000 Other interest and similar income 5,957 5,328 2,393 1,405 (of which from affiliated companies) (3,982) (4,127) (71) (79) Interest and similar expenses 34,951 35,328 43,891 39,998 (of which to affiliated companies) (165) (144) (887) (2) Result of financial activities 28,994 30,000 41,498 38,593 30/ Taxes on income Taxes on income include corporation tax for the financial year 2000/2001 calculated on the basis of a dividend of DM 25.5 million. The taxes on income charge of HORNBACH-Baumarkt-AG is reduced by income relating to other accounting periods of DM 1,237, / Other taxes Other taxes comprise mainly property tax, Austrian municipal and company tax and motor vehicle tax. 32/ 1997 stock option plan Under a stock option plan for employees the company issued convertible bonds on the following terms in financial year 1997/98: Term: 10 years (July 1, 1997 to June 30, 2007) Rate of interest: 5.6% p.a. The convertible bonds entitle their holders to acquire shares in HORNBACH-Baumarkt-AG in the ratio of one for one (convertible bonds of DM 2, carry the entitlement to purchase 500 shares with a nominal value of DM 5.00 each) on the payment of DM per share, i.e. the conversion price is DM Exercise hurdle: Restriction on disposal: The spot price of the share on the day preceding the exercise of the option must be at least 20% above the conversion price (basis price), i.e. DM The convertible bonds and the rights deriving therefrom are tied to the person of the subscriber and therefore cannot be transferred, encumbered or pledged. 52

56 Conversion timing: There are two fixed periods of 3 weeks each in each calendar year for the exercise of the conversion right. These begin on the third banking day following the General Meeting and on the third banking day following publication of the report for the first nine months (mid-december of each year). Beneficiaries of the stock option plan can subscribe for convertible bonds in nominal amounts of either DM 2,500, DM 5,000 or DM 7,500. Further conversion terms: Latest time for exercising the option: 14 days prior to maturity Holding period for shares: none fixed Expiry of the conversion right: on termination of employment, three years after retirement, three years after the death of the beneficiary. Upon expiry of the conversion right, the convertible bonds fall due for redemption. Convertible bonds issued under the stock option plan for employees in the financial year 1997/98 can still give rise to purchase rights for up to 79,500 shares. In the financial year 2000/2001 no options were exercised from these bonds; DM 33,000 was repaid to former employees. 33/ 1999 stock option plan The General Meeting on August 26, 1999 adopted a stock option plan with the following features: Beneficiaries During the four-year term of the stock option plan, a maximum of 1,500,000 options will be issued. Of this total, the maximum numbers for the individual groups are: Options Group 1: members of the Board of Management of HORNBACH-Baumarkt-AG 128,000 Group 2: top management below board level 1,100,000 Group 3: top management of domestic and foreign subsidiaries 52,000 Group 4: management below top management level of domestic and foreign subsidiaries 220,000 1,500,000 Tranches; purchasing periods During the term of the plan, four annual tranches will be issued within two months after announcement of the company s results for the third quarter of the financial year. The date of issue for the tranches is the day of the corresponding resolution on the issue by the Board of Management and Supervisory Board. NOTES TO THE FINANCIAL STATEMENTS 53

57 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG Waiting period; exercise period The waiting period is two years from the issue of the relevant tranche. After two years, up to 20% of the options may be exercised, with a further 20% (at most) annually for up to a total of six years. The exercise period ends seven years after the issue of the last tranche. Purchase price The purchase price is the average closing price for the share in floor trading on the Frankfurt Stock Exchange on the ten trading days preceding the date of issue of the option. Exercise hurdle; exercise window Exercising the option requires that the share price in floor trading reach the exercise hurdle, i.e. it must be at least 30% above the purchase price within a six-week period before the date of exercise. Options may also only be exercised within the month after publication of the quarterly results or provisional sales and income figures for the past financial year ( exercise window ), subject to restrictions from statute generally and the Securities Trading Act specifically. Non-transferability; employment The options are not transferable and cannot be exercised by third parties, but can be inherited by the beneficiary s spouse or children. To exercise the option, the beneficiary must be employed without notice of termination having being given on either side; in the year after termination or cancellation of the employment contract, permission may be given to exercise options. In the financial year 2000/2001 the following options were issued to 445 beneficiaries: Options Members of group 1 27,000 Members of group 2 217,800 Members of group 3 8,000 Members of group 4 61, ,800 Allowing for former beneficiaries, the total number of options issued up to now is: Options Members of group 1 54,000 Members of group 2 375,800 Members of group 3 16,000 Members of group 4 101, ,400 54

58 OTHER INFORMATION 34/ Board of Management The members of the Board of Management in the financial year 2000/2001 were: Albrecht Hornbach, Diplom-Bauingenieur (Graduate in Civil Engineering) Chairman Karl Garrecht, Businessman Martin Hornbach, Diplom-Wirtschaftsingenieur (Graduate in Business Management and Engineering) Steffen Hornbach, Diplom-Ingenieur (Graduate in Engineering) Roland Pelka, Diplom-Kaufmann (Graduate in Business Management) Manfred Valder, Businessman The remuneration of the members of the Board of Management for the financial year 2000/2001 amounted to DM 4,239,000. Furthermore, the members of the Board of Management were granted together a total of 27,000 stock options in the financial year 2000/2001. The members of the Board of Management together held 31,880 listed shares of HORNBACH-Baumarkt-AG as at the balance sheet date February 28, / Members of the Supervisory Board The members of the Supervisory Board in the financial year 2000/2001 were: Shareholder representatives Dr. Wolfgang Rupf Chairman Chairman of the Board of Management of Bankgesellschaft Berlin AG Gerhard Wolf Deputy Chairman Diplom-Kaufmann (Graduate in Business Administration) Dr. Claus Gastroph Notary Albert Wilhelm Hornbach Member of the Board of Management of HORNBACH HOLDING AG Dr. Hans Schlarmann Lawyer Prof. Dr. Jens Peter Wulfsberg Diplom-Ingenieur (Graduate in Engineering) Permanent Professor of Manufacturing Technology at the German Army University, Hamburg Employee representatives Rudolf Helfer (for salaried staff) First Deputy Chairman Senior Specialist for Occupational Safety Johann Krämer (for wage-earners) Caretaker Johann Liebl (for trade unions) PA to store manager, Passau store Christian Lilie (for managerial staff) District Manager, Southern region Johannes Otto (for trade unions) PA to store manager, Mannheim-Neckarau store Ralf Puley (for salaried staff) PA to store manager, Wuppertal store The remuneration of the Supervisory Board for the financial year 2000/2001 amounted to DM 304,000. The members of the Supervisory Board together held 33,940 shares of HORNBACH-Baumarkt-AG as at the balance sheet date February 28, NOTES TO THE FINANCIAL STATEMENTS 55

59 ANNUAL FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS OF HORNBACH- BAUMARKT- AG 36/ Membership of supervisory boards and other supervisory bodies (Information in compliance with section 285 article 10 of the German Commercial Code) Members of the Supervisory Board of HORNBACH-Baumarkt-AG a) Membership of supervisory boards whose formation is required by statute b) Membership of comparable supervisory bodies Dr. Wolfgang Rupf a) CeWe Color Holding AG (Chairman) HORNBACH HOLDING AG (Deputy Chairman) Berlinwasser Holding AG Messe Berlin GmbH Berlin-Hannoversche Hypothekenbank AG (Chairman) Immobilien- und Baumanagement der Bankgesellschaft Berlin GmbH (Chairman) b) Landesbank Berlin-Girozentrale (Chairman) Bau Holding Aktiengesellschaft (Deputy Chairman) Partner für Berlin Gesellschaft für Hauptstadt- Marketing mbh PEIKER acustic GmbH & Co. KG Gesellschaft für Industriebeteiligungen Dr. Joachim Schmidt AG & Co. Holding KG Gothaer Lebensversicherung a.g. Gothaer Versicherungsbank VVaG PEB Capital B.V., NL-Utrecht Members of the Board of Management of HORNBACH-Baumarkt-AG a) Membership of supervisory boards whose formation is required by statute b) Membership of comparable supervisory bodies Martin Hornbach a) Hexagon AG (Chairman) Integrata Training AG Manfred Valder a) HORNBACH Immobilien AG Gerhard Wolf a) HORNBACH HOLDING AG (Chairman) K+S Aktiengesellschaft (Chairman) Kali und Salz GmbH (Chairman) Südzucker AG Stinnes AG VTG-Lehnkering AG Dr. Claus Gastroph a) HORNBACH HOLDING AG Albert Wilhelm Hornbach a) HORNBACH Immobilien AG 56

60 37/ Retained earnings After the transfer of DM 9,800, (section 58 (2) of the German Stock Corporation Act) to other revenue reserves, retained earnings amount to DM 25,556, We propose to the General Meeting that this amount be appropriated as follows: DM Dividend of DM 1.70 on 15,011,500 shares 25,519, To be carried forward 36, ,556, Bornheim, May 22, 2001 HORNBACH-Baumarkt-Aktiengesellschaft The Board of Management Albrecht Hornbach Karl Garrecht Martin Hornbach Steffen Hornbach Roland Pelka Manfred Valder NOTES TO THE FINANCIAL STATEMENTS 57

61 Auditors Report (Translation) HORNBACH-Baumarkt-Aktiengesellschaft, Bornheim bei Landau/Pfalz, has, in its capacity as the parent company, exercised the option available under 298 (3) HGB ( Handelsgesetzbuch : German Commercial Code) to combine the notes to the annual financial statements and the consolidated financial statements and the option available under 315 (3) HGB to combine the management report and group management report and is obliged to file the annual financial statements and consolidated financial statements together. We have issued an unqualified auditors report on the financial statements and the consolidated financial statements, on the audit of which we have reported separately on May 17, 2001, and on the combined management report worded as follows: We have audited the annual financial statements, together with the bookkeeping system, the consolidated financial statements, the management report and the group management report of HORNBACH-Baumarkt-AG, Bornheim bei Landau/Pfalz, for the financial year from March 1, 2000 to February 28, 2001 which have been prepared by the Company. The preparation of these documents in accordance with German commercial law and the supplementary provisions in the articles of incorporation is the responsibility of the Company s Board of Management. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, the consolidated financial statements, the management report and the group management report based on our audit. We conducted our audit of the annual financial statements and the consolidated financial statements in accordance with 317 HGB and the German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and earnings situation in the annual financial statements and the consolidated financial statements prepared in accordance with German principles of proper accounting and in the management report and the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Company and the Group and evaluation of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the internal accounting control system and the evidence supporting the disclosures in the books and records, the annual financial statements, the consolidated financial statements, the management report and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting and consolidation principles used and significant estimates made by the Board of Management, as well as evaluating the overall presentation of the annual financial statements, the consolidated financial statements, the management report and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, the annual financial statements and the consolidated financial statements give a true and fair view of the net assets, financial position and earnings situation of HORNBACH- Baumarkt-AG and the Group in accordance with German principles of proper accounting. On the whole the management report and the group management report provide a suitable understanding of the position of the Company and the Group and suitably present the risks of future development. Frankfurt am Main, May 22, 2001 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Zehnder Wirtschaftsprüfer Laubach Wirtschaftsprüfer 58

62 Financial Calendar Financial calendar 2001 Financial statements press conference June 27, 2001 DVFA analysts conference June 27, 2001 Report on 1 st quarter June 27, 2001 Annual General Meeting August 21, am Congress Center Messe Frankfurt Half year s report September 26, 2001 Report on 3 rd quarter December 20, 2001 FINANCIAL CALENDAR 59

63 92 HORNBACH DIY SUPERSTORES AND GARDEN CENTERS IN EUROPE IN GERMANY Baden-Württemberg 1,314,382 sq. ft. North-Rhine Westphalia 1,655,202 sq. ft. Binzen near Weil am Rhein Esslingen 4 ) Göppingen Heidelberg Karlsruhe Karlsruhe-Hagsfeld Ludwigsburg Mannheim-Käfertal Mannheim-Neckarau Mosbach Pforzheim Rottweil Sinsheim Stuttgart/Remseck Tübingen 111,607 sq. ft. 111,230 sq. ft. 80,270 sq. ft. 42,506 sq. ft. 83,065 sq. ft. 152,575 sq. ft. 121,153 sq. ft. 42,989 sq. ft. 76,981 sq. ft. 36,023 sq. ft. 111,564 sq. ft. 62,683 sq. ft. 43,677 sq. ft. 107,575 sq. ft. 130,484 sq. ft. Bielefeld Dortmund Düren/Niederzier Duisburg Essen Gelsenkirchen Gütersloh Herne Krefeld Mönchengladbach Mönchengladbach II 4 ) Moers Münster Paderborn Wuppertal 77,432 sq. ft. 151,597 sq. ft. 121,841 sq. ft. 120,981 sq. ft. 123,206 sq. ft. 135,009 sq. ft. 67,833 sq. ft. 139,395 sq. ft. 116,831 sq. ft. 82,528 sq. ft. 103,888 sq. ft. 93,031 sq. ft. 121,271 sq. ft. 92,891 sq. ft. 107,468 sq. ft. Bavaria 868,375 sq. ft. Rhineland-Palatinate 789,944 sq. ft. Altötting Bamberg Erlangen 3 ) Ingolstadt Kempten Neu-Ulm Nürnberg, Fürther Strasse Nürnberg, Münchener Strasse Passau Straubing 1 ) 76,519 sq. ft. 118,562 sq. ft. 105,006 sq. ft. 59,362 sq. ft. 103,275 sq. ft. 81,345 sq. ft. 67,800 sq. ft. 58,964 sq. ft. 80,797 sq. ft. 116,745 sq. ft. Bornheim 2 ) Kaiserslautern Koblenz Ludwigshafen-Oggersheim Mainz Pirmasens Trier Worms Saarland 131,849 sq. ft. 80,002 sq. ft. 74,143 sq. ft. 135,740 sq. ft. 86,581 sq. ft. 105,640 sq. ft. 76,723 sq. ft. 99,266 sq. ft. 64,597 sq. ft. Berlin 261,268 sq. ft. Saarbrücken 64,597 sq. ft. Berlin-Marzahn Berlin-Bohnsdorf/Schönefeld 135,955 sq. ft. 125,313 sq. ft. Saxony 619,447 sq. ft. Brandenburg Berlin/Ludwigsfelde 3 ) Berlin/Velten 1 ) Berlin/Vogelsdorf Potsdam 523,062 sq. ft. 135,224 sq. ft. 127,183 sq. ft. 137,288 sq. ft. 123,367 sq. ft. Chemnitz Dresden 2 ) Dresden II 4 ) Görlitz Leipzig Saxony-Anhalt 106,296 sq. ft. 123,883 sq. ft. 135,407 sq. ft. 130,107 sq. ft. 123,754 sq. ft. 124,324 sq. ft. Bremen 238,016 sq. ft. Magdeburg 124,324 sq. ft. Bremen Bremerhaven 1 ) 119,078 sq. ft. 118,938 sq. ft. Thuringia 134,719 sq. ft. Jena 134,719 sq. ft. Hesse 372,714 sq. ft. Darmstadt Frankfurt am Main Hanau Kassel/Lohfelden Wiesbaden 86,882 sq. ft. 111,811 sq. ft. 53,245 sq. ft. 78,636 sq. ft. 42,140 sq. ft. Lower Saxony 783,107 sq. ft. Braunschweig Hannover/Altwarmbüchen 2 ) Hannover-Garbsen 3 ) Hannover-Linden 1 ) Oldenburg Wilhelmshaven 1 ) Wolfsburg 69,671 sq. ft. 118,573 sq. ft. 114,144 sq. ft. 118,981 sq. ft. 124,141 sq. ft. 113,843 sq. ft. 123,754 sq. ft. 60

64 THE NETHERLANDS LUXEMBOURG SWITZERLAND GERMANY CZECH REPUBLIC AUSTRIA HORNBACH SUPERSTORES AND GARDEN CENTER IN OTHER EUROPEAN COUNTRIES HORNBACH AUSTRIA 855,614 sq. Bad Fischau (near Wiener Neustadt) 124,130 sq Brunn am Gebirge 115,616 sq Graz/Seiersberg 4 ) 119,669 sq Linz 127,119 sq Vienna/Gerasdorf 125,055 sq Vienna/Stadlau 119,142 sq Wels 4 ) 124,883 sq HORNBACH CZECH REPUBLIC 364,834 sq. Brno 127,108 sq Ostrava 1 ) 113,402 sq Prague 124,324 sq HORNBACH LUXEMBOURG 129,935 sq. Bertrange 129,935 sq HORNBACH NETHERLANDS 599,291 sq. Groningen 4 ) 126,302 sq Kerkrade 126,657 sq Tilburg 102,974 sq Wateringen 4 ) 100,856 sq Zaandam (near Amsterdam) 142,502 sq 1 ) Opened during the past financial year 2000/ ) Expanded during the past financial year 2000/ ) Opened during the current financial year 2001/ ) Stores under construction Weighted sales areas according to the calculation guidelines of the Bundesverband Deutscher Heimwerker-, Bau- und Gartenfachmärkte e.v. (BHB), Cologne June 2001

65 HORNBACH-Baumarkt-Aktiengesellschaft D Bornheim bei Landau/Pfalz, Germany Telephone (+ 49) 63 48/60 00 Telefax (+ 49) 63 48/ Internet Investor Relations Telephone (+ 49) 63 48/