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for download as PDF-file - VBH Holding

2006

Annual report

VBH Holding Aktiengesellschaft


Facts and Figures

Figures according to German

Commercial Code (as reported)* Figures according to IFRS **

Financial year 2002 2003 2004 2004 2005 2006

Earnings situation

Consolidated net sales MEUR 611.5 613.4 643.6 648.5 693.4 783.2

Changes compared with the previous year % 0.3 4.9 6.9 13.0

Consolidated net sales –

Continued operations MEUR 610.6 613.3 643.6 637.7 685.7 783.2

Changes compared with the previous year % 0.4 4.9 7.5 14.2

Operatingincome MEUR 610.6 613.3 643.5 662.1 711.8 795.7

Material expenditure MEUR 469.0 473.2 494.1 496.4 537.3 602.4

Personnel expenditure MEUR 72.7 67.5 70.9 71.7 74.1 76.6

Operating result(EBIT) MEUR 6.2 15.4 25.0 16.0 24.4 40.3

of which continued operations MEUR 15.6 25.7 40.3

Financial result MEUR –18.3 –17.7 –12.2 41.3 –9.6 –10.0

Extraordinary profit/loss MEUR –7.3 –7.5 40.9

Income tax MEUR 7.6 6.3 6.2 4.0 5.0 8.0

Net income for the year MEUR –27.4 –16.4 47.1 53.3 9.8 22.2

of which continued operations MEUR 53.2 11.4 22.2

Earnings situation key figures

Return on sales (EBIT) % 1.0 2.5 3.9 2.4 3.4 5.1

Return on equity % –739.6 –458.0 144.9 198.9 19.7 31.0

Return on assets % –0.5 2.4 25.0 5.7 8.0 12.0

Material intensity % 76.7 77.1 76.8 76.5 77.5 76.9

Personnel intensity % 11.9 11.0 11.0 11.1 10.7 9.8

Asset and financial position

Tangible fixed assets MEUR 22.7 21.0 22.8 31.6 33.7 32.5

Inventorystocks MEUR 93.6 84.2 83.3 89.0 96.7 114.6

Trade receivables MEUR 91.8 82.7 82.2 90.1 106.8 114.3

Equity MEUR 3.7 3.6 32.5 26.8 49.8 71.7

Total assets/balance sheet total MEUR 315.0 311.0 261.5 279.7 305.2 334.6

Financial position key figures

Inventoryturnover ratio* 6.5 7.3 7.7 7.4 7.4 6.9

Payment target of the goods receivables* Days 54.8 49.2 46.6 49.7 54.8 52.4

Equity ratio % 1.2 1,.2 12.4 9.6 16.3 21.4

Other key figures

Cash flow from current businessactivities MEUR –10.6 –1.8 12.9 11.5 22.8 15.6

Fully diluted earnings per share according to DVFA/SG EUR –2.22 –1.07 0.17

Fully diluted earningsper share** EUR 2.41 0.22 0.50

Employees

Employees (domestic) 1.031 963 969 970 994 918

Employees (international) 926 993 1.051 1.087 1.159 1.257

Total number of employees 1.957 1.956 2.020 2.057 2.153 2.175

*Key figures for German Commercial Code statements according to recommendation of the

Schmalenbach working group

** Keyfigures from 2004/2005 onwards in accordance with IFRS


Company Portrait

Company Portrait VBH

As awholesale hardware company with the biggest sales volume in Europe (2006: 783 million

euro), VBH supplies trade and industrial customers, in particular,using acomplex sales

and logistics system. Our customers are mainly manufacturers of plastic, wood, aluminium

and steel windows and doors, as well as furniture manufacturers. The group’sproduct range

includes hardware for windows, doors, furniture, tools and machines, as well as security

technology and fire prevention.

Amarket-specific product range, qualified staff, sophisticated logistics and transportsystems,

modern data processing and, not least, targeted, low-cost warehousing enable us to

buildbridges between producers and consumers. VBH is an international mediator between

about 700 hardware and accessoryproducers on the supplier side and more than

30,000 consumers of these products on the customer side.

The company was founded in Stuttgartbymerging the activities of Gottfried Schill KG

(1921) and Schippert&Stetter KG (1952). The merger of these two companies in 1975 laid

the foundations for the growth of the VBH group, once both had already founded joint

subsidiaries in 1972. In 1988, the company was converted to VBH Vereinigter Baubeschlag-

Handel AG and, one year later,was floated on the stock market.

While Germany is aprime sales location for VBH, foreign markets are currently becoming

more and more important, with asales share of over 53%. The Company has been represented

in Western Europe since the eighties and in Eastern Europe since the beginning of

the nineties.Inaddition, VBH also has amarket presence in Asia (China, Singapore and Dubai)

as well as in Australia. Further opportunities for expansion are constantly being investigated,

leading to the establishment of VBH in India in 2006.

While the hardware markets in Western Europe have reported slight growth in the last

few years and those of Eastern Europe have had consistently high levels of growth, the

German market has been facing aconsiderable slump in sales since 1995. The extensive restructuring

measures that began to be introduced in 2001 to adapt the German business

model to the changes in the general data were concluded with acomprehensive capital

rehabilitation in 2004. In 2006, the German economy was able to recover from apermanent

downturn and began to claw its way up. VBH’sefficient and modern organization in Germany

enabled it to benefit disproportionatly from this developmentand significantly increase

its contribution to earnings.

The group has been led by VBH Holding Aktiengesellschaftsince 1965. The operationalactivities

of the VBH companies have been divided into five segments since 2006: Germany,

Western Europe, Eastern Europe, other companies and anon-operational segment, »Corporate

Services«. The regionallymanaged areas guarantee closeness to the customer and a

fast implementation of the strategic goals.

Management is proud of its family-based culture, which has developed over aperiod of

more than 80 years and continues to shape the group.


The knowedge database –

head start for VBH Customers

T o collect the extensive knowledge possessed by the various

market participants and to make it easier for its

customers to carry out their work, VBH has set up a

knowledge database.

Not everyone needs to reinvent the wheel: As there are

solutions to many problems that all craftsmen face sooner

or later, but these solutions have not been recorded

anywhere, VBH has decided to collect the knowledge of

experts and craftsmen and to make it available to their

customers.

Online Shop vbh24 contains a menu item »Forum«, which

enables the knowledge database and a discussion forum

to be selected. The customer can read all contributions,

but can only provide his own contributions and reply to

others once he has registered – which is free and nonbinding.

The Forum is not only designed to collect VBH knowledge,

but should also become the users' platform. If a

customer does not find a satisfactory answer to his question,

he can e-mail a VBH expert, who will then deal with

the problem. If the expert finds a solution, the topic is included

in the database. This enables the database to

grow, becoming more extensive by the day.

VORSPRUNG


Contents

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88

Letter to the Shareholders

Report of the Supervisory Board

Corporate Governance Declaration of Compliance

Corporate Governance Report

Group Management Report

Macroeconomic Environment and Sector Development

Organizational Structure and Segments

Group Details

Abbreviated Profit and Loss Statement for the VBH Group

Abbreviated Consolidated Balance Sheet

The VBH Share

Risk Reporting

Remuneration Report

Outlook,Opportunities and Trends

Major Participations – Segment Structure

Notes to the Consolidated Financial Statements

Consolidated Balance Sheet

Consolidated Profit and Loss Statement

Group Cash Flow Statement

Group Statement of Changes in Equity

Group Annex

General Information

Accounting and Valuation Principles

Risk Management

Notes on the Profit and Loss Statement

Segment Reporting

Notes on the Consolidated Balance Sheet

Other Financial Obligations

Agents of the Company

Other Information

Audit Report

Breakdown of the Shareholding

VBH Holding AG

Glossary

Dates


Letter to the Shareholders

Dear shareholders

Over the past year,VBH intensified its international presence and significantly

strengthened its expansion in up-and-coming markets both in Eastern Europe

and in Asia. It gained a foothold in new locations and markets and further expanded

existing ones. The turnaround in German construction activity ended the

year-long downslide in the sector,which began to claw its way up energetically

from recent lows. VBH’s operational and balance sheet optimizations over the

past few years have enabled it to perform much better than the market as a

whole. By dint of strict cost leadership, we succeeded in using this market growth

positively for VBH, in two ways. The beginning of 2007 sees us excellently placed

in both German and global markets, and we have significantly strengthened our

position as the market leader in the construction hardware trade in Europe.

Domestic business makes crucial contribution to the group’s increase in

earnings

The German VBH Organization was able to absorb the positive climate in the

construction industry and the accompanying increase in demand for hardware

products smoothly and without frictional losses. Our customers have increasingly

begun to use VBH’s comprehensive service offerings.Not least our high service

level and logistics quality enabled us to surpass our own high targets. VBH now

has closer and stronger partnerships with its suppliers and has established itself

as an essential part of the sales structure and a recognized logistics partner in

the market. On the whole, VBH has performed much better than the market in

respect of business in Germany in 2006. We continue to work profitably in the

domestic market and will do our utmost to strengthen our good position even

further.

New VBH business ideas have proved their worth in the market

We are continually improving the basis for successful co-operation with our

customers by rigorous development of our business model. Customer orientation

is and will remain the real driving force behind VBH’s success. »Making life easier

for our customers!« is a goal that we have never lost sight of.»Web Shop VBH

24«, »Scanner technology«, »EDI« and »EDIFAKT« have now become, for both

customers and suppliers, integrated systems of an ultra-modern VBH hardware

world and are subject to more and more intensive use. Customers can interact

with a knowledge database to obtain information. Virtual in-house exhibitions on

the Internet are now part of VBH’s everyday business.In addition, VBH offers its

customers innovative platforms on which they can perform their own marketing

and present themselves in their particular markets.

International business still clearly profitable

Although we are continually experiencing minor saturation trends in individual

international markets, our profitable international business was once again a

stable pillar of growth in 2006. Our committed Managing Directors operate with

high levels of entrepreneurial responsibility.With their largely self-financed companies,

they achieved considerable sales returns in their local markets. We intend

to drive this development forward by continuing to invest in up-and-coming,profitable

regions. Our focus here is on the Middle East and Asian regions, in particu-

2 Annual report 2006 VBH Holding AG


lar.However,even in the Balkans, there are still areas into which VBH might

profitably expand.

Continued support for employees

The heart of our worldwide operations is still in the domestic market, which is

why we intensified sales training for our German staff in the past financial year.

Our claim to employ the best staff available in the industry, which we have incorporated

as a strategic guideline, has had a positive and motivating effect on

work throughout the company.This staff policy is supported by a performancerelated

remuneration system, which has rapidly established itself in the Company

and has been very favourably received. The VBH Board of Management and management

group regard themselves as being integrated into staff development

guidelines and are working towards achieving, by the year 2015, the long-term

goals which they set themselves in a Future workshop.VBH thus remains globally

competitive and has the management potential required for growth in other

markets.

Strengthening further business development

VBH will continue its forward development in the current 2007 financial year.We

will do our utmost to transfer the VBH in-house economy,operated so successfully

in Germany,to our global markets. Our goal remains to extend VBH’s market

share, irrespective of economic developments in particular countries. The requirement

on our organization remains clearly defined: we always want to perform

better than the markets in all the countries in which we are active. To this end,

we will increasingly develop VBH Holding AG into a Management Holding. The

best qualified managers will bring their knowledge to the global cycle of our -

corporate group.

VBH will expand its position in the German hardware market, anticipating relevant

market conditions. esco Metallbausysteme GmbH will continue to show its

strength as a performance leader in the metal construction and object market.

Abroad, we will continue our rate of growth in profitable markets, ensuring a

quick return on the capital we deployed. VBH will thus continue down its path of

strength, with new services and product ideas at both national and international

level. The profitability of the Company is gradually being improved. We are sure

that the capital market will also reward this in the mid- to long-term.

Share price reflects the successes achieved

The years of efforts devoted to VBH re-alignment and balance-sheet stabilization

have been reflected in an impressive share price in 2006. Shares received high

interest from old shareholders and new investors in the course of the year.Relatively

large block shares were transacted on the stock exchanges and allowed the

price to rise to a level of 7 euro in the course of the year.

Owing to the increased attention that VBH shares received, investor relation

activities were also expanded. VBH presented both at national conferences in

Frankfurt and on international roadshows in England, Scandinavia and France.

These activities benefit from the professional support of Equinet AG,Frankfurt,

adesignated sponsor,who has been looking after us since August 2006. We have

thus managed to return to a sustained dividend capability.VBH is now also well

placed in terms of financial underpinnings. A syndicate agreement, signed in

March 2007 with six German banks, with a term of five years, guarantees a safe

3


Letter to the shareholders

financial corridor for VBH, which will provide stable support for VBH’s future

development on both domestic and international fronts and enable further

investments.

Thank you for your confidence in our work!

Stuttgart, March 2007

Rainer Hribar

Jürgen Kassel

4 Annual report 2006 VBH Holding AG


Report of the Supervisory Board

During the year under review,the Supervisory Board of VBH Holding AG continually

monitored the work of the Board of Management,offering advice when required.

Through the 2006 financial year,the Board of Management kept the Supervisory

Board comprehensively informed about the position and development of the Company

and the Group, either orally or in writing. The reports covered, in particular,the

development of sales and earnings, liquidity planning in the Company and the

Group, important business transactions and the implementation of corporate planning.

The Supervisory Board discussed the Board of Management’s reports, in its

four meetings, and provided the Board of Management with intensive consultation

on questions of business policy,business development and the further development

of the Company.Furthermore, the status of the activities that had been

decided during the strategy workshop was discussed.

The focus of Board of Management reporting was on the further development of

the Group in terms of strategic global orientation. In addition, discussions revolved

around the further setting up of international regions.

The audits of the Supervisory Board during the Supervisory Board meetings

related, in particular,to the following issues:

The focus of the Supervisory Board meeting on the balance sheet, held on 6 April

2006, was on auditing the annual financial statements, the consolidated financial

statements and the management reports for the AG and the Group. In the process,

the Supervisory Board, in addition to its own audit activities in the context of

preparing the Supervisory Board meeting on the balance sheet, asked the auditor,

who was present in person, a range of questions and discussed these in detail with

him.

In the meeting of 14 June 2006, the Supervisory Board’s audit activities were aimed

at determining whether there was an adequate risk management system in place

and included the result of the Supervisory Board’s efficiency controls. The decision

to found a subsidiary in India was also taken at this meeting.

The focus of discussions in the meeting of 14 September 2006 was on the future

financing of the Group from the 2007 financial year onwards. The Supervisory Board

also examined the new sales management in Germany and the new regions

responsible for Western and Southern Europe and Middle East/Asia/Pacific.

In the meeting of December 2006, the Supervisory Board concentrated its audit

activity on the corporate planning presented in respect of the 2007 financial year.

The Supervisory Board discussed the planning as well as its inherent opportunities

and risks in detail with the Board of Management.

The Supervisory Board also audited the relevant monthly reports. These monthly

status reports to the Supervisory Board contain information about sales and the

earnings situation of the Group by segment. They also depict the liquidity and

financial situation with the current credit lines.

Business transactions that required the agreement of the Supervisory Board and

were of particular importance were discussed in detail with the Board of Management

and approved. The reports and the information provided by the Board of

Management have convinced the Supervisory Board of the adequacy of business

management. The Supervisory Board also assured itself that the requirements of

the risk management system are met in the Company and in the Group. The Chairperson

of the Supervisory Board was also in constant close contact with the Board

of Management outside the joint Supervisory Board meetings and had the Board

5


Report of the Supervisory Board

of Management inform him of the current development, the business position and

important individual transactions.

Dr Christoph Weiß resigned as a member of the Company’s Supervisory Board, with

effect from 26 July 2006. Mr.Oliver Voerster was appointed as a new member of the

Supervisory Board by resolution of the Stuttgart district court on 31 January 2007.

In its meeting of 14 September 2006, the Supervisory Board elected Mr.Jürgen

Bockstette to replace Dr Weiß as Deputy Chairperson of the Supervisory Board.

In its meeting held on 30 March 2007,the Audit Committee, formed from within the

Supervisory Board, prepared the resolution of the Supervisory Board on the adoption

of the annual financial statements and the approval of the consolidated financial

statements as per 31 December 2006. There are no other committees.

All risks discernible from the perspective of the Board of Management and the

Supervisory Board were discussed. The risk management system was subjected to

an intensive audit by the auditor,who confirmed that the Board of Management

had met the requirements of Section 91, Subsection 2 of the German Stock Corporation

Act and installed a control system suitable for early identification of developments

which might threaten the continued existence of the Company and the

Group.

The Supervisory Board has dealt with the further development of corporate governance

at VBH Holding AG.The current version of the German Corporate Governance

Code was included in the audit. The Board of Management and the Supervisory

Board have issued an updated Declaration of Compliance pursuant to Section 161 of

the German Stock Corporation Act.

The annual financial statements as per 31 December 2006, the consolidated financial

statements as per 31 December 2006, the management reports of VBH Holding AG

and of the Group, including their bookkeeping, were audited by the auditing firm

Roedl & Partner GmbH, Nuremberg, whom the Annual General Meeting had chosen

as auditors, and given an unqualified audit opinion.

The auditor provided every member of the Supervisory Board with a copy of the

audit report. The auditor participated in the balance sheet meeting and explained

the audit report in great detail. The Supervisory Board, for its part, reviewed the

annual financial statements, the consolidated financial statements and management

reports of the Board of Management for the AG and the Group, as well as the

proposal by the Board of Management in respect of the appropriation of unappropriated

profits. Following the final result of its audit, the Supervisory Board has no

objections and concurs with the result of the audit of the annual financial statements,

the consolidated financial statement and management reports of the Board

of Management for the AG and the Group obtained by the auditor.The Supervisory

Board has approved the annual financial statements drawn up by the Board of

Management: the annual financial statements are thus adopted. The Supervisory

Board approved the consolidated financial statements. The Supervisory Board

concurs with the Board of Management’s proposal in respect of the appropriation

of unappropriated funds, in particular,that a dividend of 0.12 euro per share be paid.

The Supervisory Board wishes to thank the Board of Management and all employees

for their work in the past financial year.

Korntal Münchingen, March 2007

Prof Dr Brun-Hagen Hennerkes

Chairman of the Supervisory Board


Corporate Governance

Declarations of Compliance of the Board of Management and

Supervisory Board with the German Corporate Governance

Code pursuant to Section 161 of the German Stock Corporation

Act

Since its last Declaration of Compliance, dated April 2006, which related to the

German Corporate Governance Code in the version of 2 June 2005, VBH Holding

AG (VBH) has complied with all recommendations of the »German Corporate

Governance Code Government Committee« of the above-mentioned version as

well as the version of 12 June 2006, with the following divergences in the 2006

financial year,and will continue to comply with the recommendations of the

»German Corporate Governance Code Government Committee«,with the exception

of the following divergences:

3.8 The D&O insurance concluded by VBH in respect of the members of the

Board of Management and Supervisory Board does not include any

deductible due to the fact that it is a group insurance policy,which also

comprises a number of employees nationally and internationally.

4.2.1 In view of the fact that the VBH Board of Management has only two

members, it has no chairperson or spokesperson.

4.2.3 There is currently no possibility of placing a cap on extraordinary, unforeseeable

developments in respect of variable remuneration components

with long-term incentives and risk features, owing to the ambitious goal

which focuses on a relative performance target (improved development

of the VBH share against the SDAX).

5.1.2 So far,no age limit has been defined for the members of the Board of

Management, owing to the age structure of the Board of Management,

but it is being considered.

5.4.1 So far,no age limit has been defined for the members of the Supervisory

Board, owing to the age structure of the Supervisory Board, but it is being

considered.

5.4.7 Membership of committees is not taken into consideration in the remuneration

of the members of the Supervisory Board, due to the fact that

only one committee exists. Committee work is due to increase in future.

Aresolution for regulating the remuneration of members of the Supervisory

Board, which takes committee work into account, will therefore be

submitted to shareholders in the 2007 Annual General Meeting. The remuneration

of members of the Supervisory Board is stated in the Company’s

Articles of Association. There is,therefore, no provision for further disclosure

and individualization.

7.1.2 VBH published the audited 2005 and 2006 consolidated financial statements

within 90 days following the end of the financial year and interim

reports within 45 days following the end of the half year.

7


Corporate Governance

Korntal Münchingen, March 2007

VBH Holding AG

On behalf of the Board of Management

Rainer Hribar

Jürgen Kassel

On behalf of the Supervisory Board:

Prof Dr Brun-Hagen Hennerkes

8 Annual report 2006 VBH Holding AG


Corporate-Governance Report

The Board of Management and the Supervisory Board provide the following

report on Corporate Governance in accordance with Subsection 3.10 of the

German Governance Code:

VBH is oriented to the national and international standards of responsible

business management, which integrates all areas of the Company comprehensively.

1 Declaration of Compliance on 30 March 2007

On 30 March 2007,the Board of Management and the Supervisory Board issued

the Declaration of Compliance pursuant to Section 161 of the German Stock

Corporation Act. All divergences from the recommendations of the German

Corporate Governance Code in the version of 12 June 2006 were presented and

explained.

2 Service for shareholders

Important dates and information for our shareholders are currently published on

the VBH Web pages. All information on Annual Reports and ad-hoc disclosures

relevant to the Annual General Meeting is available for downloading.

On the basis of the Act on Corporate Integrity and Modernization of the Right to

Appeal (UMAG), which came into effect on 1 November 2005, we have converted

the registration and legitimation procedure for the next Annual General Meeting

to the internationally used »record-date«. This simplification means that the

21st day before the Annual General Meeting is considered to be the qualifying

date with regard to the registration of the shareholders for the Annual General

Meeting.

3 Co-operation of Board of Management and Supervisory Board

VBH Board of Management and Supervisory Board co-operate closely to achieve

a sustained increase in corporate value. The Board of Management provides

regular and timely reporting to the Supervisory Board on all business management

and planning issues, as well as on the Company’s strategic orientation and

risk situation. The Company has concluded liability insurance in respect of property

damage (D&O) without deductible on behalf of the Board of Management

and the Supervisory Board. There were no conflicts of interest between members

of the Board of Management and the Supervisory Board, which have to be

reported to the Supervisory Board immediately.

4 Supervisory Board

The appointment to the Supervisory Board of independent, technically qualified

members guarantees an efficient Supervisory Board activity.The terms of office

of the present Supervisory Board members will end on expiry of the Annual General

Meeting that is to pass resolutions on the 2007 financial year,i.e. in 2008.

As Chairperson of the Audit Committee, Mr.Jürgen Bockstette has long-standing,

extensive experience as a former Managing Director and member of the Board

of Management of various medium-sized businesses, which means that he has

special knowledge and experience in the application of accounting principles

and internal control procedures.

9


Corporate-Governance Report

5 Risk management system

VBH’s risk management system is being audited by the auditors and is capable

of alerting management to risks or undesirable developments at an early stage.

Details can be found in the risk report.

6 Communication and transparency

Our corporate communication makes all VBH-specific information available via

our websites, to keep all target groups informed about press releases and

ad-hoc disclosures, Annual Reports and other important information simultaneously.

In addition, the requirements pursuant to Section 609 of the Securities Trading

Act on »Directors’ dealings« were met. The Board of Management and the Supervisory

Board of VBH, as well as other employees in executive positions, are required

to disclose any transactions with shares or derivatives of the Company relating

to shares. There were no disclosures in this respect in 2006. Shareholding

details in respect of the Board of Management and the Supervisory Board are

listed in the annex at point IX. The assignments of members of the Board of

Management and the Supervisory Board are also listed there.

7 Auditor

The auditing firm, Dr Rödl und Partner,Nuremberg, was asked by the Chairperson

of the Audit Committee to report all circumstances relating to the responsibilities

of the Supervisory Board regarding important findings or events occurring

during the audit procedure if they cannot be removed directly.

8 Share option plan

As per the resolution of the Annual General Meeting held on 24 May 2004, up to

1,200,000 subscription rights in respect of up to 1,200,000 no-par voting bearer

shares (no-par shares) of VBH Holding can be issued.

Option rights may only be issued to the Members of the Board of Management

of VBH Holding AG,Managing Directors of national and international group companies

and executives of the Company as well as national and international

group companies. Members of the Board of Management of VBH will receive, at

most, a total of up to 50% of the option rights, while Managing Directors of national

and international group companies will receive, at most, a total of up to

10% of the option rights. Executives of VBH Holding and group companies will

receive, at most, a total of up to 40% of the option rights.

Overall, 1,080,000 share options were issued by 31 December 2006, of which

600,000 were issued to members of the Board of Management, 60,000 to Managing

Directors of group companies and 420,000 to current and former executives.

A prerequisite for the exercise of option rights is that the relative development

of the value of the company’s share is better between the day of issue of the

options and the respective exercise date than the development of the value of

the SDAX or another index that takes the place of the SDAX. A third of the

options granted can, at the earliest, be exercised two years (»two-year waiting

period«) after the issue date. A further third can, at the earliest, be exercised

three years after the issue date and the remaining third four years after the

respective issue date. The first exercise date is in 2007.

10 Annual report 2006 VBH Holding AG


To execute the share option plan, the equity capital of the Company was conditionally

increased by EUR 1,200,000 through the issue of up to 1,200,000 no-par

ordinary voting shares (no-par shares). The conditional capital was entered into

the Commercial Register on 3 June 2004.

The secondary condition of the relative development of the value against the

SDAX, which would authorize the exercise of the option, occurred in 2006. Arithmetically,the

valuation of the options amounts to 0.84 euro.

The report on the remuneration of the corporate bodies is enclosed in the Group

management report.

Korntal Münchingen, 30 March 2007

VBH holding AG

On behalf of the Board of Management:

Rainer Hribar

Jürgen Kassel

On behalf of the Supervisory Board:

Prof Dr Brun-Hagen Hennerkes

11


2006 Group Management Report

of VBH Holding AG

Previous year’s values

in brackets

Graphics and tables

were inserted in the

context of the management

report to aid

comprehension.

Macroeconomic Environment and Sector

Development

Western Europe

Economic growth in Western Europe increased by 2.7% (1.5%) in 2006 compared

to the previous year.The unemployment rate was 7.5% in December 2006, a drop

of 0.9 percentage points compared to the same month of the previous year

(8.4%). The inflation rate was 1.9%, which was below the level of the previous

year (2.2%). Corporate insolvencies dropped from 154,510 in 2005 to 141,448 in

2006. While the number of registered insolvencies was above 155,000 in each of

the years between 2002 and 2004, a downward trend has been noticeable since

2004. As was the case in the previous year,Germany remained one of the leaders

in terms of corporate insolvencies.

Eastern Europe

Economic growth in Eastern Europe increased by 5% (4%) in 2006. At the same

time, there was an increase in the inflation rate in most countries. Latvia with

6.8% and Hungary with 6.6% had the highest inflation rates. Unemployment

rates in Eastern Europe remained high in 2006, despite the strong surge in

economic growth. In the same period, corporate insolvencies rose by 8.1%,

affecting 19,682 (18,215) companies. The biggest increase (18.3%) was in Hungary.

Economy and economic activity in Germany

German gross domestic product rose by 2.5% in 2006 compared to 2005 (0.9%).

This growth was the result, on the one hand, of constant net exports of 0.7%

(0.7%) and, on the other,of the 2.8 % increase in domestic use (1.4%). Consumer

spending of private households rose by 2.1% against the previous year (1.7%).

Gross fixed capital formation rose by 6.3% (0.7%) in the same period. In Germany,31,300

insolvencies were registered in 2006, 15% less than in the previous

year.The number of gainfully employed people increased noticeably,and the

number of people registered as unemployed fell significantly.The inflation rate

remained low at 1.7%.

The forecasts for 2007 remain favourable. Even shortly before the turn of the

year,the expected rates of growth for 2007 were revised upwards to about 2%.

The positive forecasts are based on a persistent impetus from international economies

and recovering domestic demand, while growing employment is a not

unimportant contributory factor here. The number of unemployed people is expected

to fall by 380,000 in 2007.The increase in VAT is expected to have a slight

retarding effect in terms of private consumption. Furthermore, the ECB already

tightened monetary reins in the past year.For 2007,afurther slight increase in

the key interest rates is therefore to be expected.

13


Management Report

Construction industry

Following many years of downward trends, building investments were significantly

on the increase again in the past year in Germany,totalling EUR 214.75

billion (price adjusted: EUR 205.55 billion). This was a 3.6% increase compared to

the previous year (in real terms). Abetted by special effects,they thus made their

first positive contribution to the growth of gross domestic product.

The German construction industry has managed to reverse the economic trend.

The greatest impetus for 2007 is expected to come from commercial construction.

However,residential building will lose dynamism on expiry of the special effects

from the abolition of the allowance for the construction of owner-occupied

homes as well as pre-emptive effects from increase in value-added tax. This will

also be true of public construction, whose development will suffer from the

restrictive investment policy of Bund and Länder,in spite of increasing publicsector

investments.

The lively demand for construction works, however,also resulted in clear price

increases in the course of the year.Price increases for building investments

amounted to 2.4% compared with 2005. This is the biggest increase in 13 years.

The number of persons employed in the construction industry remained approximately

constant in comparison with the previous year,in spite of the increase in

building investments. 2006 saw a total of 2,156,000 (2,165,000) persons employed

on average in the construction industry. The growth in building investments in

2006 was underpinned by all three divisions of the construction industry:

residential building, commercial building and public construction.

115

Gross d omestic product and build in g investments

(Index 1 995=100)

110

105

Index

100

95

Gross dom estic product

Building in vestments

90

85

80

75

95 96 97 98 99 00 01 02 03 04 05 06

Year

14 Annual report 2006 VBH Holding AG


Building permits and completed buildings

Residential building

In the residential building sector,owing to the abolition, on 1 January 2006, of the

allowance for the construction of owner-occupied homes, the fourth quarter of

2005 already began to see a noticeable increase in building permits, which resulted

in increased building investments in the course of 2006. In addition, the increase

in value-added tax, which comes into force in 2007,created an incentive

for timely implementation of building projects. Additional assurances were provided

by the improved employment prospects and continued favourable financing

conditions. Contrary to all expectations, building investments in residential building

in the year under review increased by 3.6% against the previous year.While

2005 saw a drop of EUR 4.5 billion, residential building in 2006 experienced a

price-adjusted increase of EUR 4.09 billion euro to EUR 119.12 billion. If an extrapolation

is made from the completed residential buildings registered by official

statistics to October,the number of completed residences (239,000) is above the

previous year’s value of 234,000.

Develo pment in resid ential building

Germ any

Investments in commercial buildings experienced the most significant

with 4.7%. An increase of EUR 2.75 billion helped them to reach EUR 60.7

700

billion. This is also reflected in the cost volume of the permitted comm

buildings, which increased by 17.9% against the previous year – 2005

building 600 investments drop by 2.8%. This spirited development is the resu

companies’ high production activity. Both in commercial structural engin

and in commercial civil engineering, the price-adjusted increases in

commercial

500

buildings of 4.5% or 5.4% were significantly above the averag

all building investments in 2005.

Quantity in T€

400

Building perm its

Comple ted build in gs

Public 300 construction

Price-adjusted building investments in public construction rose by 1.6%

2006. 200 The increase of EUR 400 million produced building investments of E

25.7 billion. The building infrastructure still remains heavily in need

renovation. The current building expenditure level falls well short of

1995

1996

1 9 97

1998

1 9 99

2000

2 0 01

2002

Year

Commercial construction

2003

2004

Investments in commercial buildings experienced the most significant increase

with 4.7%. An increase of EUR 2.75 billion helped them to reach EUR 60.75 billion.

This is also reflected in the cost volume of the permitted commercial buildings,

which increased by 17.9% against the previous year – 2005 had seen building

investments drop by 2.8%. This spirited development is the result of companies’

high production activity.Both in commercial structural engineering and in commercial

civil engineering, the price-adjusted increases in commercial buildings of

4.5% or 5.4% were significantly above the average of all building investments in

2005.

2005

2006

15


Management Report

Public construction

Price-adjusted building investments in public construction rose by 1.6% in 2006.

The increase of EUR 400 million produced building investments of EUR 25.7

billion. The building infrastructure still remains heavily in need of renovation. The

current building expenditure level falls well short of requirements. However,

moderate investments in public construction are expected from 2007 onwards,

depending on increased tax receipts.

Windows market

Europe

Overall, Europe has also experienced a positive development in the windows

market. High rates of growth continue to be seen in Eastern Europe. According

to estimates of the InterConnection Consulting Group, an average 5.5% annual

growth in sales is forecast for the next three years in Poland, the Czech Republic,

Slovakia, Slovenia and Hungary. Rising incomes, favourable construction policy

and a new,quality-oriented consumer awareness are providing a positive impetus

in all windows markets. The demand for higher-quality,better insulated,

more durable and optically pleasing windows is on the increase. A European

comparison shows that renovation (56%) continues to be more important than

new construction. As far as frame materials are concerned, the plastic window is

the undisputed leader in Eastern Europe, with a market share of 62.9%, which,

according to analyses, should increase even further to a 63.6% market share by

2008.

Germany

According to information that the Association of Window and Façade Manufacturers

provided in December 2006, the windows market in 2006 increased from

11.6 to 12.5 million window units.

Windows market in Germany

30

25

Mio. units

20

15

10

5

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Year

16 Annual report 2006 VBH Holding AG


This is equivalent to a growth of 8.0%, compared with a drop of 8.2% in the previous

year. The one-off effect of the removal of the home owner's allowance for

the construction of owner-occupied homes must, however,be taken into account

in this unexpectedly high increase. Even without this effect, further growth of

2.1% in the windows market is forecast for 2007.9.7% growth is expected in 2006

for the residential construction sector and 4.6% for the non-residential construction

sector.The renovation market is forecast to enjoy an almost two-digit

increase of 9.9% and new buildings to have 5.4% growth. Both these sectors

experienced only declines in 2005.

Towards the end of 2006, it became apparent that plastic windows have assumed

above-average importance in terms of frame materials. Wood developed in

line with the overall trend. By contrast, production figures in the aluminium

sector were down. Aluminium windows are, however,forecast to have a higher

share of the market in 2007,owing to considerable growth in non-residential

construction.

Share on the entire market

60

Plastic

in %

50

40

30

20

10

Aluminium

Timber

Timberaluminium

0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Year

Group development in the 2006 business year

VBH development in the 2006 business year was much better than originally

forecast, particularly in Germany.Global sales for continued operations increased

by 14.2%, from EUR 685.7 million to EUR 783.2 million.

This means that the Group achieved the highest sales in its history. International

sales increased by 17.0%, from EUR 354.4 million to EUR 413.4 million. The international

share of Group sales is thus 53%. EBIT increased to EUR 40.3 million

(EUR 26.1 million). Group earnings before tax (EBT) increased by 85%, from

EUR 16.4 million to EUR 30.2 million. After deduction of taxes, this amounted to

EUR 22.2 million (EUR 11.4 million).

17


Management Report

Organizational structure and segments

The Group’s consolidation unit was enhanced to include companies in Dubai,

Singapore and Peking. The sale of shares in C.D.A Dell’ Adriatico resulted in this

company’s withdrawal from the consolidation group. New companies in India,

Thailand and Malaysia, founded in 2006, were built up gradually to allow us to

have a presence in South East Asia’s ever-booming growth markets.

The Board of Management of VBH Holding AG still consists of two members,

Rainer Hribar and Jürgen Kassel. They are also Managing Directors of

VBH Deutschland GmbH. The extended management group of VBH Deutschland

GmbH contains seven members in all.

Segment enhancement

VBH’s organizational structure was enhanced to include the »Other Markets«

segment, in line with the Company’s successful expansion. This new segment

contains, first and foremost, companies from the Middle East and Asia.

Germany

This segment comprises the companies VBH Deutschland GmbH, Korntal Münchingen

and esco Metallbausysteme GmbH, Ditzingen. This segment’s consolidated

sales increased by 12%, from EUR 340.8 million (continued operations) to

EUR 381.1 million. On the one hand, this significant increase was due to the

above-mentioned growth in the domestic market. On the other hand, the outstanding

sales work of all staff in Germany produced an even more significant

increase in both companies’ sales and earnings.This enabled the corporate

economy to set itself off from an already positive market development.

Sales for VBH Deutschland GmbH rose by 13%, from EUR 270.5 million to

EUR 306.6 million. It was our new service offerings,in particular,that were taken

up by our customers. They serve VBH on two fronts: long-term customer retention

and acquisition of additional market potential. Sales due to direct exports –

particularly to Eastern European countries – also increased considerably,totalling

EUR 31 million (EUR 24.7 million). The quality of the sales was consistently high, in

terms of both the sales margin achieved and our receivable structures. Losses on

receivables were at a persistently low level, owing to consistent and strict

receivables management.

Sustained profitability of the German market, VBH’s largest single market, was

management’s most important aim in the past few years, which it was able to

achieve. Owing to increased business activities in the second half of 2006 and a

strong last few months in 2006, the Company’s current assets have increased. In

comparison with the previous year,inventories rose by EUR 7.0 million, receivables

and other assets by EUR 4.1 million. VBH was largely able to offset industry

18 Annual report 2006 VBH Holding AG


delivery bottlenecks.Overall, service levels in Germany remained constantly

above an outstanding 95%.

The provisions formed, in the previous year,for necessary adaptation measures

were fully utilized, as planned.

In spite of making use of tax loss carryforwards from previous years, earnings of

VBH Deutschland GmbH were impacted by income taxes of EUR 0.2 million,

owing to the minimum taxation rule that was in force. The commercial loss not

covered by equity amounted to EUR 39.7 million at the end of 2006.

The above-mentioned service packages continued to be promoted in the market.

Now,more than 450 customers are directly connected to our merchandise management

system via the VBH system »LOGOS«. More than 20% of all sales orders

are received in electronic form and approximately 60% of all purchase orders are

transmitted to VBH suppliers online via EDI.

esco Metallbausysteme GmbH, with sales of EUR 76.3 million (EUR 70.3 million),

achieved a sales increase of 8.5% against the previous year.With its successful

business model »Metallbau«, its innovative products and very good sales work,

as well as its lean cost structure, esco was again able to increase its operative

earnings (EBIT).

EBIT of the »Germany« segment amounted to EUR 6.8 million, which was

EUR 7.0million higher than in the previous year (EUR –0.2 million). An average of

901 employees (980 employees) were employed over the year in Germany.

EUR million

Sales proceeds Group National/International

900

800

700

600

500

400

300

200

100

0

615,7 615,6 644,5 611,5 613,4 643,6 693,4 783,2

1999 20002001 2002 20032004 2005 2006 Year

National

International

19


Management Report

Foreign subsidiaries

VBH was able to extend its growth in profitable foreign markets considerably.

Sales increased by 17.0% to EUR 413.4 million (EUR 354.4 million). Earnings before

taxes (EBT) of the consolidated foreign subsidiaries rose by 29.2%, amounting to

EUR 34.1 million (EUR 26.4 million). This produced a sales return before taxes of

8.3% (7.5%). What was particularly pleasing was the recovery of the markets in

Poland and Great Britain, coupled with the achievement of disproportionate

sales increases in all Eastern European countries.

The companies in the »Other Markets« segment are, without exception, market

start-ups, which, owing to market entry costs in the first year,involved start-up

losses.

Western Europe

The Western European companies achieved a slight improvement in their 2006

sales, which rose by 0.6% to EUR 162.7 million (161.7 million). Sales and earnings

increases were achieved in the Netherlands, Spain, Belgium and Greece. Individual

markets have partly recovered from economic declines in these countries.

The sale of the Italian company C.D.A.Dell’ Adriatico,which was part of the

consolidation group until the end of 2005, caused a fall in sales of EUR 7.5 million.

Adjusted by this effect, sales for the segment in the past business year increased

by 5.5%. Particularly those companies that maintain focused sales partnerships

with our core suppliers achieved especially good results. Earnings

before taxes (EBT) in the segment amounted to EUR 10.6 million (EUR 10.3 million).

Yield before taxes remained stable at 6.5% (6.4%).

Eastern Europe

Some of the Eastern European companies reported enormous sales increases in

extreme growth markets. Sales rose by 28.1% to EUR 247.0 million (EUR 192.7 million).

At the same time, there was an underproportionate increase in costs in

these countries. This provided an additional contribution to earnings.

Operative earnings (EBT) of all Eastern European countries rose in total by 53%

and amounted to EUR 24.6 million (EUR 16.1 million) before tax. Yield before

taxes increased from 8.4% to 10.0%.

Other markets

The Asian companies in Beijing and Singapore, as well as our company in Dubai,

were first assigned to this new segment in 2006. Sales in these countries are still

at an initially low level, but are being increased gradually and systematically.

Product ranges that are especially geared to these regions will guarantee

growth. The demand for high-quality fittings is also increasing in these markets,

20 Annual report 2006 VBH Holding AG


and we receive a great deal of support from our European producers. The segment’s

contribution to sales is EUR 3.7 million,with earnings before taxes (EBT)

amounting to EUR –1.1 million.

Corporate services

The »Corporate Services« segment comprises all non-operating companies,

namely VBH Holding AG as parent company,VBH International in the Netherlands

(currently being dissolved) and a sale and lease back company,which must

be fully consolidated due to IFRS regulations.

EBT for the segment amounted to EUR 1.2 million (EUR –0.6 million). Costs in the

holding companies are offset by dividends and earnings within the Group. The

financial result of VBH Holding AG,shaped by an interest waiver which was also

in existence in 2006 vis-à-vis VBH Deutschland GmbH, is critically important for

the segment’s overall earnings. In spite of an improved company rating (BB+) of

the VBH corporate group, higher interest charges for the convertible profitsharing

certificates issued in 2004 showed their effect. The return on the profitsharing

certificates, linked to the earnings development of the VBH Group, rose

by EUR 1.8 million to EUR 4.0 million and hence to the maximum interest rate

of 8%.

In the course of closing operations, the valuations of VBH Holding AG were

subjected to an annual impairment test. Value adjustments in the Group totalling

EUR 3.0 million were carried out on the companies in Singapore and Beijing.

21


Management Report

Group

Investments

The investment volume in intangible assets in the Group totalled EUR 6.1 million,

resulting mainly from the EUR 5.7 million expansion of the consolidation group.

The Group invested EUR 5.2 million in tangible assets in the year under review.

Necessary replacement investments were effected primarily.

EUR million

25

Investments/Depreciation - Group

20

15

10

Investments

Depreciation

5

0

1999

2000

2001

2002

2003

2004

2005

2006

Year

Earnings situation

Group sales for continued operations rose by 14.2%, from EUR 685.7 million to

783.2 million. The cost of materials ratio in the Group was reduced from 77.2% in

the previous year to 76.9% in 2006. Gross income increased by 0.3 percentage

points, from 22.8% to 23.1%.

Personnel expenditure in the Group rose 5.7%, from EUR 72.22 million to EUR

76.6 million, due to the strong growth of our companies in Eastern Europe and

the expansion of the consolidation group. In relation to sales, however, it fell

again from 10.5% to 9.8%. Depreciation within the Group dropped from EUR 8.2

million in the previous year to EUR 7.7 million. The drop in comparison with the

previous year is mainly attributable to the one-off depreciation of a consolidated

company shown in the previous year.The investments in tangible assets are

persistently low,owing to the restrained investment behaviour of the Group.

In comparison with the previous year,there was an underproportionate 9.8% increase

in other operating expenses, from EUR 61.9 million to EUR 67.9 million.

In relation to sales, however,these expenses fell from 9.0% in the previous year

to 8.7% in 2006. Restructuring expenses shown in the previous year,which were

particularly affected by the portfolio adjustment of the company structure, fell to

EUR 0.8 million in 2006.

22 Annual report 2006 VBH Holding AG


Abbreviated Profit and Loss Statement

for the VBH Group

Group

2005

TEUR

Discontinued

operations

2005

TEUR

Continued

operations

2005

TEUR

Group

2006

TEUR

Continued

operations

Year-on-year

change

1. Sales proceeds 693,408 7,757 685,651 783,221 14.2%

2. Overall performance 711,781 9,628 702,153 795,681 13%

3. EBITDA 33,077 –1,254 34,331 47,994 40%

4. EBIT 24,849 –1,264 26,113 40,291 54%

5. Financial result –10,068 –346 –9,722 –10,046 3%

6. EBT 14,781 –1,610 16,391 30,245 85%

7. Net income/loss for the year 9,824 –1,610 11,434 22,220 94%

EBIT for the continued operations amounts to EUR 40.3 million (EUR 26.1 million),

which means a 54% increase.

The Group financial result increased from EUR –9.7 million to EUR –10.1 million.

In spite of downward interest and loan utilization in the Group, there were three

principal effects on net interest income: the return on the profit-sharing certificates

increased by EUR 1.8 million. The discounting of a corporation tax credit

had a negative effect of EUR 0.7 million on earnings. Owing to the improved

rating of the Group (BB+), the interest rates for the classical loans fell.

The tax burden amounted to EUR 8.0 million in total (EUR 5.0 million). A corporation

tax credit of EUR 3.5 million was capitalized for VBH Holding AG and shown

as an income. Deferred taxes were formed on the Group’s loss carryforwards.

Consolidated net earnings amounted to EUR 22.2 million in 2006 as against

EUR 11.4 million in the previous year,a94% increase.

23


Management Report

Financial and assets situation

The balance sheet total within the Group increased from EUR 305.2 million in the

previous year to EUR 334.6 million. This is due to the considerable increase in the

business operations of all companies and the expansion of the consolidation

group.

Assets

Assets remained unchanged at EUR 64.4 million. Investments in assets were

primarily made as replacement investments in respect of the store and operating

equipment. Short-term assets rose by EUR 28.8 million, from EUR 233.3 million

to EUR 262.0 million, as a result of expanding business development and

sales, particularly towards the end of 2006. EUR 17.9 million related to the increase

in inventory assets and EUR 11.4 million to the increase in receivables and

other assets. There was a minor change of EUR 0.6 million in liquid funds, which

decreased from EUR 9.9 million to EUR 9.3 million.

Abbreviated Balance Sheet for the VBH Group in accordance

with IFRS

Assets 31 Dec 2006 31 Dec 2005

TEUR

TEUR

A. Long-term assets

I. Intangible assets 31,633 29,265

II. Tangible assets 32,475 33,742

III. Financial assets 312 1,464

IV. Other long-term assets 8,250 7,538

Long-term assets 72,670 72,009

B. Short-term receivables and assets

I. Inventories 114,648 96,661

II. Receivables and other assets 137,140 125,726

III. Securities 240 208

IV. Liquid funds 9,326 9,875

V. End-of-year adjustments 611 734

Short-term receivables and assets 261,966 233,204

Assets 334,635 305,213

24 Annual report 2006 VBH Holding AG


Liabilities

The good earnings development of the overall Group is reflected in increased

equity.Equity within the Group amounts to EUR 71.7 million, compared with

EUR 49.8 million in the previous year.The equity ratio of the Group increased to

21.4%, compared with 16.3% in the previous year.

Long-term liabilities decreased slightly from EUR 79.9 million to EUR 78.5 million.

These include pension obligations and long-term liabilities vis-à-vis financial

institutions, as well as the convertible profit-sharing certificates up to a volume

of EUR 50 million. All convertible profit-sharing privileges continue to be in circulation.

No conversions have so far been effected. No notable trading activities on

the profit-sharing privileges were reported on the stock exchanges.

Short-term liabilities vis-à-vis financial institutions increased slightly by EUR 2.6

million, from EUR 83.3 million in 2005 to EUR 85.9 million in 2006. This meant that

the Group’s growing business development was financed primarily from the positive

cash flow and not at the expense of interest-bearing bank liabilities. Trade

payables within the Group increased by EUR 5.5 million, from EUR 53.5 million to

EUR 59.0 million, due to the sales expansion.

Equity and Liabilities 31 Dec 2006 31 Dec 2005

TEUR

TEUR

A. Equity

I. Subscribed capital 36,495 36,495

II. Capital reserve 6,463 5,581

III. Earnings reserve 6,717 2,987

IV. Net income for the year 13,453 –3,218

V. Shares held by other shareholders 9,371 8,316

VI. Treasury stock –784 –350

Equity 71,715 49,811

B. Long-term liabilities

Long-term liabilities 78,543 79,926

C. Short-term liabilities

I. Short-term provisions 11,668 15,991

II. Short-term liabilities to banks 85,935 83,335

III. Liabilities from supplies and services short-term 58,961 53,498

IV. Other short-term liabilities 27,814 22,651

Short-term liabilities 184,377 175,475

Equity and liabilities 334,635 305,213

25


Management Report

Liquidity

Liquidity continued to develop according to plan. The credit line made available

by commercial banks in Germany was kept, in spite of the considerable growth

in sales. Not even seasonal fluctuations in the liquidity requirement could produce

bottlenecks. Dividend payments from abroad were distributed to VBH Holding

AG and collected, as planned.

In the course of the business year,negotiations were started, with the current

commercial banks, for a syndicate loan for the continued long-term financing of

the VBH Group. The current commercial banks and another domestic bank made

a five-year syndicate loan, with an overall volume of EUR 100 million, available to

VBH, starting in March 2007.The return is linked variably to the rating of the

Group as a whole and offers VBH, given continued improvement in the earnings

situation, the opportunity of lower interest. This will support current operations

as well as global growth. It will also give VBH a secure foundation for its future

investments.

The VBH Share

Master data

The equity capital of the Company amounts to EUR 36,495,447 and is divided up

into 36,495,447 no-par shares of an arithmetical nominal value of EUR 1.00. In addition,

a total of EUR 50 million convertible profit-sharing privileges with a term

to 2014 were issued.

The shares are listed in the General Standard segment of the Frankfurt and

Stuttgart stock exchanges.

Security WKN ISIN Symbol

Old share 760070 DE0007600702 VBH

Convertible profit-sharing

Certificates A0CASN DE000A0CASN9 VBH9

The Board of Management is authorized to increase the Company’s equity capital

once or several times – with the agreement of the Supervisory Board – in the

period until 24 May 2009,to a total of EUR 7,500,000 through the issue of new

ordinary no-par voting shares (no-par shares) (Authorized capital I).

The capital can be increased against cash and/or non-cash contributions.

The Board of Management is also authorized to increase the Company’s equity

capital once or several times – with the agreement of the Supervisory Board – in

26 Annual report 2006 VBH Holding AG


the period until 24 May 2009,to a total of EUR 7,500,000 through the issue of

new ordinary no-par voting shares (no-par shares) (Authorized capital II).

The capital can be increased against cash and/or non-cash contributions.

The Board of Management is additionally authorized – with the agreement of

the Supervisory Board – to exclude the legal subscription right of the shareholders

in respect of three cases.

The equity capital of the company is conditionally increased (Conditional capital

I) by EUR 10,000,000 through the issue of up to 10,000,000 new ordinary no-par

voting shares (no-par shares). The conditional capital increase is only executed if

the holders of the convertible profit-sharing certificates, issued by the Company

based on the resolution of the Annual General Meeting of 24 May 2004, avail

themselves of their conversion privileges and if no treasury stock is made available

to service these privileges. The new shares participate in profits from the

beginning of the financial year in which they are created through the exercise of

conversion privileges. The Board of Management is authorized – with the agreement

of the Supervisory Board – to determine all further details involved in the

execution of the conditional capital increase.

The equity capital of the company is conditionally increased (Conditional capital

II) by EUR 1,200,000 through the issue of up to 1,200,000 ordinary no-par shares

(no-par shares). The conditional capital increase is exclusively used to fulfil option

rights granted from 24 May 2004 to 24 May 2009,on the basis of the authorization

by the Annual General Meeting. The conditional capital increase is only

executed if the holders of the option rights issued avail themselves of their right

to subscribe to no-par shares of the Company and the Company does not release

treasury stock for the purpose of fulfilling these option rights. The new no-par

shares participate in profits from the beginning of the financial year in which

the shares are issued.

VBH signed a designated sponsor contract with Equinet AG,Frankfurt, in August

2006. Since then, Equinet has provided professional support for our investor relation

activities, by means of a wide range of previously agreed measures. As a

result, the VBH share again increasingly became the focus of the capital market

and also attracted the attention of the stock exchanges in the second half of the

year.Trade sales of the VBH share rose constantly in due course until the end of

the year.

In addition, the Board of Management of VBH Holding AG strengthened its efforts

to increase the Company’s name recognition in the various capital markets.

Corporate presentations and road shows to investors in Frankfurt, London, Oslo,

Copenhagen and Paris increased interest in the VBH share. Discussions focused

on the development of VBH as well as the construction supply sector in Germany,largely

unknown abroad.

27


Management Report

255

Share price development 2006

235

215

195

175

155

135

115

95

January 06 December 06

Index (01 Jan 2006 =100)

The lowest value of the VBH share was recorded at EUR 2.53, in January 2006. The

highest value on the Frankfurt Stock Exchange was observed in December 2006,

at the end-of-year rate of EUR 6.10.

The performance of the VBH share stood out clearly from the development of

the SDAX and DAX in 2006. This enabled potential that had been lost over a number

of years to be regained. The Board of Management expects the price to continue

its upward trend now that construction activity in Germany has stabilized

and there has been profitable growth abroad.

VBH Holding AG’s treasury stock remained unchanged in comparison with the

previous year,amounting to 128,504 shares at the end of 2006. It was valued at

the listed share price of EUR 6.10 on 31 December 2006.

Dividend policy

Due to the good business result in 2006, the Board of Management has decided

to submit to the Supervisory Board a profit distribution proposal, which envisages

the distribution of a dividend of EUR 0.12 per share for the 2006 business

year. This means that, for the first time in five years, a dividend distribution of

VBH Holding AG is planned. It will allow all shareholders to participate in the

success brought about by sustained restructuring of the Company and global,

profitable growth. The level of the dividend to be decided and distributed

should, however,document that the Company must continue to reduce net

28 Annual report 2006 VBH Holding AG


indebtedness and must take into account a repayment of the convertible profitsharing

certificates that is appropriate in business terms.

Employees

In Germany,the average number of employed persons fell from 980 to 901. The

Corporate Services segment has taken on experienced VBH Germany executives

and will thus gradually transfer experiences gained over the past few years to

the foreign markets. The Corporate Services segment employed a total of

17 staff.

On the international front, extended business operations in 2006 saw the employment

of 98 more employees than in 2005. The total number of employees in

2006 was 1,257 (1,159). 436 of this number were employed in Western Europe and

777 in Eastern Europe, which meant that there was virtually no change. The

Other Markets for VBH Group companies employed 44 staff.

The total number of staff within the Group rose by 22 employees, to 2,175, due to

business growth and the extension of the consolidation group. The number of

trainees in the Group amounted to 32, compared with 77 in the previous year.

In Germany,VBH once again invested in quality training for its sales staff, by

providing extensive sales training.At this point, the Board of Management and

Supervisory Board wish to thank all employees of the VBH Group for their high

level of commitment nationally and internationally: this represents a major

contribution towards the Company’s continued positive development.

Quantity

Persons employedatannual average –Group

2000

1500

1000

1389

1347

1355 1031 963

970

994

918

Germany

A broad

500

0

1257

1087 1159

926 993

800

652

520

1999 2000 2001 2002 2003 2004 2005 2006 Year

29


Management Report

Share option plan

The share option program for executives of the VBH Group, initiated in 2004,

continues to have an incentivizing function. 2007 sees the first opportunity for

exercising the option of a tranche. The prerequisite for the exercise of option

rights is that the relative development of the value of the Company’s share is

better between the day of issue of the options and the respective exercise date

than the development of the value of the SDAX. The current perspective leads us

to be optimistic that this goal can be met.

Overall, 1,080,000 share options were issued by 31 December 2006, of which

600,000 were issued to members of the Board of Management, 60,000 to Managing

Directors of Group companies and 420,000 to executives of the Group.

Athird of the options granted can, at the earliest,be exercised two years (»twoyear

waiting period«) after the issue date. A further third can, at the earliest, be

exercised three years after the issue date and the remaining third, at the

earliest, four years after the respective issue date.

Risk Reporting

Risk management system

Risk reporting is integrated into a regular monthly reporting system of the

group companies and into an ad hoc system within the Group. This comprises all

essential control and reporting processes of the Group, including corporate planning.

Direct access to information of the participation companies is ensured by

extended international participation controlling within VBH Holding AG.The goal

is to guarantee a highly effective, intensive and timely early recognition system

in all foreign markets. This enables VBH to obtain information on changes in the

profitability of every individual corporate unit and to convert this rapidly to

measures geared towards securing sales and earnings.

Internal audit

A newly created audit assumed responsibility for auditing important key figures

and processes within the VBH Group, on 1 April 2006.

Germany

While construction activity in Germany over the past year developed much more

positively than forecast, experiences over the last ten years would tend to suggest

that it still represents a planning risk to the VBH Group. VBH can now adjust

rapidly and flexibly to market conditions in Germany,with the product range

constantly being checked for its profitability and continually adapted. Nevertheless,

it cannot be ruled out that technological developments or trends will again

30 Annual report 2006 VBH Holding AG


produce slow-moving items in the storage area. The same is true of receivables

management, which continues to be pursued very strictly.Arelatively high number

of insolvencies must continue to be expected in Germany.The associated

deductible rate of the loan insurance company can result in higher absolute

charges.

Many product ranges are under great margin pressure, due to continued intensive

competition in Germany.Management is trying to counter this situation by

better purchasing conditions and by promoting the targeted sales of profitable

product ranges. This should strengthen the overall absolute gross income.

Liquidity and foreign exchange risks

As already mentioned, VBH has a syndicate loan to the year 2011, starting with

the year 2007.Central liquidity planning was extended to all companies in the

Group. The pro rata orientation of the credit interest to the Euribor requires interest

hedge transactions to be used as hedging. In addition, the dividend payments

of its subsidiaries cause liquidity-impacting foreign exchange risks within

VBH Holding AG.Where possible, these are assigned foreign exchange hedging

instruments. The timing and contents of the payment of dividends is agreed

with the companies on the basis of liquidity planning.

It cannot be ruled out that our participation companies experience foreign

exchange risks due to the upward movement in the euro and the associated

increase in the price of goods. VBH attempts to take these foreign exchangedependent

fluctuations into account in its pricing in all markets. Negative effects

on the trading margins achieved cannot, however,be completely excluded.

Procurement market risks

Price increases in raw materials, such as those for materials made of zinc, steel

and aluminium, can usually be passed on to the consumer.Procurement market

risks cannot, however, always be prevented from lowering margins.

Legal risks

The Group is currently not involved in any court or appeal proceedings which

could have a significant effect on the overall situation of the Company.Sufficient

provisions have been formed in respect of warranty claims in the individual

companies financial statements.

Sales market and overall risk

VBH’s business strategy is geared towards sustained and profitable growth.

To be able to tap interesting markets characterized by a high renovation volume

independently,VBH requires sufficient capital, which needs to be made available

by banks, suppliers and the capital market. In the Eastern European and Asian

markets, political and economic sales risks can occur at short notice. Nor can

future economic risks be excluded within individual country-based companies.

31


Management Report

In connection with the convertible profit-sharing certificates that were issued in

the context of the capital measures, a maximum return of 8% must continue to

be expected.

The Supervisory Board is kept informed on a regular basis via monthly reporting.

In addition, in the context of his annual audit activities, the auditor assesses

whether the Board of Management has taken the measures incumbent upon it

and, in particular,whether it has implemented a control system such that any

developments that might threaten the continued existence of the Company can

be identified at an early stage.

Findings after expiry of the business year

No events of major significance to the representation of the Group’s risk situation

and which could have led to a different opinion occurred after expiry of

the 2006 financial year.

Corporate Governance

VBH Holding AG complies with the Corporate Governance Code in the version

dated 12 June 2006, with but few exceptions. The joint Declaration of Compliance

is reproduced in the Annual Report and published on the Web page of VBH

Holding AG at www.vbh.de.

Changes to the Company’s Articles of Association derive from rules of the

German Stock Corporation Act and are decided by the Annual General Meeting.

Remuneration Report

The remuneration report summarizes the principles on which the remuneration

of the Board of Management and Supervisory Board of VBH Holding AG is

based, and explains both the level and the structure of incomes.

Remuneration of the Board of Management

The remuneration of the Board of Management is performance-related and

consists of four components in the 2006 financial year:

(1) a fixed remuneration;

(2) a variable bonus based on the Group’s EBIT in accordance with IFRS;

(3) a share-based remuneration (share options) and

(4) a benefit allowance.

32 Annual report 2006 VBH Holding AG


The remuneration for the Board of Management for the financial year was as

follows: A fixed amount of TEUR 250 and a variable amount of TEUR 430 for

Mr Jürgen Kassel and a fixed amount of TEUR 250 and a variable amount of

TEUR 430 for Mr Rainer Hribar.In addition, benefits in kind of TEUR 4 were

granted to Mr Kassel and TEUR 62 to Mr Hribar.

An additional component of the remuneration of the Board of Management is

share-based, in the form of share options, which were issued to the Group’s

Managing Directors on the conditions of the 2004 VBH Holding share option

plan adopted by the Annual General Meeting of VBH Holding AG on 24 May

2004. 600,000 share options were divided equally between the Board of Management

members. A third of the options granted can, at the earliest, be exercised

two years (»two-year waiting period«) after the issue date. A further third can, at

the earliest, be exercised three years after the issue date and the remaining

third, at the earliest, four years after the respective issue date. The prerequisite

for the exercise of option rights is that the relative development of the value of

the Company’s share is better between the day of issue of the options and the

respective exercise date than the development of the value of the SDAX.

The monetary value of the share options was created based on an actuarial

valuation. The »fair value« of the options is EUR 0.84. The total value of the issued

options amounts to TEUR 504.

There are pension obligations (in accordance with IFRS) in respect of the members

of the Board of Management, which amount to TEUR 466 in the case of

Mr Hribar and TEUR 418 in the case of Mr Kassel. The provisions in the year

under review totalled TEUR 95.

TEUR 5.567 has been reserved in the Group for pension obligations (in accordance

with IFRS) in respect of previous members of the Board of Management/

management and its surviving dependants.

In the event of early termination of service, the Board of Management contracts

contain no express commitment to severance payment.

Members of the Board of Management do not receive loans from the Company.

According to Section 6 of the Articles of Association of VBH Holding AG,the

Board of Management of the Company shall consist of at least two members.

The Supervisory Board decides on the number of members of the Board of

Management, their appointment and the cancellation of their appointment as

well as employment contracts.

Remuneration of the Supervisory Board

Section 12 of the Articles of Association lays down the remuneration structure of

the Supervisory Board of VBH Holding AG.In accordance with the regulations,

members of the Supervisory Board receive a fixed remuneration portion and a

variable remuneration portion. In addition to the reimbursement of their expen-

33


Management Report

ses, members of the Supervisory Board receive a fixed annual remuneration of

EUR 5,500. In addition, each member of the Supervisory Board receives,for each

percentage dividend above 5% distributed to shareholders, a remuneration of

EUR 1,100. The remunerations for the Chairperson are double this amount, while,

for the Deputy Chairperson,they are 1.5 times this amount.

Outlook, Opportunities and Trends

In Germany,the economy has gathered considerable momentum. The expectations

in respect of the development of Germany’s economy are higher than they

have been in the past 10 years. Positive future prospects are forecast for the

German construction industry, in particular.According to experts, window production

in Germany will rise by about 2.1% compared with levels in the previous

year. The number of insolvencies amongst our customers in Germany has been

reduced to a normal level and is predictable. Against this background, VBH is

gearing its work to its own corporate economy,which is based on the acquisition

of customers with good credit standing and further sales areas. Employees and

executives are trained rigorously and motivated in accordance with the corporate

guidelines.

The positive assessment in Germany is supported by developments in construction

activity,such as the increased sensitivity of the population to all energysaving

measures, the reduction in the unemployment rate and the introduction

of tax-deductible tradesmen's invoices. Loans with favourable interest rates for

energy-oriented planning measures make an additional positive contribution to

this.

In spite of the growing market, proportional cost increases are not expected.

Additional effects on earnings can be derived from this. All service packages,

such as the logistics system »LOGOS«, the »VBH24 SHOP«, the electronic catalogue

system, the »VBH Knowledge Database« etc., are being persistently marketed

and now represent an indispensable part of our business model for many

customers.They continue to ensure that VBH enjoys a crucial competitive edge

and hence market leadership in the European hardware sector.

In the view of the Board of Management, international business will continue to

grow in sales and earnings. Our managers will transfer their experiences of current

processes and their insights from the service programs in timely fashion to

all foreign companies and hence ensure customer retention in these markets.

Strategy agreements with our key suppliers will be implemented in a market

and country-based manner.Our start-up companies in the Middle and Far East

will achieve their profit threshold according to plan, from the current perspective.

The strategy of the Board of Management is to make substantial market

investments so as to drive forward and safeguard the growth of the VBH Group

in future, large markets.

34 Annual report 2006 VBH Holding AG


The successful corporate development has also continued in the first two

months of the 2007 financial year.Asales increase of about 20% compared with

the previous year was achieved at Group level. VBH Germany GmbH, with a sales

increase of about 16%, was a significant contributor to this. Foreign companies

were even more successful, achieving a sales increase of 23%. The positive start

to this year was particularly affected by overhangs from 2006 and the mild

winter.Aweakening of the rates of increase is expected as the year develops.

This Annual Report contains forward-looking statements based on management

assumptions and estimations. Although we assume that the expectations of

these forward-looking statements are realistic, we cannot guarantee that the

expectations will prove to be correct. The assumptions may hold risks and

uncertainties which cause the actual results to differ significantly from the

forward-looking statements. These factors include, for example, changes in the

economic and business environment, foreign exchange and interest rate fluctuations,

a lack of acceptance of new services and products of our suppliers, as well

as changes in the business strategy and loan issuing policy of the commercial

banks.

35


Major Participations – Segment Structure

36 Annual report 2006 VBH Holding AG


March 2007


Consolidated Group Accounts

VBH Holding AG


Consolidated Balance Sheet of VBH Holding AG,Korntal-Münchingen,

as per 31 December 2006 (in accordance with IFRS)

ASSETS remarks 31 Dec 2006 31 Dec 2005

VI. TEUR TEUR

A. LONG-TERM ASSETS

(1)

I. Intangible assets

1. Licences, industrial property and similar rights 782 877

2. Goodwill 30,811 28,388

3. Advances paid 40 0

31,633 29,265

II. Tangible assets

(2)

1. Real estate, leasehold rights and buildings

including construction on non-owned

real estate 22,534 23,197

2. Other fixed assets, operating and business equipment 8,224 7,941

3. Advances paid and assets under construction 1,717 2,604

32,475 33,742

III. Financial assets

(3)

1. Interests in affiliated companies 130 1,382

2. Participations 182 82

312 1,464

Long-term assets 64,420 64,471

IV. Other long-term assets

(4)

1. Long-term Receivables 0 28

2. Other long-term assets 4,828 2,735

3. Deferred tax claims 3,422 4,765

4. Prepaid expenses 0 10

8,250 7,538

LONG-TERMS ASSETS (5) 72,670 72,009

B. SHORT-TERM RECEIVABLES AND ASSETS

I. Inventories

1. Raw materials and supplies

(6)

66 51

2. Work in progress 0 2,227

3. Goods and finished products 112,603 92,919

4. Advances paid 1,979 1,464

114,648 96,661

II. Receivables and other assets short-term

1. Trade receivables

(7)

108,117 99,823

2. Accounts due from group companies 6,233 6,982

3. Amounts due from

affiliated companies 156 41

4. Other assets 22,635 18,880

137,140 125,726

III. Securities 240 208

IV. Liquid funds 9,326 9,875

V. End-of-year adjustments 611 734

SHORT-TERM RECEIVABLES AND ASSETS 261,966 233,204

Assets 334,635 305,213

40 Annual report 2006 VBH Holding AG


EQUITY AND LIABILITIES remarks 31 Dec 2006 31 Dec 2005

VI. TEUR TEUR

A. EQUITY

I. Subscribed capital

(8)

36,495 36,495

II. Capital reserve 6,463 5,581

III. Earnings reserve

1. Legal reserve 2,011 1,980

2. Other consolidated reserves 4,706 1,007

6,717 2,987

IV. Net income for the year 13,453 –3,218

Shareholders’ proportion of equity 63,127 41,845

V. Shares held by other shareholders 9,371 8,316

VI. Treasury stock –784 –350

EQUITY 71,715 49,811

B. LONG-TERM LIABILITIES

1. Pensions provisions and

similar obligations 11,797 11,191

2. Provisions for taxation (9)

382 0

3. Other provisions 3,400 3,608

4. Loans/convertible profit-sharing privileges 50,000 50,000

5. Liabilities to banks (10) 11,883 11,669

6. Other liabilities (10) 1,081 3,458

LONG-TERM LIABILITIES 78,543 79,926

C. SHORT-TERM LIABILITIES

I. Short-term provisions

1. Provisions for taxation (11) 3,369 2,338

2. Other provisions 8,299 13,653

11,668 15,991

II. Short-term liabilities to banks 85,935 83,335

III. Liabilities from supplies and services short-term

1. Trade payables

(12)

(13) 58,175 51,458

2. Amounts due to affiliated companies 0 103

3. Advance payments received 786 1,937

58,961 53,498

I V. Other short-term liabilities

1. Other liabilities (13) 27,737 22,638

2. Deferred income 77 13

27,814 22,651

SHORT-TERM LIABILITIES 184,377 175,475

EQUITY AND LIABILITIES 334,635 305,213

41


Consolidated Financial Statements

Consolidated Profit and Loss statement

of VBH-Holding AG,Korntal-Münchingen, for the period starting

1 January and ending 31 December 2006 (in accordance with IFRS)

remarks

V.

Group

2005

TEUR

Discontinued

operations

2005

TEUR

Continued

operations

2005

TEUR

Group

2006

TEUR

Continued

operations

Year-on-year

1. Sales proceeds (1) 693,408 7,757 685,651 783,221 14,2%

2. Increase/reduction

of stock of finished

products and work

in progress 1,678 1,710 –32 0 0

3. Other operating

income (2) 16,695 161 16,534 12,460 –25%

4. Total operating performance 711,781 9,628 702,153 795,681 13%

5. Material expenditure (3) –537,337 –7,735 –529,602 –602,407 14%

6. Wages and salaries (4) –74,100 –1,872 –72,228 –76,556 6%

7. Other operating

expenses (6) –63,136 –1,275 –61,861 –67,895 10%

8. Restructuring

expenses (7) –4,132 0 –4,132 –829 –80%

9. Earnings before

interest,

taxes and

depreciation (EBITDA) 33,077 –1,254 34,331 47,994 40%

10. Depreciation (5) –8,228 –10 –8,218 –7,703 –6%

11. Earnings before

interest and

taxes (EBIT) 24,849 –1,264 26,113 40,291 54%

12. Income from participations 1,094 0 1,094 1,890 73%

13. Interest and similar

income 1,011 8 1,003 675 –33%

14. Interest and similar

expenditure –11,212 –354 –10,858 –12,186 12%

15. Expenses from transfer

of losses –507 0 –507 –349 –31%

16. Write-off of financial assets and

securities, stocks and bonds –454 0 –454 –76 –83%

17.Financial result (9) –10,068 –346 –9,722 –10,046 3%

18. Earnings before taxes (EBT) 14,781 –1,610 16,391 30,245 85%

19. Income tax

expenses –6,547 0 –6,547 –6,491 –1%

20. Deferred taxes 1,590 0 1,590 –1,534 –196%

21. Earnings after taxes

(EAT) 9,824 –1,610 11,434 22,220 94%

Other shareholders

proportion in EAT 2,213 0 2,213 2,449

VBH shareholders

proportion in EAT 7,608 –1,610 9,218 19,771

Earnings per share in EUR

– fully diluted – 0.22 –0.05 0.26 0.50

Earnings per share in EUR

– undiluted – 0.22 –0.05 0.27 0.54


Consolidated Group

Cash Flow Statement in accordance with IFRS

2006 2005

TEUR TEUR

Period earnings before tax and extraordinary items 31,075 18,836

Depreciation 7,703 8,682

Increase / decrease in provisions –7,544 –998

Exchange rate-dependend value changes –56 141

Profit from the disposal of long-term assets 17 –215

Interest expense 11,512 10,201

Decrease / increase in receivables and other assets –13,154 –9,733

Decrease / increase in inventories –17,987 –7623

Increase / decrease in trade payables

and other payables 8,250 11,883

Paid income taxes –8,026 –6,548

Net cash flow from areas to be transferred 0 –1,029

Disbursements from extraordinary items –829 –918

Cash flow from operational activity 10,961 22,679

Inflow from the disposal of long-term assets 4,901 457

Disbursements for the acquisition of long-term assets –11,471 –7,798

Disbursement for credits and loans granted to third parties 0 0

Disbursements for the share purchase of consolidated companies 0 –600

Interest received 675 1,011

Cash flow from investment activities –5,895 –6,930

Inflow payments from the issue of shares 0 8,294

Inflow payments/disbursements from taking out/repaying loans 2,813 –11,276

Paid interest –8,186 –11,212

Paid dividends –905 –843

Inflow payments from the issue of bonds 0 0

Cash flow from financing activities –6,278 –15,037

Exchange rate-dependent and other value change in cash and cash equivalents 663 550

Net change in cash –549 1,262

Cash and cash equivalents at the beginning of the period 9,875 8,613

Cash and cash equivalents at the end of the period 9,326 9,875

43


Consolidated Financial Statements

EUR thousand

Group Statement of Changes in Equity

Subscribed

capital

Capital

reserve

Legal

reserve

Other

consolidated

reverses

Group

Net

income

for the

year

Shares

held by

other

shareholders

Treasury

stock

Group

Equity

Status as per 1 January 2005 33,178 604 1,926 –14,670 1,896 4,270 –399 26,805

Capital increase VBH Holding AG 3,317 4,977 8,294

Consolidation 77 1,815 1,892

Shift of currency adjustment item 1,255 18 1,273

Annual net profit/loss 7,611 2,213 9,824

Allocation to retained income

and other regrouping 54 14,345 –12,725 49 1,723

Status as per 31 December 2005 36,495 5,581 1,980 1,007 –3,218 8,316 –350 49,811

Capital increase option privilege VBH Holding AG 882 882

Consolidation –3,906 –1,493 –5,399

Shift of currency adjustment item 135 99 234

Annual net profit/loss 19,771 2,449 22,220

Allocation to retained income

and other regrouping 31 7,470 –3,100 –434 3,967

Stauts as per 31 December 2006 36,495 6,463 2,011 4,706 13,453 9,371 –784 71,715

44 Annual report 2006 VBH Holding AG


Consolidated financial statements of

VBH Holding AG as per 31 December 2006

Notes to the consolidated financial statements

for the 2006 financial year

IGeneral information and presentation of the consolidated financial

statements

VBH HOLDING AKTIENGESELLSCHAFT (»VBH« or »Company« for short) is registered with

the Stuttgart Local Court as HRB 203096. The Company has its headquarters in Korntal-

Münchingen. The shares of the Company are listed in the General Standard segment of

the Deutsche Börse and are traded on the official market of the Frankfurt and Stuttgart

stock exchanges.

The purpose of the Group is, in particular,the purchase and sale of hardware, furniture

fittings, tools, machines, construction elements, system parts and related articles, as well

as the production and sale of special fittings.

These consolidated financial statements in accordance with International Financial Reporting

Standards (IFRS) have been drawn up in euro, as the Group’s transactions are based

on this currency.

The structure of the consolidated profit and loss statement is in accordance with total

cost accounting. For reasons of clarity of presentation, items are summarized in the consolidated

balance sheet and the consolidated profit and loss statement and explained

separately below.

The tabular presentation of items in the consolidated balance sheet and the consolidated

profit and loss statement are provided in the Notes in thousand euro (TEUR). Minor

deviations are due to rounding differences.

The consolidated balance sheet is structured in accordance with maturity.

These consolidated financial statements as per 31 December 2006 were drawn up in

accordance with the International Financial Reporting Standards (IFRS). The term IFRS

also comprises the still valid International Accounting Standards (IAS).

The consolidated financial statements were drawn up in accordance with the going

concern principle, based on historical costs and values.

All binding IFRS or IAS regulations and interpretations of the International Financial Reporting

Interpretation Committee (IFRIC) or Standing Interpretations Committee (SIC) for

the 2006 financial year were observed.Standards with an application date after the balance

sheet key date were not applied prematurely.In the year under review,the Group’s

assets, financial position and earnings situation were not affected by the premature application

of standards.

The consolidated financial statements were supplemented by a group management

report and additional explanations required in accordance with the German Commercial

Code or the German Stock Corporation Act.

II Summary of material accounting and valuation principles

The material accounting and valuation methods used in drawing up these consolidated

financial statements are presented below.Unless otherwise stated, the methods

described were consistently applied to the reporting periods represented.

Consolidation group and methods

Subsidiaries are all companies (including special purpose entities) in respect of which the

Group exercises control over finance and business policies; regularly supported by a share

in voting rights of more than 50%. In assessing whether such control exists, the existence

45


Consolidated Financial Statements

and effect of potential voting rights that can currently be exercised or converted are

taken into account, where necessary. Subsidiaries are always included in the consolidated

financial statements (full consolidation) from the time at which control of the company is

transferred to the Group. They are deconsolidated at the time at which this control ends.

The accounting of acquired subsidiaries is performed on the basis of the purchase

method. The acquisition costs of the purchase correspond to the fair value of the assets,

the equity instruments issued and the liability generated or assumed at the time of the

transaction (»Date of Exchange«) plus the costs that can be directly attributed to the

purchase. Any assets, liabilities and contingent liabilities identified in the course of a

company merger are valued, during initial consolidation, at their fair values on the date of

purchase,irrespective of the volume of minority shares in existence. The positive difference

between the acquisition costs of the purchase and the share of the Group in the net

assets to be valued at the fair value is reported as goodwill. If the acquisition costs are

lower than the net assets valued at the fair value of the purchased subsidiary, the difference

is recorded directly in the consolidated profit and loss statement, after further

examination. The shares of the minority shareholders are reported at their corresponding

share of the assets and liabilities that are valued at the fair values.

The earnings of the subsidiaries acquired or disposed of in the course of the year are

included in the consolidated profit and loss statement,in accordance with their date of

acquisition or disposal.

Group-internal transactions, account balances and unrealized profits or losses from transactions

between group companies are eliminated. Unrealized losses are also eliminated

unless the transaction indicates an impairment of the transferred asset. If the fixed

assets and inventories contain assets from group-internal deliveries, corresponding

interim profits are also eliminated.

The annual financial statements of the companies included in the consolidated financial

statements are drawn up or reconciled in line with IFRS, in accordance with standard

accounting and valuation principles. The accounting and valuation methods of subsidiaries

were amended, if necessary,to guarantee uniform accounting across the Group.

Any shares in the consolidated equity and in the consolidated annual result that relate to

minority shareholders are shown separately from the shares relating to the parent

company.

The consolidated financial statements as per 31 December 2006 include the Company and

all subsidiaries in which the Company holds the majority of voting rights, either directly

or indirectly,or in respect of which the company exerts a controlling influence. Overall,

the consolidation group includes VBH Holding AG itself,three domestic companies and

52 foreign companies. Consolidation of other group companies was not carried out as,

even taken together,they are of minor importance to the Group.

It is the first time that the following companies were included in the consolidated

financial statements in accordance with IFRS.

46 Annual report 2006 VBH Holding AG


Capital share

First consolidation

VBH Singapore Pte Ltd., Singapore 100% 1 Jan 2006

VBH Middle East FZCO, Dubai, UAE 100% 1 Jan 2006

VAE VBH Trading (L.L.C), Dubai, UAE 100% 1 Jan 2006

Beijing VBH Construction Hardware

Co.Ltd, Peking, China 70% 1 Jan 2006

VBH BEL, Minsk,Belarus 100% 1 Jan 2006 Foundation

VBH West, Aktobe, Kazachstan 60% 1 Jan 2006 Foundation

The total acquisition costs for acquiring the participations were TEUR 1,308.

Other changes to the consolidation group in 2006

Capital share new

Other

SEG Tortec GmbH, Hockenheim 0% Disposal of participation

100% deconsolidated

C.D.A Liguria S.r.l, Italy 50% 20% indirect disposal of

participation

VBH St Petersburg, Russia 95% 5% disposal of participation

C.D.A Dell' Adriatico S.r.l, Italy 17% Indirect disposal of

participation 43% deconsolidated

Earnings of TEUR 7 resulted from the disposal of participations.

Discontinued operations in 2005

As per the the sales and assignment agreement of 12 September 2005, 100% of the

shares in SEG-Tortec GmbH, Hockenheim (formerly SEG–Bauelemente GmbH) were

disposed of.The in rem transfer of the company was carried out on 1 January 2006. The

fully consolidated company was shown as a discontinued operation in the previous year

and deconsolidated in 2006.

Sales of participations

Share sale

To guarantee the long-term success of our operations in the CIS countries, we sold a

minority holding in St. Petersburg, amounting to 5% of the capital stock,to the Managing

Director there. The value of the shares amounted to TEUR 263. In addition, 43% of the

shares in C.D.A. Liguria, C.D.A. Dell' Adriatico were sold.

Start-ups

The following subsidiaries were started up:

VBH Wolgograd OOO (indirectly via VBH OOO (St. Petersburg), VBH Pskov OOO (indirectly

via VBH OOO (St. Petersburg), ESCO RUS OOO, Moscow (indirectly via esco Metallbausysteme

99%), VBH BEL, Minsk (directly via VBH Holding AG 100%), VBH Wolodga

(indirectly via VBH OOO (St. Petersburg), VBH Omsk (indirectly via VBH OOO (SIB),

VBH West (Aktobe), Kazakhstan (indirectly via VBH Kazakhstan 100%), VBH Holding India

47


Consolidated Financial Statements

(directly via VBH Holding AG 100%), VBH (Thailand) Co.Ltd. (directly via VBH Holding AG

100%), VBH Malaysia (indirectly via VBH Singapore 100%).

Segment reporting

In segment reporting, segments are delimited by their geographic allocation. At the same

time, they reflect the operational responsibilities of the Group’s management structure

and are regularly monitored by management to assess the economic situation of the

Group as a whole and as a sub-group. The segments represent the segments that are

primarily required to report in accordance with IAS 14 (»Segment Reporting«).

A business segment is a group of assets and business activities that differ from other

segments in terms of their risks and opportunities.

Segment reporting shows business areas that are structured according to the main geographical

activities (primary segmentation). Segment reporting is carried out in accordance

with balance sheet item and valuation methods of the underlying IFRS consolidated

financial statements. Inter-segment consolidation was carried out.

Realization of earnings and expenses

Sales returns are valued at the fair value of the return service received or to be received

and represent the amounts that can be achieved in respect of goods and services in the

usual course of business. All discounts, value added tax and other reductions in proceeds

in connection with sales must be deducted from this amount. The sale of goods is recorded

together with the delivery and transfer of ownership. Interest income is accrued per

period, in accordance with the outstanding amount of the loan and the applicable interest

rate. The applicable interest rate is precisely the interest rate at which the estimated

future cash flows are discounted over the term of the financial asset at the net book

value of the asset. Dividend earnings from financial investments are recorded when the

shareholder makes a legal claim for payment.

Pension costs

Pension costs include service costs and any service costs still to be calculated. The

interest expense from the pension obligations is also shown in personnel expenditure.

Actuarial profits or losses are only taken into account as earnings-impacting in the

reporting period in question if their balance exceeds 10% of the cash value of the gross

pension obligation at the end of the previous reporting period.

Income tax

Income tax expenditure represents the total current tax expenditure and the deferred

taxes. Current tax expenditure is determined, based on the taxable income for the year.

The taxable income differs from the net income for the year before income tax in accordance

with the profit and loss statement, as it excludes expenses and earnings which are

either never taxable/ tax deductible or only in subsequent years. The liability of the Company

in respect of the current tax expenditure is calculated on the basis of the current

tax rates or the rates of taxation announced for the balance sheet key date.

Deferred taxes are the anticipated tax burdens or reliefs arising from the differences

between the book values of assets and liabilities in the annual financial statements and

the valuations used in the calculation of the taxable income. The balance sheet-based

liability method is used here. Deferred tax liabilities are generally recorded for all taxable

temporary differences and deferred tax claims if there are likely to be taxable profits in

respect of which the deductible temporary differences can be used. Deferred taxes are

not stated if the temporary difference is derived from goodwill or from the initial recording

(with the exclusion of company mergers) of other assets and liabilities resulting

48 Annual report 2006 VBH Holding AG


from events that affect neither the taxable income nor the net income for the year.

A consolidated tax rate of 24% was taken as a basis in calculating the deferred taxes, based

on the differences described.Active deferred taxes with an anticipated tax rate of

30% were created in respect of loss carryforwards which are expected to be utilized over

a period of five years. This involves the tax rate for this period that is expected to be valid

when the tax loss carryforwards are utilized.

The book value of the deferred tax claims is examined every year on the key date and

reduced if sufficient taxable income is unlikely to be available to realize the claim fully or

partly.Deferred taxes are determined on the basis of the tax rates that are expected to

apply on the date that the liability is met or the asset value is realized. Deferred taxes are

generally recorded as earnings-impacting, except in respect of those items that are

directly booked in equity capital.

Patents, licences (including software) and trademarks

Acquired patents, licences and trademarks are recorded at their historical acquisition and

production costs. They have a specific useful life and are valued at their acquisition and

production costs minus cumulative depreciation.

If there are signs of an impairment, the scheduled depreciable intangible assets are

subjected to an impairment test and, if necessary, depreciated to the amount achievable

in accordance with IAS 36.

The depreciation is performed using the straight-line method over an estimated useful

life, which was specified as standard for the following intangible assets. These mainly

involve software and ERP software, depreciated over a period of 3 years.

Goodwill

The goodwill accruing in the context of consolidation represents the positive difference of

the acquisition costs of a corporate purchase via the share of the Group in the fair value

of the identifiable assets and liabilities of a subsidiary or jointly managed company at the

time of purchase. Goodwill and intangible assets with an indefinite term of use are not

subject to scheduled depreciation in accordance with IFRS 3 or IAS 38. Instead, they are

subjected to an annual impairment test in accordance with IAS 36 and, if a corresponding

indication exists, also to an impairment test during the year and, if necessary, depreciated

to the achievable amount (»impairment-only approach«). For the purpose of the impairment

test, goodwill is distributed to cash generating units, i.e. to each individual company.

Every impairment is immediately recorded as earnings-impacting. No revaluation is performed

at a later date. When a subsidiary or jointly managed company is disposed of,the

applicable amount of goodwill is included in the determination of the profit or loss from

the disposal.

Tangible assets

All tangible assets are valued at their historical acquisition and production costs, minus

depreciation. Acquisition and production costs include the expenses that can be directly

attributed to the acquisition. Subsequent acquisition/ production costs are only recorded

as a part of the acquisition and production costs of the asset or – if relevant – as a separate

asset if the Group is likely to derive a future economic benefit from it and the costs

of the asset can be reliably determined. All other repairs and maintenance work are

recorded as expenses in the profit and loss statement in the financial year in which they

were incurred.

49


Consolidated Financial Statements

Properties are not subject to scheduled depreciation. Straight-line depreciation is used,

acquisition costs usually being depreciated at their residual book value over the anticipated

useful life of the assets, as follows:

Storage buildings

Administrative buildings

Residential buildings

Operating facilities

Machines

Machinery and equipment

Fixtures and fittings

25–50 years

33 years

50 years

13–15 years

11–15 years

4–11 years

3–13 years

The residual book values and economic useful lives are examined on each balance sheet

key date and adjusted, where necessary. If the book value of an asset exceeds its estimated

achievable amount, it is immediately depreciated to the latter value. Profits and losses

from the disposals of assets are determined as the difference between the disposal

proceeds and the book value and recorded as affecting net income.

Impairments of assets/financial assets

Assets that have an indefinite useful life are not subject to scheduled depreciation: they

are examined annually in respect of an impairment requirement. Assets that are subject

to scheduled depreciation are examined in respect of an impairment requirement if corresponding

events or changes in circumstances indicate that it may no longer be possible

to achieve the book value. An impairment loss is recorded at the level of the book value

that exceeds the achievable amount. The achievable amount is the higher amount from

the fair value of the asset minus disposal costs and the utility value. For the impairment

test, assets are pooled at the lowest level at which cash flows (cash generating units) can

be separately identified.

Lease relationships

Lease relationships are classified as »Finance leasing« if the lease conditions stipulate

that, in essence, all opportunities and risks associated with the property are transferred

to the lessee. All other lease relationships are classified as »Operating leasing«.

Fixed assets that were rented or leased and whose economic property is held by the

respective group company (»Finance Lease«) are stated as Group assets at their fair

values or at the cash value of the minimum lease payments if this is lower.The corresponding

liabilities vis-à-vis the lessor are shown on the balance sheet as obligations from

finance leasing under Liabilities to financial institutions. The lease payments are distributed

to interest expenses and reduction of the lease commitment such that a constant

rate of interest is achieved in respect of the remaining commitment. Lease payments

within an operating lease relationship are recorded as expenses in the profit and loss

statement, linear over the term of the lease relationship.

Important finance leases exist, within the Group, for storage and office buildings used by

VBH in Cologne and Savona, Italy.

50 Annual report 2006 VBH Holding AG


Financial instruments

Disposable values

The shares in group companies and participations listed in the category of »Available for

sale« can be disposed of,without exception. They are valued at their fair value if such can

be reliably determined. Changes in the fair values are taken into account in equity as not

affecting net income. If there are signs of long-term impairment, an impairment test is

carried out and the resulting depreciation recorded as affecting net income. The shares in

group companies and participations are investments in equity instruments for which no

price is listed on an active market. As these are invariably start-up companies, valuation is

performed at amortized cost. An impairment expense determined on the basis of an

impairment test is recorded as affecting net income.

Trading portfolio

The securities shown under the short-term assets are held for trading purposes, classified

accordingly and valued.

All acquisitions and disposals of financial assets are stated on the trading day,the day on

which the Group commits itself to buying or selling the asset. They are taken off the

books if the rights to payments from the investment have expired or are transferred and

the Group has transferred all risks and opportunities associated with ownership.

Inventories

Inventories are valued at the lower value of acquisition or production costs and net realizable

value. Group guidelines stipulate that inventories should be valued in accordance

with purchase prices, the Fifo method or the weighted average method, minus value

adjustments for uncommon products or stock.

Trade receivables

Trade receivables are initially stated at the fair value and subsequently valued at amortized

cost, minus impairments. An impairment of trade receivables is recorded if there are

objective indications that the receivable amounts due cannot be fully recovered. The level

of impairment is measured as the difference between the book value of the receivable

and the cash value of the estimated future cash flows from this receivable. The impairment

is recorded as affecting net income. If the reasons for value adjustments undertaken

in previous periods no longer exist, corresponding appreciations in value are

carried out.

Derivative financial instruments and hedge accounting

The financing of the Group holds financial risks owing to interest rate fluctuations. The

Group uses interest rate swaps to hedge against these risks. The Group does not use

derivative financial instruments for speculative purposes. The use of financial derivatives

is regulated by corporate guidelines approved by the Board of Management. These

guidelines contain written rules on how to handle financial derivatives.

As the hedge accounting regulations were not applied in the reporting year,changes in

the fair value of derivative financial instruments are recorded in the profit and loss

statement when they occur.

In the reporting year,VBH Holding AG used derivative financial instruments to secure

interest rate items in the context of its operations. The instruments were two interest

rate swaps. The original interest rate swap of 17 February 1998 over a nominal amount of

51


Consolidated Financial Statements

EUR 7.7 million was used to hedge the interest rate risk from liabilities vis-à-vis financial

institutions. As the interest rate level developed negatively over the course of time, this

interest rate swap produced a negative market value of TEUR –121. The risk was recorded

in the context of provisions. The interest rate swap of 4 August 2005 over a nominal

amount of EUR 7.7 million was used by VBH Holding to offset the original interest rate

swap.In the past and in the current financial year,the interest rate swap generated only

positive cash flows. Owing to a unilateral right of termination agreed with the financing

bank,anegative fair value of TEUR –75 was taken into account.

Receivables and other assets

Receivables and other assets are initially stated at the fair value and subsequently valued

at amortized cost, minus impairments. These mainly comprise bonus receivables from

suppliers, creditors with a debit balance, other loans and receivables as well as payments

under settlement. In addition, deferred tax receivables are shown.

Cash on hand and deposits with financial institutions

Cash includes cash on hand and sight deposits.

Equity

Ordinary shares are classified as equity.Costs that can be directly attributed to the issue

of new shares or options are reported net in equity,after taxes, as a deduction from the

issue proceeds. Costs that can be directly attributed to the issue of new shares or options

or those that are directly linked to the acquisition of a company are included in the

acquisition costs of the respective company acquisition as part of the return service for

the acquisition.

If VBH or a group company acquires shares in VBH’s equity (treasury stock or own shares),

the value of the paid return service, including directly attributable additional costs (net

after taxes), is deducted from the equity due to the company’s shareholders until the

shares are redeemed, re-issued or re-sold. If such shares are re-issued or re-sold, the return

service received is reported, net after deduction of directly attributable additional transaction

costs and related income taxes, in the equity due to the company’s shareholders.

Provisions

Provisions are formed if the Group has a current legal or factual obligation resulting from

a past event or if it is likely (»more likely than not«) that settlement of the obligation will

have a negative impact on assets and the level of provisions could be reliably determined.

The provisions are valued at the probable value of utilization. Long-term provisions are

discounted if the effect is significant.

52 Annual report 2006 VBH Holding AG


Employee benefits

Pension liabilities

The VBH Group operates exclusively with performance-related pension plans. Performance-related

pension plans involve determining the costs for the provision of the service

using the projected unit credit method and performing an actuarial valuation on every

balance sheet key date. The actuarial valuation of pension provisions for the company

pension plan is performed in accordance with the projected unit credit method prescribed

in IAS 19 (»Employee Benefits«). This projected unit credit method takes into account

both the pensions and acquired entitlements known on the balance sheet key date and

the anticipated future increases in salaries and pensions. Any differences (so-called actuarial

gains or losses) between the pension liabilities determined on a regular basis and the

actual projected unit credit method at the end of the year are only reported if they are

outside a bandwidth of 10% of the scope of the liability.In this case they are distributed,

from the following year onwards, over the average residual period of service of the entitled

employees and recorded as earnings or expenses. Other provisions for pensions and

similar obligations are created on the basis of actuarial reports in accordance with IAS 19.

The basis for the pension entitlements is a collective agreement dated 18 February 1981

for a group of pre-retirees, who entered into an employment relationship with VBH

Deutschland GmbH or its legal predecessor,VBH Holding AG and esco GmbH, up to

1March 1996. In accordance with the supplement dated 22 February 1996, this company

pension plan was concluded for employees recruited after 29 February 1996. In addition,

individual agreements exist.

Profit sharing and bonus plans

The Group enters provisions for bonus payments and profit sharing on the liabilities side

in cases in which a contractual obligation exists or past business practices give rise to a

factual obligation.

2004 share option plan

The Board of Management was authorized to issue – with the agreement of the Supervisory

Board – up to 600,000 subscription rights in respect of up to 600,000 no-par voting

bearer shares (no-par shares) of VBH Holding (hereinafter »options« or »option rights«), in

the period until 24 May 2009 and in accordance with the following regulations. The Supervisory

Board is authorized to issue up to 600,000 subscription rights in respect of up to

600,000 no-par voting bearer shares (no-par shares) of VBH Holding AG,in the period until

24 May 2009 and in accordance with the following regulations.

Group of beneficiaries

Option rights may only be issued to the Members of the Board of Management of VBH

Holding AG,Managing Directors of national and international group companies and

executives of the Company as well as national and international group companies. The

precise group of beneficiaries and the volume of options to be granted to them are

determined by the Board of Management. If members of the Board of Management of

the Company receive options, it is incumbent exclusively upon the Supervisory Board to

define and issue such options. The total volume of the options is distributed amongst the

entitled groups as follows:

53


Consolidated Financial Statements

Members of the Board of Management of VBH Holding AG receive, at most, a total of up

to 50% of the option rights.

Managing Directors of group companies receive, at most, a total of up to 10% of the

option rights.

Executives of VBH Holding AG and group companies receive, at most, a total of up to 40%

of the option rights.

The beneficiaries only ever receive options as members of a group. Dual subscriptions are

not allowed.

The beneficiaries must be in an active work or service relationship with the Company or

one of the group domestic or international companies at the time the options are

granted.

Granting of the options (purchase periods), issue date and contents of the option right

The options are granted in annual tranches, which are issued within four weeks starting

from the date of the Company’s Ordinary Annual General Meeting. The first takes place

within a period of four weeks of registering the conditional capital increase to be decided

in accordance with c).

The options are issued on the basis of a written contract for the transfer of options

(option agreement) between the respective beneficiary and the Company.The Company

will submit an option agreement to the beneficiary for this purpose.The issue date is the

date on which the option agreement signed by the Company is issued to the beneficiary.

Each option entitles the beneficiary to subscribe for one no-par voting bearer share

(no-par share) of VBH Holding AG against payment of the exercise price (cf.under cc).

Exercise price and performance goal

The price to be paid for exercising each option (exercise price) corresponds to the average

value of the closing prices for the Company’s share, determined in floor trading at

the Frankfurt Stock Exchange on ten stock exchange days before the day on which the

options are issued, i.e. the issue date according to bb.

The minimum exercise price, however,is the prorata amount of the Company’s equity

capital attributable to each individual share (Section 9, para. 1 of the German Stock

Corporation Act).

A prerequisite for the exercise of option rights is that the relative development of the

value of the Company’s share is better between the day of issue of the options and the

respective exercise date than the development of the value of the SDAX or another index

that takes the place of the SDAX.

Material to the value of the share at the time the option is issued is the exercise price,

which results from the average value of the closing prices for the Company’s share,

determined in floor trading at the Frankfurt Stock Exchange on ten stock exchange days

before the issue date in accordance with bb).

Material to the value of the Company’s share on the exercise date is the average value of

the closing prices for the Company’s share, determined in floor trading at the Frankfurt

Stock Exchange on ten stock exchange days before the respective exercise period.

Material to the value of the SDAX or another index that takes the place of the SDAX at

the time the options are issued is the average value of the closes of this index on the last

ten stock exchange days before the issue date. Material to the SDAX or another index

that takes the place of the SDAX on the exercise date is the average value of the closes

of this index on the last ten stock exchange days before the respective exercise period.

54 Annual report 2006 VBH Holding AG


Wait period for the first exercise and exercise periods

A third of the options granted can, at the earliest, be exercised two years (»two-year

waiting period«) after the issue date. A further third can, at the earliest, be exercised

three years after the issue date and the remaining third four years after the respective

issue date.

It is only possible to exercise the options in a period of no more than four weeks starting

from the third bank working day after the Ordinary Annual General Meeting. In addition,

the restrictions that follow from the general regulations, particularly the Securities

Trading Act, must be observed.

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Outstanding options 1,080,000 1,080,000

Granted options 30,000 30,000

Cancelled options –30,000 0

Available options 120,000 90,000

Total 1,200,000 1,200,000

The fair value of the option program reported in VBH Holding AG amounts to TEUR 882

and was recorded in 2006 as affecting net income in VBH Holding AG.The calculation was

performed on the basis of an actuarial valuation, on the assumption of the following

benchmark figures: risk-free interest rate (3.4%), expected volatility of the VBH share

(44%), expected volatility of the reference index (15%), correlation coefficient (0.05).

Functional currency and reporting currency

The annual financial statements of all companies included in the consolidation group are

drawn up in euro or reconciled to euro, which represents both the functional and the

reporting currency of VBH.

Transactions and balances

Foreign currency transactions are translated to the functional currency using the exchange

rates at the time of the transaction. Profits and losses which result from the

fulfilment of such transactions and from the translation, at the key date rate, of monetary

assets and liabilities managed in foreign currencies are recorded in the profit and loss

statement.

The translation rates used are as follows:

55


Consolidated Financial Statements

Foreign currencies

Country Currency Middle rate Average annual rate

Belarus BYR 2,820.0000 2709.1667

Bosnia BAM 1.95583 1.95583

China VR CNY 10.2915 9.8429

Estonia EEK 15.6200 15.6376

United Kingdom GBP 0.6714 0.6819

Kazachstan KZT 167.2400 158.7117

Latvia LVL 0.6971 0.6963

Lithuania LTL 3.4530 3.4531

Moldavia MDL 17.0180 16.6345

Poland PLN 3.8413 3.9035

Rumania RON 3.3830 3.5171

Russian Federation RUB 34.2400 33.9379

Serbia CSD 79.1200 84.3257

Singapore SGD 2.0213 1.9944

Slowenia SIT 239.6400 239.5667

Czech Republic CZK 27.4350 28.3043

Ukraine UAH 6.6360 6.3650

Hungary HUF 251.6750 264.1697

USA USD 1.3181 1.2559

United Arab Emir. AED 4.8412 4.6130

The portfolio of currency translation differences,offset as not affecting net income

(offsetting items from currency translation), in equity is as follows:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Positive attribution from currency translation,

Group 397 262

Negative attribution from currency translation,

Group 0 0

Currency translation within the Group gives rise to differences, which affect the

consolidated profit and loss statement as follows:

2006 2005

TEUR

TEUR

Income from currency translation, Group 219 149

Expenses from currency translation, Group 0 18

Legal disputes and claims for damages

If individual legal disputes or claims for damages within the Group result in facts which

must be reported, these have been sufficiently taken into account by creating corresponding

provisions in the individual financial statements of the group companies. Over and

beyond this, the Group is not aware of any material risks.

56 Annual report 2006 VBH Holding AG


Liabilities

Trade payables

Trade payables are always stated at the repayment amount.

Loans

The net proceeds of interest-bearing bank loans are reported, minus the directly attributable

issuing costs. The effective interest rate method is applied in the context of the

follow-up valuation in the event of the historical acquisition costs differing from the

repayment amount.

Bonds

In the context of a capital model executed in 2004, convertible profit-sharing certificates

amounting to EUR 50,000,000 of a nominal amount of EUR 5 each and a term to 2014

were created from liabilities in respect of loan repayment claims of financing banks.

These can be converted into up to 10,000,000 shares at a ratio of 5:1. The convertible

profit-sharing certificates are managed under the securities identification number WKN

A0CASN. The conditions attaching to the convertible profit-sharing certificates and their

return can be viewed at any time at www.vbh.de.

Lease commitments

The financial liabilities from financing lease relationships are entered on the liabilities

side together with the cash value of future lease instalments and, in the following

periods, will be reduced by the redemption share of the lease instalments.

Items with a residual term of up to a year were shown as short-term items; long-term

items have a residual term of more than one year.

Other liabilities

Other liabilities were stated at the repayment amounts. The fair value is largely

equivalent to the book values.

Contingent liabilities

Contingent liabilities are not reported. A contingent liability exists if there is a possibility,

but not a likelihood, of a current, legal or factual obligation and an outflow of resources.

In this context, an event is considered likely if there is more to be said for its occurrence

than against it. Contingent liabilities are, however, mentioned in the Notes if the possibility

of an outflow of resources having an economic benefit is not unlikely.

Similarly,contingent receivables are not reported. They are, however,mentioned in the

Notes if an inflow of economic benefit is likely.

Estimates in reporting and valuation

When drawing up the consolidated financial statements, a certain degree of estimations

and assumptions must be made, which have an effect on the level and statement of the

assets and liabilities, the earnings and expenses as well as the contingent liabilities of

the reporting period. They largely relate to the assessment of the intrinsic value of assets,

the uniform determination, within the Group, of economic useful lives of tangible fixed

assets and the reporting and valuation of provisions. The assumptions and estimations

57


Consolidated Financial Statements

are based on premises supported by the most up-to-date level of knowledge. In respect

of the anticipated future business development, the circumstances prevailing at the time

the consolidated financial statements were drawn up, as well as the future development

of the environment which was assumed to be realistic, were taken as a basis. Owing to

the fact that these outline conditions may develop in ways that deviate from these assumptions

and are outside management’s sphere of influence, resulting amounts may

differ from the originally anticipated estimated values. At the time of drawing up the

consolidated financial statements,the assumptions and estimations on which these

statements are based were not subject to any significant risks, so that, from the current

perspective, the book values of the assets and liabilities shown in the consolidated

balance sheet are not expected to require major adjustment in the following year.

III Risk Management

The Group is exposed to various financial risks resulting from its operating and financing

activities. The most significant financial risks to the Group result from interest rate

changes as well as the creditworthiness and solvency of its agreement partners.

Financial risk management is carried out within the Group, in accordance with the principles

defined by management. These include interest, market, credit and liquidity risks.

Principles and guidelines also exist in respect of other areas such as liquidity management

and the procurement of short-term and long-term loans.

The goal of financial risk management is to hedge the above-mentioned range of risks,

where necessary, and to limit the negative effects on the profit and loss statement and

balance sheet of the Group. Taking into account the principle of the separation of functions,

the financial risks to which the Group is exposed are continuously valued, monitored

and actively processed by applying a variety of measures.

IV Notes on the Profit and Loss Statement

(1) Sales proceeds/segment reporting

The organizational structure of VBH was divided into the following four primary operational

and non-operational segments, based on the IFRS’s guidelines:

– Germany – Other markets

– Eastern Europe – Corporate services

– Western Europe

58 Annual report 2006 VBH Holding AG


Total operating performance

The Group’s total operating performance is comprised as follows:

2006 2005

TEUR

TEUR

Sales proceeds 783,222 693,408

Reduction of the stock of finished

products and work in progress 0 1,678

Other operating income 12,460 16,695

Total operating performance 795,682 711,781

Sales proceeds by segment are structured as follows:

2006 2005

TEUR

TEUR

Germany 381,124 347,041

Western Europe 162,745 161,705

Eastern Europe 246,950 192,729

Other markets* 3,676 0

Consolidation –11,273 –8,067

Group total 783,222 693,408

* No comparison was made with the previous year

Segment reporting

For operational reasons, the Group is currently divided into four regional areas of operation:

Germany,Western Europe, Eastern Europe and other markets. In addition, one nonoperational

area exists: Corporate Services. These areas form the basis of the primary

format of segment reporting, while also representing the Group’s internal control structure.

As the Group does not operate any different business segments, there is no need for a

subdivision by business segment.

As a business group, which defines and specifies its products or services on an individual

basis within a specific, economic environment in the respective markets, our ability to

respond to market-specific requirements and the flexibility of our product range are the

single most important criteria for our success. The key product ranges in the individual

markets and segments are largely the same. Differentiation is based on market maturity

and also depends on the general political and economic conditions in the regions in

which the VBH Group is active. These conditions also represent the most significant risk

criteria for the Group. The VBH Group has already acknowledged this development for a

number of years, reporting, virtually unchanged, on these geographic regions as segments.

At the same time, they represent levels of control for the Board of Management

and the Supervisory Board.

Segment reporting is as follows:

59


Consolidated Financial Statements

2005 in accordance with IFRS

Germany Western Eastern Corporate Consoli- Group

in EUR thousand Europe Europe Services dation

Sales proceeds external 342,963 157,358 164,555 664,876

Sales proceeds Group 4,078 4,347 28,174 –8,067 28,533

Total operating performance 356,592 162,994 196,265 5,284 –9,355 711,781

Wages and salaries 44,652 17,358 9,209 2,882 0 74,101

Other operating expenses 35,884 14,876 13,222 4,171 –5,017 63,136

Restructuring expenses 3,462 170 500 4,132

Earnings before interest,

taxes and

depreciation (EBITDA) 1,507 12,994 17,222 –2,269 3,623 33,075

Depreciation 1,735 1,335 1,118 764 3,730 8,682

Earnings before interest

and taxes (EBIT) –227 11,659 16,104 –3,033 –108 24,393

Finacial result –1,225 –1,332 –18 2,403 –9,442 –9,614

Earnings before taxes (EBT) –1,452 10,327 16,089 –630 –9,550 14,779

Earnings after taxes (EAT) –1,466 6,949 13,586 –614 –8,632 9,821

assets 103,719 97,077 75,365 194,419 –165,367 305,213

Liabilities 132,335 76,600 35,996 129,304 –118,833 255,401

Number of employees 980 437 722 14 2,153

2006 in accordance with IFRS

Germany Western Eastern Other Corporate Consoli- Group

in EUR thousand Europe Europe markets Services dation

Sales proceeds external 375,961 156,703 216,456 2-870 0 0 751,991

Sales proceeds Group 5,163 6,042 30,494 806 0 –11,274 31,230

Total operating performance 387,036 163,881 250,312 3,971 9,816 –19,334 795,682

Wages and salaries 42,984 17,509 10,917 638 4,507 0 76,555

Other operating expenses 38,238 15,247 18,203 972 4,903 –9,669 67,895

Restructutring expenses 829 0 0 0 0 0 829

Earnings before interest,

taxes and

depreciation (EBITDA) 8,406 13,298 25,048 –605 406 1,442 47,995

Depreciation 1,632 1,295 1,328 62 386 3,000 7,703

Earnings before interest

and taxes (EBIT) 6,775 12,003 23,719 –667 20 –1,558 40,292

Financial result 351 –1,369 860 –469 1,203 –10,621 –10,047

Earnings before taxes (EBT) 7,125 10,634 24,580 –1,137 1,223 –12,179 30,245

Earnings after taxes (EAT) 6,946 6,472 18,959 –1,137 6,180 –15,200 22,220

Investments 982 1,802 2,657 59 277 5,777

Assets 109,012 97,962 96,638 3,480 205,153 –176,609 335,635

Liabilities 138,815 69,358 44,118 9,133 127,157 –125,661 262,921

Number of employees 901 436 777 44 17 2,175

Segment reporting was enhanced to include an Other Markets segment, encompassing start-up companies in the

Near East and Asia, no comparison was made with the previous year,Segment Germany in 2005 includes discontinued

operations, a reclassification of the depreciation of financial assets was not carried out in the previous year,

investments in 2006 are shown for the first time, goodwill from full consolidation continued to be ignored,

60 Annual report 2006 VBH Holding AG


(2) Other operating income

2006 2005

TEUR

TEUR

Income from cancelling provisions 1,971 4,912

Income from cancelling value adjustments 1,637 4,281

Income from the disposal of fixed assets 527 215

Other operating income 8,325 7,287

Total other operating income 12,460 16,695

The 2005 income from cancelling provisions contains the cancellation of a provision for

imminent loss formed in 2004 as part of a share purchase of TEUR 3,790.

(3) Material expenditure

Material expenditure consists almost exclusively of trade goods.

(4) Personnel expenditure

Personnel expenditure is comprised as follows:

2006 2005

TEUR

TEUR

Wages and salaries 63,708 61,198

Social expenditure 12,847 12,903

Total 76,556 74,101

thereof for retirement benefits 1,330 1,177

The interest expenditure included in the expenses for retirement benefits amounted to

TEUR 350 (TEUR 307) in the year under review,with current service costs totalling TEUR

517 (TEUR 533). As per 31 December 2006, actuarial losses totalling TEUR 790 (TEUR 1,926)

have not been recorded,due to the corridor approach in accordance with IAS 19.Any

relevant adjustments derived from this approach will be taken into account in future

pension reports.

The increase in personnel expenditure is largely due to the extended business activities,

in particular in Eastern Europe (increase of 55 employees).

(5) Depreciation

2006 2005

TEUR

TEUR

Depreciation on goodwill 3,000 3,790

Depreciation on tangible assets 4,703 4,438

Total 7,703 8,228

Changes are due to the initial consolidation of companies in Beijing and Singapore (see

participations) and the associated value adjustment of corporate goodwill of TEUR 3,000

based on an impairment test. The depreciation on financial assets was assigned to the

financial result and the previous year comparably adjusted.

61


Consolidated Financial Statements

(6) Other operating expenses

2006 2005

TEUR

TEUR

Expenses relating to other periods 7,450 8,031

Administrative expenses 14,710 14,646

Sales expenses 22,976 20,347

Other expenses 22,759 20,112

Other operating expenses 67,895 63,136

Other operating expenses increased further,owing to the expansion of business activities

and sales. In relation to Group sales, development of the item was underproportionate,

falling from 9.1% to 8.7%.

(7) Restructuring expenses

Restructuring expenses of TEUR 829 (TEUR 4,132) were incurred in the year under review.

These were mainly required for further adjustment of the German business model to the

changed market conditions.

(8) Result from companies valued »at equity«

No participations were consolidated »at equity« in the annual financial statements.

(9) Financial result

2006 2005

TEUR

TEUR

Income from participations 1,890 1,094

Interest and similar income 675 1,011

Interest and similar income –12,187 –11,212

Expenses from transfer of losses –349 –507

Depreciation on financial assets and securities (*) –76 –454

Financial result –10,046 –10,086

The operational interest expenses continued to decline in the financial year.The further

reduction of the interest rate level in respect of the group loans, due to the improved

rating, as well as reduced utilization due to the positive cash flow in the Group, caused

the expenses to fall. The variable return on the convertible profit-sharing rights, whose

level increased to the maximum return of 8%, thereby increasing by TEUR 1,750 in comparison

with the previous year,had a negative impact on interest expenses. An interest

expense from taxes totalling TEUR 767 was taken into account in discounting a corporation

tax credit within VBH Holding AG.

(*) The depreciation on financial assets was assigned to the financial result and the

previous year comparably adjusted.

62 Annual report 2006 VBH Holding AG


(10) Income tax

Income tax is broken down as follows (breakdown into current and deferred taxes)

2006 2005

TEUR

TEUR

Income tax expense 6,491 6,548

Deferred taxes 1,535 –1,590

Income tax 8,026 4,958

Income tax is calculated on the basis of the expected taxable income for the financial

year,in the same way as in the previous year.Payment claims on a corporation tax credit

within VBH Holding AG produced an income of TEUR 3,484, which can be recovered

proportionally,with an impact on liquidity,over the next 10 years.

In accordance with IAS 12.81, the actual tax expense must be compared with the fictional

tax expense which would have been produced if the applicable tax rates had been

applied to the reported result for the year before tax. The current overall tax rate of 29.1%

(41.9%) reflects VBH’s fictitious group tax rate.

The change is materially influenced by VBH Deutschland GmbH’s positive contribution to

the group result as well as by a corporation tax credit of TEUR 3,484.

The tax-related reconciliation calculation from the calculated to the actual tax expense is

as follows for the year under review:

2006 2005

TEUR

TEUR

EBT 30,245 14,781

Calculated rate of income tax in % 29.1% 41.9 %

Anticipated income tax expense 8,801 6,193

Tax-exempt earnings/losses –225 –439

Effects of tax losses –599 –46

Tax additions and deductions 2,054 195

Tax payments and refunds in previous years

and expenses for external audits –3,540 645

Income tax 6,491 6,548

Tax rate in % 21.5% 44.3 %

The following values can be derived from the breakdown of the accrued items for

deferred taxes:

Active

Passive

deferred taxes in 2006 deferred taxes in 2006

TEUR

TEUR

Fixed assets 4 343

Current assets 1,520 10

Provisions 373 0

Liabilities 50 1

Loss carry forwards 1,440 0

Other 35 28

Total deferred taxes 3,422 382

63


Consolidated Financial Statements

(11) Minority interest in consolidated earnings

2006 2005

TEUR

TEUR

Minority interests in the net income for the year 2,449 2,213

These mainly consist of the minority participations in the companies in Spain, Italy,

Poland, the Czech Republic, Russia, the Ukraine and Kazakhstan, which were able to

achieve significant income for the Group in the year under review.

(12) Earnings per share

The calculation of the undiluted and diluted earnings per share is based on the following

data:

2006 2005 2005

Continued Continued Discontinued

In TEUR operations operations operations

Net income for the year after share

of other shareholders 19,771 7,611

Discontinued operations 0 1,609 –1,609

Net income for the year adjusted 19,771 9,220 –1,609

Number of shares 36,495,477 36,495,477 36,495,477

Treasury stock 128,504 128,504 128,504

Weighted average of shares

in circulation 36,366,973 34,708,060 34,708,060

Earnings per share in EUR

– undiluted – 0.54 0.27 –0.05

Earnings per share in EUR

– fully diluted – 0.50 0.26 –0.05

The convertible profit-sharing rights and the issued share options were included in the

calculation of the fully diluted earnings.

The following instruments could have a significant diluting effect in future:

Conversion of the convertible profit-sharing certificates to shares with a volume of up to

10,000,000 shares (Conditional capital I), exercise of the share options with a volume of up

to 1,200,000 shares (Conditional capital II) and two authorized capital amounts, each with

a volume of 7,500,000 shares (Authorized capital I and II).

64 Annual report 2006 VBH Holding AG


(13) Reconciliation to the net income for the year

TEUR 2006 2006

Group net income for the year 22,220 9,824

Profit/loss carry forward from previous year 2,599 3,415

Transfer to legal reserves –32 –31

Transfer to reserves for treasury stock –434 0

Transfer to other earnings reserves –7,365 –13,048

Withdrawal from legal reserves 3 0

Withdrawal from other earnings reserves 431 0

Minority shares in the carry forward –1,519 –1,085

Minority shares in the net income for the year –2,449 –2,213

Initial consolidation shares 0 –77

Currency difference –1 –3

Group retained earnings/losses 13,453 –3,218

The transfer to the other earnings reserves is mainly the result of transferring VBH

Holding AG’s net income for the year of TEUR 4,000 to the earnings reserves,as well as

reinvestments for strengthening capital in Western and Eastern Europe.

V Notes to the Consolidated Balance Sheet

Long-term assets

(1) Intangible assets

The intangible assets include licences, industrial property rights and similar rights as well

as goodwill.

Licences, industrial property rights and similar rights are depreciated over their expected

economic life, which is three years on average.

To comply with the regulations of IFRS 3, in connection with IAS 36, and to determine any

impairments of goodwill, VBH AG has defined its cash-generating units in accordance

with internal reporting.

To examine the intrinsic value in accordance with IAS 36, an impairment test in accordance

with IAS 36 was performed. In addition, goodwill is examined at least once

annually, should there be facts or reasons indicating a reduction in the book values.

The development of intangible assets is shown in the schedule of assets.

The addition is mainly the result of the initial consolidation of the companies in

Peking, Singapore and Dubai.

(2) Tangible fixed assets

The development of tangible fixed assets is shown in the schedule of assets.

(3) Financial assets

Please see the schedule of assets, for the development of financial assets. The shares in

group companies shown are not consolidated in these consolidated financial statements.

Major changes: The shares in SEG–Tortec GmbH and C.D.A. dell'Adriatico are presented as

disposals, those in the companies in Singapore, Peking and Dubai as acquisitions.

65


Consolidated Financial Statements

Development of the consolidated fixed assets of VBH Holding AG,

Korntal-Münchingen, in the 2006 financial year

in TEUR

I. Intangible assets

Acquisition and Manufacturing costs

1 January Currency- Change in Additions Disposals Reclassi- 31 December

2006 deviations consolidated fication 2006

companies

1. Licenses, industrial property

and similar rights 6,707 –1 68 452 375 0 6,851

2. Goodwill from single companies 7,295 0 0 0 0 0 7,295

3. Goodwill from

full consolidation 53,139 0 0 5,694 275 0 58,558

4. Down payment made 0 0 0 40 0 0 40

II. Tangible assets

67,141 –1 68 6,186 650 0 72,744

1. Real estate, leasehold rights

and buildings including

construction on non-owmed

real estate 39,974 70 –4 882 2,180 1,233 39,975

2. Other fixed assets, operating

and business equipment 34,018 16 –612 3,661 4,837 35 32,281

3. Advances paid and assets

under construction 2,604 –8 0 645 255 –1,268 1,718

III. Financial assets

76,596 78 –616 5,188 7,272 0 73,974

1. Interests in affiliated

companies 3,604 5 1,532 97 4,598 –134 506

2. Participations 88 –1 0 0 0 134 221

3,692 4 1,532 97 4,598 0 727

Total 147,429 81 984 11,471 12,520 0 147,445

66 Annual report 2006 VBH Holding AG


Depreciation

Book value

1 January Currency Change in Additions/ Disposals Reclassi- 31 December 1 January 31 December

2006 deviations consolidated (Z) fication 2006 2006 2006

companies write-ups

5,830 1 25 580 366 0 6,070 877 781

3,071 0 0 0 0 0 3,071 4,224 4,224

28,975 0 0 3,000 4 0 31,971 24,164 26,587

0 0 0 0 0 0 0 0 40

37,876 1 25 3,580 370 0 41,112 29,265 31,632

16,777 27 11 1,283 604 –7 17,441 23,197 22,534

Z – 46

26,077 40 –453 2,840 4,453 7 24,058 7,941 8,223

0 0 0 0 0 0 0 2,604 1,718

42,854 67 –442 4,123 5,057 0 41,499 33,742 32,475

Z – 46

2,222 3 282 42 2,174 0 375 1,382 131

6 0 0 33 0 0 39 82 182

2,228 3 282 75 2,174 0 414 1,464 313

82,958 71 -135 7,778 7,601 0 83,025 64,471 64,420

Z – 46

67


Consolidated Financial Statements

(4) Long-term receivables and other long-term assets

Long-term receivables and other assets are comprised as follows:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Long-term receivables 0 28

Other long-term assets 4,828 2,735

Deferred tax claims 3,422 4,765

Prepaid expenses 0 10

Long-term receivables and assets 8,250 7,538

In the year under review,aloss compensation volume of TEUR 4,710 (TEUR 8,146) was

capitalized, at a tax rate of 30.0%, in accordance with the draft bill. In accordance with the

business planning of the specific group company,the loss compensation volume will be

utilized within five years (see also Notes to the profit and loss statement (10)).

It is expected that it will only be possible to utilize the remaining tax loss carryforward of

EUR 61.2 million gradually after a period of five years.

(5) Total long-term assets

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Fixed assets 64,420 64,471

Long-term receivables and assets 8,250 7,538

Total long-term assets 72,670 72,009

(6) Inventory assets

Inventory assets are comprised as follows:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Raw material and supplies 66 51

Work in progress 0 2,227

Goods and finished products 112,603 92,919

Advances paid 1,979 1,464

Inventories 114,648 96,661

Stocks are divided by segment as follows:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Germany 37,889 30,232

Western Europe 32,470 31,155

Eastern Europe 43,490 31,900

Other markets 1,245 0

Consolidation –446 –368

Group 114,648 92,919

68 Annual report 2006 VBH Holding AG


(7) Short-term receivables and other short-term assets

The portfolio comprises the following:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Trade receivables 108,117 99,823

Receivables from group companies 6,233 6,982

Receivables from participations 156 41

Other assets 22,635 18,880

Receivables and other assets 137,140 125,726

Securities 240 208

Liquid funds/ cash 9,326 9,875

End-of-year adjustments 610 734

Short-term receivables and assets 147,317 136,543

Short-term trade receivables from third parties:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Germany 32,483 29,348

Western Europe 48,074 48,983

Eastern Europe 26,925 21,491

Other markets 635 0

Group 108,117 99,822

The decisive factor in the creation of short-term assets was the increase in receivables

brought about by the expansion of business activities.

(8) Equity

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Subscribed capital 36,495 36,495

Capital reserves 6,463 5,581

Legal reserves 2,011 1,980

Other consolidated reserves 4,706 1,007

Retained earnings 13,453 –3,218

Shares held by other shareholders 9,371 8,316

Treasury stock –784 –350

Equity 71,715 49,812

The other consolidated reserves are structured as follows in the year under review:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Balancing item consolidation –29,344 –25,438

Reserves for conversion to IFRS –352 –351

Currency translation 397 262

Other earnings reserves 34,005 26,534

Total other consolidated reserves 4,706 1,007

69


Consolidated Financial Statements

The subscribed capital amounts to EUR 36,495,447.It is divided into 36,495,447 shares

(no-par shares). The shares are made out to the bearer.

The Board of Management is authorized to increase the equity capital of the Company

once or several times – with the agreement of the Supervisory Board – in the period until

24 May 2009,to a total of EUR 7,500,000, through the issue of new ordinary no-par voting

shares (no-par shares) (Authorised capital I). The capital can be increased against cash

and/or non-cash contributions.

The Board of Management is also authorized to increase the equity capital of the Company

once or several times – with the agreement of the Supervisory Board – in the period

until 24 May 2009,to a total of EUR 7,500,000 through the issue of new ordinary no-par

voting shares (no-par shares) (Authorised capital II). The capital can be increased against

cash and/or non-cash contributions.

The Board of Management is additionally authorized – with the agreement of the Supervisory

Board – to exclude the legal subscription right of the shareholders in respect of

three cases. The equity capital of the company is conditionally increased (Conditional

capital I) by EUR 10,000,000 through the issue of up to 10,000,000 new ordinary no-par

voting shares (no-par shares). The conditional capital increase is only executed if the

holders of the convertible profit-sharing certificates, issued by the Company on the basis

of the resolution of the Annual General Meeting of 24 May 2004, avail themselves of their

conversion privileges and if no treasury stock is made available to service these privileges.

The new shares participate in profits from the beginning of the financial year in

which they are created through the exercise of conversion privileges. The Board of Management

is authorized – with the agreement of the Supervisory Board – to determine all

further details involved in the execution of the conditional capital increase.

The equity capital of the Company is conditionally increased (Conditional capital II) by

EUR 1,200,000 through the issue of up to 1,200,000 ordinary no-par shares (no-par shares).

The conditional capital increase is exclusively used to fulfil option rights granted from

24 May 2004 to 24 May 2009,on the basis of the authorization by the Annual General

Meeting. The conditional capital increase is only executed if the holders of the option

rights issued avail themselves of their right to subscribe to no-par shares of the Company

and the Company does not release treasury stock for the purpose of fulfilling these

option rights. The new no-par shares participate in profits from the beginning of the

financial year in which the shares are issued.

VBH Holding AG holds 128,504 own shares. These were valued at EUR 6.10 at the closing

rate of the Frankfurt Stock Exchange at the year end.

Long-term liabilities

(9) Provisions for pensions and other provisions

The actuarial appraisals of February 2007 conducted by Klaus-Dieter Rauser AG,Reutlingen,

were drawn up in accordance with IAS 19.The valuation is based on the following

calculation parameters in accordance with the »projected unit credit« method: interest

rate for accounting purposes (4.5%), dynamics of attributable remuneration (2.0%),

income threshold in the statutory pension insurance fund (2.0%), adjustment of current

pensions (1.0%). The actuarial assumptions reflect the fair value of means of payment

(assumed interest rate) and the likelihood of the maturity of payments (assumptions

about mortality,fluctuation and early retirement etc.). Furthermore, these were based on

information provided by Heubeck-Richttafeln GmbH, Table 2005 G.

The remaining other reserves of TEUR 3,400 are mainly due to long-term legal requirements

from staff contracts in Italy and to product liability.

70 Annual report 2006 VBH Holding AG


1 January Currency Usage Dissolution Allocation Status

in TEUR 2006 exchange and as per

other changes 31 Dec 2006

Pension provisions and

similar obligations 11,191 0 377 0 983 11,797

Provisions for deferred taxation 107 0 3 69 347 382

Provisions for product liability 851 0 0 0 200 1,051

Remainig other provisions 2,757 –102 104 636 434 2,349

Long-term provision 14,906 –102 484 705 1,964 15,579

(10) Financial liabilities

Other long-term liabilities are mainly due to purchase price liabilities from company

acquisitions.

31.12.2006 31.12.2005

TEUR

TEUR

Long-term amounts due to banks 11,883 11,669

Loans/convertible profit-sharing privileges 50,000 50,000

Long-term financial liabilities 61,883 61,669

In the context of the capital model in 2004, EUR 50 million worth of liabilities vis-à-vis

banks were transferred to variable interest convertible profit-sharing privileges. The

conditions attaching to the convertible profit-sharing privileges and their return can be

viewed at any time at www.vbh.de.

Short-term liabilities

(11) Short-term provisions

1 January Currency Usage Dissolution Allocation Status

in TEUR 2006 exchange and as per

other changes 31 Dec 2006

Provisions for taxation 2,231 45 2,020 227 3,339 3,368

Provisions for product liability 365 0 8 65 136 428

Provisions for bonus payments 728 21 657 78 1,041 1,055

Provisions for imminent losses 1,587 0 814 902 650 521

Remaining Other provisions 5,311 –21 3,078 1,063 5,146 6,295

Other provisions 7,991 0 4,557 2,108 6,973 8,299

Short-term provisions 10,222 45 6,577 2,335 10,312 11,667

Accrued liabilities were reclassified to other liabilities.

71


Consolidated Financial Statements

(12) Liabilities vis-à-vis financial institutions

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Liabilities vis-à-vis financial institutions 85,935 83,335

The major part of financing VBH Holding AG and its German subsidiaries is regulated in

agreements with the following banks: BW-Bank Stuttgart, Volksbank in Stuttgart AG,

Deutsche Bank AG,Stuttgart, Kreissparkasse Böblingen and Kreissparkasse Ludwigsburg,

IKB, Deutsche Industriebank AG.Asyndicate loan agreement encompassing a total credit

line of EUR 100 million, with a tern of five years, was signed on 19 March 2007.

(13) Short-term trade payables and other liabilities

Trade payables comprise open obligations from goods and services as well as ongoing

costs.

The Board of Management assumes that the book value of trade payables is approximately

equivalent to their fair value.

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Trade payables 58,175 51,458

Payables to group companies 0 103

Advance payments received 786 1,937

Total trade payables 58,961 53,498

Other liabilities (*) 27,737 22,638

Deferred income 77 13

Short-term liabilities 86,776 76,149

The increase in liabilities is the result of expansion of business activities within the Group.

(*) including liabilities in respect of income taxes /reclassification of the previous year

The other short-term payables are structured as follows in the year under review:

31 Dec 2006 31 Dec 2005

TEUR

TEUR

Accrued liabilities (*) 8,013 5,998

Tax liabilities 6,433 5,693

Wage and salary liabilities 1,103 5,001

Social security liabilities 944 1,808

Debtors with a credit balance 2,836 1,792

Other liabilities 8,408 8,344

Other short-term liabilities 27,737 22,638

(*) accrued liabilities were reclassified from the other provisions.

72 Annual report 2006 VBH Holding AG


(14) Obligations from finance leasing

Important finance leases exist,within the Group, for storage and office buildings used by

VBH in Cologne and Savona, Italy.

The total investments amount to TEUR 4,447.The property book value is TEUR 1,069

(TEUR 1,069), while the book value of the buildings is TEUR 1,679 (TEUR 1,341). The fair

value of the Group’s lease obligations is approximately equivalent to its book value.

The residual obligation in respect of the object is TEUR 1,981 (TEUR 1,727) at the end of

the year under review.The lease instalments amount to TEUR 308 p.a., which contained

interest of TEUR 165 (TEUR 161) in the year under review.

The Group’s obligations from finance lease relationships are secured through a retention

of title of the lessor on the leased assets.

The lease payments are included in the other financial obligations from tenancy agreements.

VI Cash Flow Statement

Cash and cash equivalents exclusively comprise those types of cash that are shown in the

balance sheet. The cash flow statement shows the Group’s payment flows by inflows and

outflows from current business activities, investment activities and financing activities.

VII Other Financial Obligations

There were other financial obligations on the balance sheet key date, especially in respect

of tenancy and lease agreements for buildings, properties, machines, tools, offices and

other furnishings, which are classified as »operating lease« in accordance with IAS 17.

The total future payments from tenured agreements consist of the following,ordered by

maturity:

Other financial obligations

in TEUR

Obligations from tenancy agreements

due in 2007 6,957

thereof vis-à-vis group companies 0

due 2008 to 2012 13,964

therof vis-à-vis group companies 0

due after 2012 (annually) 1,070

21,991

Obligations from leases

due 2007 2,195

thereof vis-à-vis group companies 0

due 2008 to 2012 1,977

thereof vis-à-vis group companies 0

due after 2012 (annually) 8

thereof vis-à-vis group companies 0

4,180

73


Consolidated Financial Statements

(1) Contingencies

Contingencies are shown at the level of the amounts utilized or are equivalent to the

nominal value of the obligations.

Contingencies

in TEUR

Liabilities from the issue and transfer of bills of exchange 391

thereof vis-à-vis group companies 0

Liabilities from guarantees, bills of exchange and check guarantees 2,284

thereof vis-à-vis group companies 88

Liabilities from warranties 385

thereof vis-à-vis group companies 0

Contingency from the placement of collateral for external payables 736

thereof vis-à-vis group companies 0

Contingencies 3,796

Land charges 31,815

(2) Collateral

VBH Holding AG,VBH Deutschland GmbH and esco Metallbausysteme GmbH have

concluded agreements with credit-granting domestic banks, in which a pledging of the

shares of important group companies, the assignment of all receivables and claims from

shareholder loans as well as the assignment as security of all inventories and the

assignment of land charges are agreed to the benefit of the banks involved.

XII Corporate bodies of the company

In the 2006 financial year the following persons held a Board of Management position:

Mr Jürgen Kassel, businessman, Waiblingen,

Additional mandates:

JOWAT AG,Detmold (Member of the Supervisory Board)

Within the group:

AS Lokman, Tallin, Estonia (Member of the Supervisory Board)

VBH Budapest Kft., Budapest, Hungary (Member of the Supervisory Board)

VBH International nv,Oosterhout, Netherlands (Member of the Supervisory Board)

VBH Middle East FZCO, Dubai, U.A.E (Board of Directors)

Beijing VBH Construction Hardware Co.Ld., Beijing, China (Board of Directors)

VBH Hellas S.A., Thessaloniki, Greece (Board of Directors)

74 Annual report 2006 VBH Holding AG


Mr Rainer Hribar – graduate engineer (Swiss Fed. Inst. of Technology),

Tägerwilen/Switzerland.

Additional mandates:

GU Bodensee AG,Tägerwilen, Switzerland (Chairperson)

Leicom AG,Winterthur,Switzerland (Member of the Supervisory Board)

Within the Group:

AS Lokman, Tallin, Estonia (Member of the Supervisory Board)

VBH Middle East FZCO, Dubai, U.A.E (Board of Directors)

Beijing VBH Construction Hardware Co.Ld., Beijing, China (Board of Directors)

VBH Hellas S.A., Thessaloniki, Greece (Board of Directors)

The company is either represented by two members of the Board of Management jointly

or by one member of the Board of Management together with a person holding general

power of attorney.

The exemptions from the restrictions of Section 181 of the German Civil Code were

granted.

In the 2006 financial year,the following were members of the Supervisory Board:

Prof.Dr. Brun-Hagen Hennerkes, Lawyer

Stuttgart - Chairperson

Additional Supervisory Board mandates:

UZIN Utz AG,Ulm - Chairperson

JOWAT AG,Detmold - Chairperson

Bauerfeind AG,Zeulenroda - Chairperson

Berentzen AG,Haselünne - Member

equinet AG,Frankfurt/Main - Member until 30 November 2006

Mr Jürgen Bockstette – Graduate engineer,corporate consultant,

Cologne - Deputy Chairperson from 14 November 2006

No further mandates

Mr Jochen-Michael Fussner - Clerk

Gernsbach - Employee representative

No further mandates

Herr Klaus Meichner - Business economist

Donaustauf – Employee representative

No further mandates

Dr.rer.pol. Ralph Mühleck – Businessman - Managing Director

Rheinau - Member

No further mandates

Mr Oliver Voerster - Managing Director

Stuttgart – Member from 31 January 2007

No further mandates

Dr.rer.pol. Christoph Weiß – businessman - Deputy Chairperson until 26 July 2006

Bad Boll

Bauerfeind AG,Zeulenroda – Member until 30 June 2006

Four Supervisory Board meetings were held in the year under review.

75


Consolidated Financial Statements

(1) Shareholdings and share options of members of the corporate bodies

The members of the corporate bodies hold the following shares and rights to shares of

VBH Holding AG.

Shareholding

Options

Member of the corporate body as per 31 Dec 2006 as per 31 Dec 2006

1. Board of Management

Rainer Hribar 236,684 300,000

Jürgen Kassel 221,372 300,000

2. Supervisory Board 79 0

(2) Remuneration of the corporate bodies

The remuneration for the Board of Management in the year under review totalled a fixed

amount of TEUR 250 and a variable amount of TEUR 430 for Mr Jürgen Kassel and a fixed

amount of TEUR 250 and a variable amount of TEUR 430 for Mr Rainer Hribar.In addition,

benefits in kind of TEUR 4 were granted to Mr Kassel and TEUR 62 to Mr Hribar.Furthermore,

in accordance with IFRS, the Group has pension obligations towards the members

of the Board of Management amounting to TEUR 839.The provisions in the year under

review totalled TEUR 46.

Expenditure in respect of the Supervisory Board amounted to TEUR 39.Details are not

itemized.

Provisions of TEUR 5,567 have been made within the Group for pension obligations

towards previous members of the Board of Management/management and their

dependants.

Remuneration for former members of the Board of Management and their dependants

totalled TEUR 625 within the Group.

600,000 share options were divided equally between the Board of Management

members.

In the course of 2006, the share price of the VBH share developed better than anticipated,

with an upward tendency, and exceeded the reference index of the SDAX (performance

goal) set out in the share option plan in relation to the issue date of the options.

According to current estimations and given a further positive development, we therefore

expect a first tranche to be exercised in the first part of 2007.The previous estimation of

the Board of Management is therefore corrected by the dynamic price development. The

monetary value of the share options was based on an actuarial appraisal.

This fair value of the options amounts to EUR 0.84. The total value of the options issued to

the Board of Management was TEUR 504. The conditions attaching to share options are

included in the management report and were determined as per the resolution of the

Annual General Meeting of 24 May 2004. They can also be found on the Company’s Website

under the invitation to the Annual General Meeting in respect of the 2003 financial

year.

IX Information on relationships to affiliated persons

In accordance with IAS 24, persons or companies are considered affiliated if they can be

influenced by the reporting company or if they can exert an influence on the company.

Business transactions between companies and their subsidiaries, which are affiliated

persons, relate to occasions on which members of the Supervisory Board acted as consultants

to the respective company.The remuneration for these services corresponds to the

standard market-based remuneration, was approved by the Supervisory Board and

amounted to TEUR 71 for the 2006 financial year.

76 Annual report 2006 VBH Holding AG


Additional relationships with participations outside the consolidation group are settled

by means of the «cost-plus» method.

X Auditor’s fees

The following fees (total compensation plus expenses excluding preliminary tax) were incurred

in respect of the auditors, in accordance with Section 318 of the German Commercial

Code (including group companies in accordance with Section 271 subsection 2 of the

German Commercial Code) in the 2006 financial year: audit of the annual accounts

TEUR 262, other certification or valuation services TEUR 0, tax consultancy services

TEUR 33, other consultancy services TEUR 59.

XI Employees

An average of 2,175 staff were employed within the Group throughout the year. These are

divided by segment as follows:

2006 2005

Germany 901 980

Western Europe 436 437

Eastern Europe 777 722

Other markets 44

Corporate Services 17 14

Group 2,175 2,153

These figures include 53 Managing Directors and 32 trainees and apprentices.

XII Corporate Governance Code

The Board of Management and Supervisory Board of the Company will provide the

Declaration of Compliance required in accordance with Section 161 of the German Stock

Corporation Law on 30 March 2007 and make it accessible to its shareholders. Any

deviations from the German Corporate Governance Code have been documented

accordingly.

XIII Important events after the balance sheet date

Events after the balance sheet date which do not result in an adjustment are stated in

the notes if they are significant.

XIV Shareholdings of VBH Holding AG,Stuttgart,

as per 31 December 2006

Information on the shareholdings is provided in a separate schedule submitted to the

Stuttgart Commercial Register under HRB 203096. The business esco Metallbausysteme

GmbH based in Ditzingen, which is included in the consolidated financial statements,

avails itself of the exemption in accordance with Section 264, 3 of the German Commercial

Code.

XV Approval of the consolidated financial statements in

accordance with IAS 10.17

The Board of Management will submit these consolidated financial statements to the

Supervisory Board for approval on 30 March 2007 and then release them for publication.

77


Consolidated Financial Statements

XVI Profit distribution proposal

The Board of Management will recommend that the Supervisory Board submit the following

profit distribution proposal to the Annual General Meeting for approval on 13 June:

of the retained earnings of EUR 7,988,065.65 shown in the annual balance sheet of VBH

Holding AG,adistribution of a dividend of EUR 0.12 per share (WKN 760070) on the registered

equity capital of EUR 36,495,477 entitled to dividend is proposed.

Korntal-Münchingen, March 2007

VBH HOLDING AKTIENGESELLSCHAFT

– The Board of Management –

Jürgen Kassel Rainer Hribar

78 Annual report 2006 VBH Holding AG


Unqualified Auditor’s Report on Statutory Audits of

Consolidated Financial Statements Prepared Pursuant to

Article 315a HGB

Auditor’s Report

We have audited the consolidated financial statements prepared by VBH Holding Aktiengesellschaft, Korntal-Münchingen,

comprising the balance sheet, the income statement,statement of changes in equity,cash

flow statement and the notes to the consolidated financial statements, together with the group management

report for the business year from january 1 to december 31, 2006. The preparation of the consolidated

financial statements and the group management report in accordance with IFRSs as adopted by the EU,

and the additional requirements of German commercial law pursuant to article 315a paragraph 1 HGB are

the responsibility of the parent company’s management. Our responsibility is to express an opinion on the

consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with article 317 HGB and

German generally accepted standards for the audit of financial statements promulgated by the Institute of

Public Auditors in Germany (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 results of

operations in the consolidated financial statements in accordance with the applicable financial reporting

framework and in the group management report are detected with reasonable assurance. Knowledge of

the business activities and the economic and legal environment of the Group and expectations as to

possible misstatements are taken into account in the determination of audit procedures. The effectiveness

of the accounting-related internal control system and the evidence supporting the disclosures in the

consolidated financial statements and the group management report are examined primarily on a test

basis within the framework of the audit. The audit includes assessing the annual financial statements of

those entities included in consolidation, the determination of entities to be included in consolidation, the

accounting and consolidation principles used and significant estimates made by management, as well as

evaluating the overall presentation of the consolidated financial statements 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,based on the findings of our audit, the consolidated financial statements comply with IFRSs

as adopted by the EU, the additional requirements of German commercial law pursuant to article 315a

paragraph 1 HGB and give a true and fair view of the net assets, financial position and results of operations

of the Group in accordance with these requirements. The group management report is consistent with the

consolidated financial statements and as a whole provides a suitable view of the Group’s position and

suitably presents the opportunities and risks of future development.

Signed in Nürnberg on March 28, 2007

Roedl & Partner GmbH

Wirtschaftsprüfungsgesellschaft

Steuerberatungsgesellschaft

Dr.Roedl

Wirtschaftsprüfer

(German Public Auditor)

Morgenroth

Wirtschaftsprüfer

(German Public Auditor)

79


VBH Holding Aktiengesellschaft, Korntal-Münchingen

Statement of Investments in affiliated Companies according to § 313 HGB (German Commercial Code)

consolidated group report 2006

position name of the company location country ownership capital in

% (*)

CONSOLIDATED GROUP COMPANIES

domestic

1 VBH Deutschland GmbH Korntal-Münchingen Germany 100,00%

2 esco Metallbausysteme GmbH Ditzingen Germany 100,00%

3 Gedalia Grundstücksverwaltungsges. mbh & Co Mainz Germany 100,00%

abroad

4 VBH Belgium nv Beringen Belgium 100,00%

5 VBH Dems d.o.o. Sarajevo Bosnia 95,00%

6 VBH, Vereinigter Baubeschlag-Handel, s.r.o. Prag Czech Republic 95,00%

7 VBH - Malum S.L. Gava Spain 65,00%

8 AS Lokman Tallinn Estonia 100,00%

9 Wagner GB Ltd. Gillingham Great Britain 100,00%

10 LG Fasteners Ltd.(indirectly through Wagner GB Ltd.) Swansea Great Britain 100,00%

11 VBH Hellas S.A. Thessaloniki Greece 100,00%

12 VBH Budapest KFT Budapest Hungaria 100,00%

13 VBH Italia S.r.l. Bozen Italy 50,00%

14 SOGED Holding S.p.a. Bologna Italy 100,00%

15 Ferramenta Lombarda S.r.l.(indirectly through SOGED Holding S.p.a.) Brescia Italy 65,00%

16 C.D.A. Bologna S.r.l.(indirectly through SOGED Holding S.p.a.) Bologna Italy 100,00%

17 C.D.A. Nord Emilia S.r.l.(indirectly through SOGED Holding S.p.a.) Parma Italy 71,00%

18 C.D.A. Forli S.r.l.(indirectly through SOGED Holding S.p.a.) Forli Italy 76,00%

19 C.D.A. Liguria S.r.l.(indirectly through SOGED Holding S.p.a. und C.D.A. Varesina S.p.a) Savona Italy 70,00%

20 C.D.A. Firenze S.r.l.(indirectly through SOGED Holding S.p.a.) Capalle Campi Bisenzio Italy 50,00%

21 C.D.A. Perugia S.r.l.(indirectly through SOGED Holding S.p.a.) S.Sisto - Perugia Italy 60,00%

22 C.D.A. Varesina S.p.a.(indirectly through SOGED Holding S.p.a.) Azzate Italy 50,00%

23 C.D.A. Brescia S.r.l.(indirectly through SOGED Holding S.p.a.) Rodengo Saiano Italy 68,00%

24 C.D.A. Viterbo S.r.l.(indirectly through C.D.A. Perugia s.r.l.) Viterbo Italy 55,00%

25 C.D.A. Arrezzo S.r.l.(indirectly through C.D.A. Firenze s.r.l.,C.D.A. Perugia s.r.l ) Arrezzo Italy 65,00%

26 C.D.A. Ambrosiana S.r.l.(indirekt C.D.A. Varesina S.p.a) Segrate Italy 51,00%

27 UAB VBH Vilnius Vilnius Lithuania 100,00%

28 VBH International nv Oosterhout Netherlands 100,00%

29 H. van Nelfen Bouwbeslag B.V. Oosterhout Netherlands 100,00%

30 VBH Polska Sp.z.o.o. Warschau Poland 93,34%

31 esco Polska Sp.z.o.o.(indirectly through esco Metallbausysteme GmbH) Warschau Poland 90,00%

32 S.C. VBH Romcom SRL Tirgu Mures Romania 100,00%

33 VBH OOO ( St. Petersburg ) St. Petersburg Russia 95,00%

34 VBH SIB OOO Omsk Russia 95,00%

35 VBH OOO ( Novosibirsk ) Novosibirsk Russia 95,00%

36 VBH ZP (indirectly through VBH Polska Sp.z.o.o.) Minsk Belarus 100,00%

37 VBH BEL Minsk Belarus 100,00%

38 TOO VBH Almaty Kazakhstan 60,00%

39 VBH West (Aktobe) (indirectly through TOO VBH) Aktobe Kazakhstan 100,00%

40 VBH Trgovina d.o.o. Skofia Loka Slovenia 100,00%

41 Ofir Ltd. Browary Ukraine 51,00%

42 VBH Ofir DP (Dnepropetrowsk(indirectly through Ofir Ltd.)) Dnepopetrowsk Ukraine 100,00%

43 VBH Ofir DP (Odessa(indirectly through Ofir Ltd.)) Odessa Ukraine 100,00%

44 VBH Ofir DP (Lwow(indirectly through Ofir Ltd.)) Lwow Ukraine 100,00%

45 VBH Ofir DP (Makeewka(indirectly through Ofir Ltd.)) Makeewka Ukraine 100,00%

46 VBH Ofir DP (Kharkow(indirectly through Ofir Ltd.)) Kharkow Ukraine 100,00%

47 VBH Ofir DP (Simferopol(indirectly through Ofir Ltd.)) Simferopol Ukraine 100,00%

48 VBH-OFIR OOO (Kischinau(indirectly through Ofir Ltd.)) Kischinau Moldavia 80,00%

49 VBH-OFIR DP (Vinnitsa(indirectly through Ofir Ltd.)) Vinnitsa Ukraine 100,00%

50 EVG Bauprofil-System Entwicklungs- u.Vermarktungs GmbH (indirectly through esco Metallbausysteme GmbH ) Eugendorf A ustria 100,00%

51 VBH Latvia Ltd. Riga Latvia 90,00%

52 VBH Naisus d.o.o. Donje Medjurovo, Nis Serbia 95,00%

53 VBH Singapore Pte.Ltd. Singapur Sinagpore 100,00%

54 VBH Middle East FZCO Dubai United Arab Emirates 100,00%

55 V.B.H. Trading (L.L.C.) (indirectly through VBH Middle East FZCO) Dubai United Arab Emirates 100,00%

56 Beijing VBH Construction Hardware Co.Ltd Peking People's Republic of China 70,00%

NON CONSOLIDATED GROUP COMPANIES

domestic

57 VKH GmbH & Co.KG i.K. Braunsbedra Germany 23,80%

58 VKH Verwaltungs GmbH i.K. Braunsbedra Germany 49,00%

59 VKH Betriebs GmbH i.K. Braunsbedra Germany 50,00%

abroad

60 VBH Australia PTY. Ltd. Seaford Australia 100,00%

61 Logic S.r.l (indirectly through SOGED Holding S.p.a.) i.L. Ancona Italy 24,00%

62 Giuliafer S.r.l.(indirectly through SOGED Holding S.p.a.) / Fogliano Redipuglia Italy 100,00%

63 Greenblack S.r.l.(indirectly through SOGED Holding S.p.a.) i.L. / Bologna Italy 65,00%

64 C.D.A.Cagliari S.r.l.(indirectly through SOGED Holding S.p.a.) Cagliari Italy 10,00%

65 C.D.A. Dell' Adriatico S.r.l.(indirectly through SOGED Holding S.p.a.) Abschluss 2005 Ancona Italy 17,00%

66 VBH Torino S.r.l.(indirectly through VBH Italia s.r.l.) Tofarello Italy 60,00%

67 INROT (indirectly through VBH Polska Sp.z.o.o.) Poznan Poland 100,00%

68 VBH Rekta AO (indirectly through VBH OOO (St.Petersburg )) Moskau (Odintsovo) Russia 100,00%

69 Rodkomplektservice OOO (indirectly through VBH Rekta AO)) Moskau (Odintsovo) Russia 100,00%

70 VBH Voronezh OOO (indirectly through VBH OOO (St.Petersburg )) Voronezh Russia 100,00%

71 VBH Nizhnij Novgorod OOO (indirectly through VBH OOO (St.Petersburg )) Nizhnij Novgorod Russia 100,00%

72 VBH Rostov OOO (indirectly through VBH OOO (St.Petersburg )) Rostov Russia 100,00%

73 VBH Ufa OOO (indirectly through VBH OOO (St.Petersburg )) Ufa Russia 100,00%

74 VBH RTF OOO (indirectly through VBH OOO (St.Petersburg )) Kazan Russia 100,00%

75 VBH Samara OOO (indirectly through VBH OOO (St.Petersburg )) Samara Russia 100,00%

76 VBH Perm OOO (indirectly through VBH OOO (St.Petersburg )) Perm Russia 100,00%

77 VBH Murmansk OOO (indirectly through VBH OOO (St.Petersburg )) Murmansk Russia 100,00%

78 VBH Wolgograd OOO (indirectly through VBH OOO (St.Petersburg )) Wolgograd Russia 100,00%

79 VBH Pskov OOO (indirectly through VBH OOO (St.Petersburg )) Pskov Russia 100,00%

80 VBH Wologda OOO (indirectly through VBH OOO (St.Petersburg)) Wologda Russia 100,00%

81 VBH Surgut OOO (indirectly through VBH OOO (SIB)) Surgut Russia 100,00%

82 VBH Tjumen OOO (indirectly through VBH OOO (SIB)) Tjumen Russia 100,00%

83 VBH Jekaterinenburg OOO (indirectly through VBH OOO (SIB)) Jekaterinenburg Russia 100,00%

84 VBH Tscheljabinsk OOO (indirectly through VBH OOO(SIB)) Tscheljabinsk Russia 100,00%

85 VBH Omsk OOO (indirectly through VBH OOO (SIB)) Omsk Russia 100,00%

86 VBH Irkutsk OOO (indirectly through VBH OOO (Novosibirsk)) Irkutsk Russia 100,00%

87 VBH Krasnojarsk OOO (indirectly through VBH OOO (Novosibirsk)) Krasnojarsk Russia 100,00%

88 VBH Tomsk OOO (indirectly through VBH OOO (Novosibirsk)) Tomsk Russia 100,00%

89 VBH Slovakia s.r.o.(indirectly through VBH Polska Sp.z.o.o.) Bratislava Slovakia 100,00%

90 Shanghai HanWei Construction Hardware Co.Ltd. Shanghai People's Republic of China 33,30%

91 VBH Okovi d.o.o. (indirectly through VBH Trgovina d.o.o.) Lucko Crotatia 100,00%

92 VBH Bulgarien LTD. (indirectly through VBH Polska Sp.z.o.o.) Varna Bulgaria 100,00%

93 VBH Montenegro d.o.o. (indirectly through VBH Naisus d.o.o.) Podgorica Montenegro 100,00%

94 ESCO RUS OOO (indirectly through VBH Holding AG und esco Metallbausystem GmbH) Moskau Russia 100,00%

95 VBH Ofir DP (Odessa(indirectly through Ofir Ltd.)) Odessa Ukraine 100,00%

96 VBH HOLDING INDIA PRIVAT LIMITED Delhi India 100,00%

97 VBH (Thailand) Co., Ltd. Bangkok Thailand 100,00%

98 VBH Trading (M) Sdn Bhd Petaling Jaya Malaysia 100,00%

(*) Percentage of the respective mother company


VBH Holding AG

Balance Sheet

Profit and loss

statement


VBH Holding AG

Notes on VBH Holding AG

While the consolidated financial statements are drawn up in accordance with IFRS, the

annual financial statements of VBH Holding AG are presented in accordance with the

German Commercial Code. In some areas, the accounting and valuation rules in the individual

financial statements of VBH Holding AG differ from the consolidated financial

statements.

VBH Holding AG is a management holding and manages the vast majority of the domestic

and foreign businesses directly.It is responsible for corporate planning, strategy and

financing and controls the subsidiaries and sub-subsidiaries centrally.

The annual financial statements of 31 December 2006 and the management report of

VBH Holding AG were audited by Rödl & Partner GmbH Wirtschaftsprüfungs-gesellschaft,

Steuerberatungsgesellschaft, Nürnberg and were given an unqualified opinion.

A published version of VBH Holding AG’s financial statements can be downloaded from

www.vhb.de. The data on which the balance sheet and the profit and loss statement of

VBH Holding AG are based is presented below:

82 Annual report 2006 VBH Holding AG


Profit and loss statement

for VBH Holding Aktiengesellschaft, Korntal-Münchingen,

for the period between 1 January and 31 December 2006,

in accordance with the German Commercial Code

2006 2005

TEUR TEUR TEUR

1. Sales revenue 8,014.8 3,881.5

2. Other operational income 1,869.2 636.6

3. Total operating performance 9,884.0 4,518.2

4. Personnel expenditure –4,409.0 –2,878.5

of which for old-age pensions: TEUR 323.8

(prev.year: TEUR 373)

5. Depreciation of intangible fixed assets

and tangible assets –202.3 –201.9

6. Other operational expenditure –5,294.5 –4,802.9

7. Dividends from associated companies 10,124.1 9,380.2

of which from affiliated companies:

TEUR 10,124.1 (prev.year: TEUR 9,380)

8. Income from profit transfer agreement 6,125.6 3,336.5

9. Other interest and similar income 969.7 1,163.4

of which from affiliated companies:

TEUR 804.6 (prev.year: TEUR 776)

10. Depreciation of financial assets and

marketable securities 0.0 –378.4

11. Interest and similar expenditure –9,302.1 –7,667.6

of which to affiliated companies:

TEUR 0 (prev.year: TEUR 0)

7,917.3 5,834.1

12. Results from customary activities 7,895.5 2,469.0

13. Extraordinary results –500.0 –500.0

14. Taxes on income and earnings and other taxes 5,026.9 745.1

15. Annual net profit 12,422.4 2,714.1

16. Gewinnvortrag 0.0 10,286.8

17. Entnahme aus der Rücklage für eigene Anteile 0.0 48.8

18. Einstellung in Rücklagen für eigene Anteile –434.3 0.0

19. Einstellung in andere Gewinnrücklagen –4,000.0 –11,636.8

20. Bilanzgewinn 7,988.1 1,412.9

83


VBH Holding AG

Balance Sheet at 31 December 2006

VBH Holding AG,Korntal-Münchingen

Assets 31 Dec 2006 31 Dec 2005

TEUR TEUR TEUR

A. Fixed assets

I. Intangible assets

EDP software 229.3 100.5

II. Tangible assets

1. Real estate, leasehold rights and buildings

including construction on

non-owned real estate 938.2 2,252.6

2. Other fixed assets, operational and business equipment 37.8 29.3

976.0 2.281.9

III. Financial assets

1. Interests in affiliated companies 62,942.1 61,781.2

2. Participations 79.6 79.6

63,021.7 61,860.8

Total fixed assets 64,227.0 64,243.2

B. Current assets

I. Accounts receivable and other assets

1. Account Receivables (trade debtors) 0.0 1.8

2. Receivables from affiliated companies 130,702.1 122,591.0

3. Other assets 4,855.4 3,091.4

135,557.5 125,684.2

II.

Securities

1. Treasury stock 783.9 349.5

783.9 349.5

III. Cheques, cash on hand, credit balances at banks 446.7 1.5

Total current assets 136,788.1 126,035.2

C. Accruals and deferrals 102.6 24.7

Total 201,117.7 190,303.1

84 Annual report 2006 VBH Holding AG


Liabilities 31 Dec 2006 31 Dec 2005

TEUR TEUR TEUR

A. Shareholders Equity

I. Subscribed capital 36,495.4 36,495.4

II. Capital reserve 6,462.9 5,581.0

III. Revenue reserve

1. Legal reserve 1,406.8 1,406.8

2. Reserve for treasury stock 783.9 349.5

3. Other group reserves 26,549.7 21,136.8

28,740.4 22,893.1

IV. Accumulated profit 7,988.1 1,412.9

Total equity 79,686.8 66,382.4

B. Special items with reserve proportion as per § 6 b EStG 3,238.2 3,354.2

C. Accurued liabilities

1. Provisions for pensions and similar obligations 4,209.4 4,016.2

2. Provisions for taxation 22.6 321.9

3. Other provisions 6,193.5 3,728.8

Total accrued liabilities 10,425.5 8,066.9

D. Liabilities

1. Convertible loan issued 50,000.0 50,000.0

2. Liabilities 53,834.4 57,744.3

3. Liabilities from supplies and services 367.0 81.7

4. Other Liabilities 3,565.8 4,673.6

of which from taxes: TEUR 1,132.3 (prev.year: TEUR 2,111)

of which for social security:

TEUR 1.2 (prev.year: TEUR 24)

Total liabilities 107,767.2 112,499.6

Total 201,117.7 190,303.1

85


Glossary

Cash flow from current business activities

Represents a financial cash flow value and reflects the net cash from the operational business

of the period.

Cash flow from investment activities

Indicates the balance of cash that the company has deployed in acquiring or disposing of

financial and tangible assets.

Cash flow from financing activities

Provides information on the balance of cash flows deriving from inflows to and outflows

from financing activities.

Corporate Governance

Standard international term for responsible company management and control geared to

ensuring long-term business value.

EBITDA

Is the short form for earnings before interest, taxes, depreciation and amortization. It can

also be presented as a value adjusted for restructuring expenses to show the company’s

sustained operational profitability.

EBIT

Earnings before interest and taxes.

EBT

Earnings before taxes is equivalent to the net income for the year before taxes.

EAT

Earnings after taxes is equivalent to the net income for the year after taxes.

Earnings per share

The earnings per share results from the division of the period result due to the shareholders

of the company by the average number of shares that are outstanding in the same

period.

General Standard

The General Standard is one of the EU-regulated stock exchange segments and is the

segment with the minimum legal requirements of the Official Market or the Regulated

Market.

HGB

German Commercial Code

IAS

International Accounting Standards are designed to ensure international comparability in

financial reporting and disclosure.

86 Annual report 2006 VBH Holding AG


IFRS

International Financial Reporting Standards refer to the overall concept that has governed

international accounting standards since 2002 and thus also include IAS standards.

VBH converted to IRFS accounting for the first time on 1 January 2004.

Cash flow statement

The cash flow statement refers to the determination and presentation of cash flows that

a company has obtained or deployed in an accounting period during current, investment

or financing activities. These are reconciled with the liquid funds at the beginning and

end of the accounting period (see also cash flow).

Deferred taxes

Are time-dependent differences between taxes calculated on the basis of earnings shown

in the IRFS and tax balance sheet.

87


Dates 2007/2008

2007 General and Entry Standard Conference 3 May 2007

Annual General Meeting in

Haus der Wirtschaft,Stuttgart 13 June 2007

Interim report 2007 August 2007

German Equity Forum Autumn 2007

2008 Balance Sheet Press Conference April 2008

The documents requiring publication will be published in the Federal Gazette and the

e-Federal Gazette, and the published documents will be submitted to the Commercial

Register of the district court in Stuttgart (HRB 203096) within the timeframe stipulated by

Section 325 of the German Commercial Code.

Legal information

Publisher:

VBH Holding AG

Siemensstraße 38

D 70825 Korntal Münchingen

Telefon++49/ (in 0)71 50/15-200

Internet www.vbh.de

e-mail info@vbh.de

Setting and design: Rudolf Schrenk

Print W. Kohlhammer,Stuttgart


255

Share price development 2006

235

215

195

175

155

135

115

95

January 06 December 06

Index (01 Jan 2006 =100)

VBH share S-Dax DAX

Key figures for the VBH share

Figures according to German Commercial

Code (as reported) *

Figures according to IFRS **

2002 2003 2004 2005 2006

Dividend per share*** EUR 0.00 0.00 0.00 0.00 0.12

Taxcredit EUR 0.00 0.00 0.00 0.00 0.00

Earnings per share EUR –2.22 –1.07 0.17 0.26 0.50

Equity per share EUR –2.42 –5.23 –0.73 1.14 1.71

Stock exchange price at year end EUR 2.00 1.85 3.48 2.72 6.10

Highest stock exchange price EUR 8.00 3.25 5.00 3.44 7.45

Lowest stock exchangeprice EUR 2.00 1.20 1.50 2.19 2.70

Stock exchange value in MEUR 19.2 17.8 115.5 99.3 222.6

Distribution sum*** MEUR 0.0 0.0 0.0 0.0 4.4

Price-profit ratio –0.9 –1.7 20.5 10.5 12.2

Dividend return*** % 0.0 0.0 0.0 0.0 2.0

Number of shares Thousand 9.622 9.622 33.178 36.495 36.495

Nominal capital EUR 25.017.200 25.017.200 33.177.680 36.495.447 36.495.447

Group equity TEUR –19.226 –38.981 32.508 49.811 71.715

Shares heldbyexternal shareholders TEUR 6.369 6.791 8.126 8.316 9.371

*Key figures for German Commercial Code financial statements according to the recommendation of the

Schmalenbach working group

** Keyfigures from 2005 according to IFRS

*** Dividend proposal in 2006


Latvia VBH

Lithuania VBH

Poland

VBH

esco

Great Britain

Wagner

LG Fasteners

Germany

VBH

esco

Italy

VBH

CDA

Czechia VBH

Netherlands Van Nelfen

Belgium VBH Wyckmans

Austria EVG

Spain VBH Malum

Croatia VBH

Bosnia VBH

Serbia VBH

Montenegro VBH


®

Estonia Lokman

Belarus VBH

Slovenia VBH

Russia

VBH St. Petersburg

VBH Omsk

VBH Moscow

VBH Novosibirsk

Kazakhstan VBH

Ukraine Ofir

Moldova Ofir

Slovakia VBH

Hungary VBH

Romania VBH

Bulgaria VBH

Greece VBH

U.A.Emirates VBH

China VBH

India VBH

Shanghai VBH

Thailand VBH

Malaysia VBH

Singapore

VBH

esco

Australia VBH

March 2007


VBH Holding Aktiengesellschaft

Siemensstraße 38

D-70825 Korntal-Münchingen

Telefon 07150/15-2 00

Telefax 07150/15-3 31

Internet http://www.vbh.de

E-Mail info@vbh.de

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