Dear Shareholders and Friends of the DOUGLAS Group,

This year we can once again report a lot of good news from the DOUGLAS Group. In a nutshell: Your company posted a successful 2005/06 financial year.

Our consolidated sales were up almost 11 percent at approximately 2.7 billion EUR, while our pretax earnings increased 10 million EUR to 129 million EUR. As a result, this year we again slightly surpassed our forecast. DOUGLAS Value Added (DVA) – which measures the increase in the Group’s value – rose by 4.9 million EUR to 31.3 million EUR. As in previous years, our Douglas perfumeries posted the highest growth, with our Thalia retail bookstores and Hussel confectionery shops also covering their cost of capital. While our Christ jewelry stores just barely missed their value-creation-target, the DVA performance of our Fashion division was the only real disappointment. Nevertheless, the DOUGLAS Group as a whole recorded its highest DVA score since the indicator was introduced in 2001. 

The DOUGLAS Group’s impressive performance is due first and foremost to our friendly and professional employees. For this reason, I would like to express my sincere gratitude – also on behalf of my colleagues on the Executive Board – for their energy, enthusiasm and commitment to making the shopping experience of our customers at our stores even more enjoyable. In this context, the increase in our workforce to over 21,000 – passing the 20,000 mark for the first time – is a source of pride to us all. We also managed to bolster the ranks of our apprentices yet again, pushing up the proportion of trainees in Germany to almost 13 percent – a figure well above the average of the German retail sector. On my many visits to our stores, I am frequently impressed by the enthusiasm these young ladies and gentlemen bring to the job as they go about their work and embark upon promising careers in retail under the guidance of their experienced coworkers.

The innovation competition we launched during our 2005/06 financial year also underlined the creative potential of our human resources. We were overwhelmed by the response. Our employees submitted more than 3,000 ideas, many of which won prizes and will be implemented as soon as possible.

As in previous years, we want our shareholders to participate fairly in the success our organization has achieved. For this reason, the DOUGLAS HOLDING AG Supervisory and Executive Boards will be recommending that the Shareholders’ Meeting of March 14, 2007, approve a dividend of 1.10 EUR per dividend-bearing share for the 2005/06 financial year – a rise of 10 percent compared to last year.

The positive news seems to be continuing for the DOUGLAS Group in the new financial year as well: our stores got off to a very promising start in fiscal 2006/07. Thanks to an encouraging holiday season, we succeeded in increasing our first-quarter sales by 12.8 percent. That provides a solid platform that we plan to build on during the months ahead. With an equity ratio of 37 percent, the DOUGLAS Group boasts the financial strength needed to fuel the further expansion of our store networks. For this purpose, an investment volume of 160 million EUR has been set aside in the current fiscal year.

Of this amount, around 90 million EUR alone will be devoted to powering the international growth of our Douglas perfumeries. Some 50 new perfumeries are due to open their doors during the year, with the opening of the 1,000th Douglas perfumery just around the corner. Our Books division will also continue to grow by means of acquisitions and new locations, with the goal of cementing our good market position in German-speaking Europe. In addition to opening further venues, we will be systematically focusing on optimizing the brand profiles of our Jewelry, Fashion and Confectionery divisions.

Over the past several months we have noticed a quite substantial improvement in consumer sentiment in Germany. Shopping is fun again! And that’s good news for us. After all, the DOUGLAS Group posts some 70 percent of its turnover in its home market. Customers are once again looking for something special to buy. With our lifestyle strategy, we are perfectly positioned to prosper from this renewed interest. The DOUGLAS Group and our helpful, professional employees will continue to impress customers with outstanding service, first-class product ranges and a welcoming ambiance. This should enable our business units to further extend their good market positions in the future.

We would like to thank you, our shareholders, for your trust and confidence. During the new financial year, we will continue to work hard to further increase the value of the DOUGLAS Group so that you can continue to benefit from the Group’s earnings-oriented growth strategy.

Hagen, January 2007

Best regards,

Henning Kreke