Dear Shareholders and 
Friends of the DOUGLAS Group, 

The year 2011 was quite eventful for the DOUGLAS Group as well as for many other retailers. In a number of European countries, the focus was primarily on how to handle the continuing effects of the Euro debt crisis. Just like lots of other operators in the retail sector, the DOUGLAS Group did not remain completely unaffected by this development.

Nevertheless, our Group again performed well in the 2010/11 fiscal year. The Group’s consolidated sales revenue rose by 1.7 percent to around EUR 3.4 billion, while earnings before taxes (EBT) reached EUR 137.8 million. Our goal had been to increase our sales revenue by 2 to 4 percent and earnings before taxes (EBT) to about EUR 140 million. 

The reasons for the slight underperformance compared to our revenue forecasts can be found in the weak economic environment in some foreign markets and—most notably—in our books division. This sector is currently undergoing major structural changes on a global basis, resulting in a downward sales trend also experienced by Thalia. As a result, the figures for our books division fell significantly short of our budgeted target. 

Nevertheless, all things considered, the DOUGLAS Group as a whole held its ground very well. Therefore, we are quite pleased with our overall performance. As in the previous years, it was our more than 24,000 employees who played the most important role in this strong performance. With their friendliness, their professional competence, and their willingness to always provide a high level of service, they have once again created a convenient, competent, and pleasant shopping experience for our customers—both in our attractive specialty stores and in our online shops. I would like to express my heartfelt thanks—on behalf of my colleagues on the Executive Board as well—to each and every employee for their outstanding commitment and dedication.

The performance of the individual corporate divisions of the DOUGLAS Group during the past fiscal year varied widely both in Germany and abroad. On one hand, there was the solid 4.0 percent increase in sales in our most important home market in Germany. Here, our German Douglas perfumeries and Christ jewelry stores registered a sharp upswing and were successful in gaining market share. On the other hand, our books division faced major challenges. While the Thalia Group was able to almost completely compensate the decline in sales in its brick-and-mortar stores by satisfactory growth in its online shops, earnings still fell substantially because the margins of our online book sales are considerably lower than the margins in our traditional book stores. Our Hussel confectioneries also experienced a slight downturn in sales, while sales were somewhat higher at the AppelrathCüpper fashion stores.

Although sales figures in Germany were positive overall, foreign sales in the DOUGLAS Group were 2.5 percent below last year’s figures. This decline is due in particular to Douglas’s exits from the Russian, US, and Danish markets. Adjusted for the effects of these exits, foreign sales rose by 1.9 percent, an early indication that we have made the proper adaptations and seem to be on the right track in our international markets.

At EUR 11.8 million, DOUGLAS Value Added (DVA) was only half of last year’s impressive figure due primarily to the lower earnings in the books division. 

Free cash flow, the total of cash inflows and outflows from current operating and investment activities, was EUR 126.6 million compared to EUR 127.9 million in the previous year. Lower cash flow from current operating activities during the period under review was almost fully compensated by net cash inflows from the sale of the Russian subsidiaries in the amount of EUR 50.6 million.

At EUR 117 million, capital expenditures in the 2010/11 fiscal year approximately equaled those made in the previous year. We invested in the opening of 64 new stores, the expansion and remodeling of the existing store network as well as in the development of our e-commerce activities. Due to the sale of the 32 perfumeries in Russia and the closure of 72 branch stores, the total number of our stores in Germany and abroad decreased slightly from 1,973 to 1,928. 

The holiday season, which is so important for the DOUGLAS Group, started off the new fiscal year 2011/12 quite successfully with a positive performance that generated sales growth of 1.4 percent in the first quarter (October to December 2011). This gives us a solid foundation for the rest of the 2011/12 fiscal year.

Nevertheless, it is still difficult to assess the effects of the ongoing Euro debt crisis on the consumer climate in many European countries. However, if current forecasts for low unemployment along with rising wages are correct, these factors should have a positive effect on consumer behavior, especially in our home market here in Germany. The DOUGLAS Group should be in a good position to benefit from this expected development. 

With an equity capital ratio of almost 50 percent, we are in excellent shape financially and well equipped to continue generating value-oriented growth. To implement our plans, we have an investment budget for the 2011/12 fiscal year of around EUR 120 million. In the brick-and-mortar segment, this budget will cover both the opening of about 50 new stores and the remodeling and updating of our existing store network both in Germany and abroad. Additionally, the DOUGLAS Group will make significant investments to implement its multi-channel strategy and continue to develop and expand its online shopping venues. 

In the perfumery division, the opening of approximately 40 new stores is planned, with an emphasis in those countries where Douglas is already a market leader or can expect to achieve market leadership in the foreseeable future. Additionally, five store openings are planned in each of the books, jewelry, and confectionery divisions, while there are no plans for new store openings in the fashion division. 

For the next several years the greatest challenge as well as the biggest opportunity lies in finding the optimum integration of stationary and online retailing for our customers. In this respect, the DOUGLAS Group does have a definite edge over retailers with only an online presence because, in addition to our state-of-the-art online shops, we have approximately 2,000 outstanding specialty stores. Nevertheless, it is essential that we develop our multi-channel strategy quickly in all of our divisions if we want to be at the forefront of this dynamic growth market. This priority is expressed and emphasized by our motto for 2012, “Successful retailing—across all channels.”

This strategy applies particularly to our books division as the Thalia Group is still facing the major challenge of compensating lower sales in its brick-and-mortar bookstores as quickly as possible by offering additional attractive product lines. Furthermore, we must find the right mix of stationary book sales, online book sales and the new megatrend, the sale of e-books. Only if we achieve operational excellence in all three sectors can we keep up with the extremely rapid development of Amazon, the market leader, and build and retain customer loyalty to the “Thalia” brand.

Despite these significant challenges in the books division, the Supervisory and Executive Boards of DOUGLAS HOLDING AG will again recommend payment of a dividend of EUR 1.10 per dividend-bearing share to the Annual General Meeting on March 21, 2012, based on quite satisfactory growth in the past fiscal year and cautiously optimistic prospects for the 2011/12 fiscal year. This dividend payment corresponds to a distribution ratio of exactly 50 percent of the consolidated net income, which is precisely our long-term target. With this dividend payment recommendation, we would like to enable you, our esteemed shareholders, to duly participate in the performance of the DOUGLAS Group over the past fiscal year. 

Finally, I would like to assure you that we will do our utmost in the 2011/12 fiscal year to ensure that your Group remains a leading retailer as we move into the future.

Hagen, January 2012

With best regards,
Henning Kreke